The Dow Jones Industrial Average did not return -2.23% in 2015, although that is the number you see reported in the media. Adjusted for dividend reinvestment, the 2015 Dow Jones Industrial Average Return was actually +0.19% in 2015 – a narrow gain instead of a headline loss.
You Need to Factor In Dividend Reinvestment
As we pointed out in our similar article on the S&P 500’s 2015 return, it is unrealistic for media sources to report index only returns. Many stock holders will automatically reinvest any dividends they receive, whether through DRIP programs, brokerage settings, or mutual fund features – as far as I know, there are no investors who merely throw out all the dividend checks they get in the mail. (Feel free to provide a counterexample!).
That means that, yes, the most commonly quoted returns on the Dow Jones Industrial Average and other indices will be artificially low. It’s especially silly since S&P Dow Jones Indices, the publisher of the Dow Jones Industrial Average (and the S&P 500, at that) publishes a Dow Jones Total Return Index which accounts for dividends which are ‘immediately’ reinvested. Yes, an investor might face transaction fees, management costs, and timing concerns – not to mention taxes – depending on their account type and securities held. Regardless, this index is closer to the truth than pretending dividends don’t exist.
As luck has it, you’re in the right place for a Dow Jones reinvestment calculator, which has monthly resolution (and CPI adjustment if you want to try to account for changing price levels).
The 2015 Dow Jones Industrial Average Return: From a Loss to a Small Win
Marketwatch has some great charting features where you can use the Dow Jones Total Return Index. Side by side with the DJIA index itself, here’s how the two diverged in 2015:
And, as per tradition, here are the two indices in table format for your viewing pleasure:
|01/01/2015 Open||12/31/2015 Close||Annual Return|
|Dow Jones Industrial Average Total Return||35657.97||35726.03||0.19%|
|Dow Jones Industrial Average Index||17823.07||17425.03||-2.23%|
Once again, I hope this was an enlightening post, shining the spotlight on a very curious media habit. Turns out things really aren’t always what they seem in the financial media!
- Do you reinvest your dividends? Do you spend your checks or let them build in your accounts? Do you know anyone who throws that money away?
- What are your predictions for the Dow – or if you prefer, the dividend reinvested Dow – in 2016?