The Key to Long-Term Success: The Income Component of Returns

19 Pages Posted: 21 Dec 2015

Date Written: October 1, 2012


During the last two decades of the twentieth century, the investing world saw declining dividend and bond yields, with prices generally moving higher for both equities and bonds over the period. In the early years of this century, investors seemed to belittle the importance of income as a component of returns, focusing primarily on the potential for capital gains. In 2004, the Brandes Institute published “Examining the Income Component of Total Returns,” which analyzed public market data as far back as 1926 to evaluate the impact income had on total returns. In the eight years since our original study, bond yields globally have continued to decline and equity dividend yields have moved above bond yields in a number of countries. In this update, we expand our original findings and focus on today’s investment environment.

To examine the impact of the division of income and capital appreciation returns, we analyze equity and fixed income series in the United States and the United Kingdom, as well as gold bullion (a non-income producing asset for comparison) over the 1926-2011 period (a span of 86 years).

Based on the updated data through 2011, the long-term data showed that income was a significant component of returns for financial assets for all long-term periods.

Our research found: • The income component of fixed income returns generally represented 9/10th of returns for periods as short as five years. • The income component of equity returns became larger than capital appreciation at a 10-year horizon, and then increasingly dominant as time horizons were extended. • U.K. financial assets demonstrated the same income return characteristics as their U.S. counterparts. • Gold’s long-term total returns fell far short of U.S. equities, but modestly exceeded those of U.S. bonds.

For U.S. dollar based investors, this income component analysis demonstrates a very clear choice between three distinct asset classes: • No income, all capital: Gold (100% of long-term return is capital) • Primarily income: bonds (over 95% of total return comes from income for rolling periods of 10 years or more) • Mixed: Equity (both income and capital contribute materially to long-term returns)

Keywords: income return, capital gain, dividend, bonds yield, fixed income, gold bullion, long-term

JEL Classification: G10, G11, G14, G15, G20, G22, G23, G30

Suggested Citation

Institute, Brandes, The Key to Long-Term Success: The Income Component of Returns (October 1, 2012). Brandes Institute Research Paper No. 2012-04, Available at SSRN: or

Brandes Institute (Contact Author)

Brandes Investment Partners ( email )

11988 El Camino Real, Suite 500
P.O. Box 919048
San Diego, CA 92191-9048
United States

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