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Highlights
ASX 200 Total Return Index (XJOA) reaches new record high while price-based XJO lags
Total return charts include dividends and reflect long-term performance more accurately
Broader benchmarks like the XAO and XAOA offer deeper insight into cumulative market gains
The Australian equities sector, represented by major indices such as the S&P/ASX 200 (XJO), the S&P/ASX 200 Total Return Index (XJOA), and the ASX All Ordinaries Today (XAO), showcased a critical yet largely unnoticed event. The XJOA reached a record peak, highlighting an upward trajectory in total returns across the nation’s top companies. This performance milestone occurred despite the broader XJO remaining below its past price-based highs.
Total Return Index Reveals Stronger Long-Term Trajectory
While the XJO remains the most cited benchmark, it reflects only price movements. The XJOA includes dividends, offering a fuller picture of actual growth across Australia's largest listed companies. For long-term charts, especially those examining performance across decades, total return indicators like the XJOA or its broader counterpart, the XAOA, better capture compound performance.
Price return indices do not account for dividends distributed by the companies in the index. This omission means charts based only on price could understate the cumulative benefit of share over time. On a total return basis, the index showed resilience and growth, climbing above earlier levels quietly.
Dividends Drive the Gap Between Price and Performance
The divergence between price-based and total return charts becomes clear when dividend income is accounted for. Total return benchmarks all distributions, allowing compounding to enhance returns. For example, a stock such as (ASX:CBA) (Commonwealth Bank of Australia) or (ASX:BHP) (BHP Group Limited), which consistently distribute dividends, contributes significantly more to total return indices than to price-based indices alone.
The broader market sentiment, as seen in the XAO and its total return variant XAOA, reflects a similar story. Stocks with strong dividend histories, such as (WES) (Wesfarmers Limited), (ASX:MQG) (Macquarie Group Limited), and (ASX:TLS) (Telstra Group Limited), offer continuous income flows, helping lift total return metrics during volatile price phases.
Media Focus Remains on Price Indices
Despite the significance of these record levels, coverage across mainstream outlets continues to spotlight the XJO, sidelining the XJOA and XAOA. This narrow focus means that important market dynamics, particularly those driven by income components, often go unnoticed. Broader understanding remains anchored in price movements, which can miss key performance attributes of dividend-yielding shares.
A more inclusive view of the market’s health should factor in distributions and compounding effects, especially for companies such as (ASX:CSL) (CSL Limited), (ASX;WOW) (Woolworths Group Limited), and (ASX:NAB)(National Australia Bank Limited), which maintain dividend consistency even during turbulent periods.
