Dividends play a crucial role in the total return of value stocks. Total return includes both capital gains (increase in stock price) and income from dividends. Value stocks, typically mature and financially stable companies, often pay consistent and sometimes high dividends to shareholders. This dividend income can be a significant portion of the investor’s return, especially during periods of stagnant or slow price appreciation.

For long-term investors, reinvesting dividends can lead to compound growth, substantially increasing portfolio value over time. Dividends also provide a steady income stream, making value stocks attractive to income-focused investors such as retirees.

Additionally, dividend payments often signal a company’s financial health and profitability. A history of stable or growing dividends builds investor confidence, reinforcing the stock’s value. During market downturns, dividends can help cushion the impact of falling share prices, contributing to portfolio stability.

While capital appreciation might be slower than with growth stocks, the consistent income from dividends helps balance risk and provides reliable returns. In many cases, especially in flat or declining markets, dividends can account for the majority of total returns. Therefore, for value investors, dividends are not just an extra; they are a core component of long-term wealth accumulation.