AUS
NZ
UK
CA
USA
IND
In the past year, certain ASX 200 shares have experienced significant fluctuations, with a few witnessing drops of over 75%. The S&P/ASX 200 Index (ASX:XJO) is presently showing an upward trajectory.
During early afternoon trading on Tuesday, the benchmark index, consisting of the 200 largest companies on the ASX based on float-adjusted market capitalization, saw an increase of 0.2%.
However, this still leaves the ASX 200 down by 1.1% compared to the same period last year.
Nonetheless, this doesn't negate the fact that some top-performing stocks have achieved substantial gains. For instance, Ramelius Resources Ltd (ASX: RMS) has witnessed an impressive 120% surge over the past 12 months.
Despite these standout success stories, the overall index has been dragged down by other stocks that have experienced notable declines. An example of this is The Star Entertainment Group Ltd (ASX: SGR), which has seen a 78% drop in value over the course of a year.
So, why has the ASX 200 faced this decline?
In the aftermath of the COVID-induced market upheaval, most listed Australian companies experienced a sharp upswing in value. From March 20, 2020, to February 3 of the current year, the ASX 200 saw an extraordinary 57% increase. However, since February 3, the benchmark index has undergone a 10% decrease.
This dip can be attributed to several factors, and similar trends have been observed in international exchanges.
One notable factor is the escalating geopolitical tensions worldwide. Additionally, persistent inflation in both Australia and many developed nations has posed challenges for ASX 200 investors. This includes concerns regarding potentially higher interest rates, with indications that rates are expected to remain elevated for an extended period in Australia, the United States, and Europe.
Furthermore, the economic slowdown in China, which is the second-largest global economy and a critical export market for Australian goods, has also had a significant impact on the benchmark index.
This leads us to a pivotal question: Why have 'average' investors still managed to secure gains?
Although the ASX 200 has seen a 1.1% decrease over the past year, an 'average' investor tracking the index should actually be enjoying gains of around 3.1%.
How is this possible?
The answer lies in dividends.
Many ASX 200 companies are well-known for distributing substantial dividends. Moreover, a significant number of these dividends are fully franked, which can enhance investors' actual returns come tax time.
To demonstrate the impact of dividends, consider the following:
The S&P/ASX 200 Gross Total Return Index (ASX:XJT), which incorporates all cash dividends reinvested on the ex-dividend date, has seen a 3.1% increase over the past year.
Furthermore, the further back in time you examine, the more the Total Return Index tends to outperform. This serves as a valuable reminder of the potential value that dividends can offer.
