Understanding where your investment returns come from.
u/raytoei ·
Reddit — r/ValueInvesting
· July 05, 2026 at 07:03
· ⬆ 15 pts
· 💬 2 comments
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Summary
The post explains the drivers of total shareholder return: price appreciation (from EPS growth and P/E multiple change), dividends, and dividend reinvestment.
It references a Mauboussin PDF to break down EPS growth into net income growth and share count changes, and P/E change into value creation prospects and risk.
This is a foundational educational post, not a specific investment thesis or stock analysis.
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**Note the flair: Basics / Getting Started.** I ran a quizz not too long ago and most of the answers were wrong, here is a PDF from M. Mauboussin explaining where your investment returns come from.
In the short-term, sentiments, demand and supply will move the share price.
In the long term, the total returns is comprised of price appreciation + dividends + dividend reinvestment. Price appreciation comes from EPS growth and from P/E multiple expansion. EPS growth comes from Net income growth as well as change in Shares outstanding.
[https://www.morganstanley.com/im/publication/insights/articles/article\_totalshareholderreturns.pdf](https://www.morganstanley.com/im/publication/insights/articles/article_totalshareholderreturns.pdf)
|Main Metric|Driver|Sub-driver 1|Sub-driver 2|Fundamental source|
|:-|:-|:-|:-|:-|
|**Total shareholder return**|^(1. Price appreciation)|^(1.1 Earnings per share growth)|^(1.1.1 Net income growth)|^(Sales growth, operating profit margin, financing costs, tax rate)|
||||^(1.1.2 Change in shares outstanding)|^(Equity issuance or retirement)|
|||^(1.2 P/E multiple change)||^(Value creation prospects, risk)|
||^(2. Dividend)|||^(Capacity to return capital, capital allocation policy)|
||^(3. Dividend reinvestment)|||^(Reinvestment program, tax rate, other frictions)|