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On June 3, 2025, the S&P/ASX 200 Index (XJO) finished at 8479.5, still below its peak of 8616 reached on February 14. However, amidst a turbulent few months where the index plunged to 7169 in early April—a significant correction of 16.8%—an important milestone was quietly achieved: the S&P/ASX 200 Total Return Index (XAOA) reached a new all-time high.
Interestingly, this significant achievement went largely unreported by mainstream financial media. Many reports focus solely on the XJO rather than the more comprehensive XAOA, which incorporates the dividends paid by companies into its calculations. This results in a clearer picture of overall investment performance.
The July 3 closing price for the XAOA was 112,434—a rise from its prior record of 111,936. While the XJO’s fluctuations tend to dominate the news, the total return index is essential for investors, especially those whose returns are influenced by dividends, such as superannuation funds. Ignoring dividends can substantially underestimate an investor’s true returns.
The Importance of Total Returns
A total return index, such as the XAOA, accounts for dividends reinvested, providing a more accurate reflection of investment performance. For illustration, if a stock starts at $10, ends at $11, and pays a 50-cent dividend, the price return alone suggests a 10% gain. However, when factoring in the dividend reinvestment, the true return is 15%. This dividend effect can significantly impact overall returns over time.
Examining XJO vs. XAOA
Visual comparisons reveal stark differences between the XJO and XAOA over the past two decades. When comparing their absolute prices, the XAOA’s much higher value reflects its accumulation of dividends since 2005. A more meaningful comparison logs the percentage changes of both indices, where the XAOA outperforms the XJO by over 260% due to the power of reinvesting dividends.
Stock-Level Analysis: Westpac Case Study
To illustrate the importance of considering dividends on a stock level, consider Westpac Banking Corporation (ASX: WBC). Over the past decade, WBC’s price has decreased from approximately $35 to $33, suggesting a lack of performance. However, when examining total returns—factoring in reinvested dividends—the effective value of share ownership would approximate $50, yielding a more than 50% return.
Key Takeaways
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Understanding Returns: Investors must recognise that both dividends and capital movements comprise total returns, offering a more valid comparison across different stocks and indices.
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Media Reporting: Financial media’s references to market highs or lows may revolve exclusively around price indices like the XJO, neglecting the broader context provided by total returns.
- Celebrating Milestones: As of June 3, 2025, the ASX 200 achieves an unprecedented high when measured on a total return basis. This achievement underscores the importance of total return metrics, particularly within the Australian market, noted for its robust dividend culture.
While headlines may suggest market performance peaks, understanding the underlying metrics, particularly dividends and total returns, is crucial for investors. The future of investing may hinge more on recognising and valuing these nuances rather than focusing solely on price movements.
