The P/E multiple drives most of what happens to a UK share over one year, and about a fifth of what happens over twenty
A share price is revenue times net margin times the P/E multiple, divided by the share count. As an identity any stretch of price return splits exactly into those four factors, with dividends as a fifth on top. We ran that split for every eligible London-listed share between every pair of June windows one to twenty years apart, from 1993 to 2026: 36,979 holding windows across 506 companies. Because the five pieces sum exactly to the total return, each factor's share of the variation in outcomes across shares is simple arithmetic (its covariance with the total, as a fraction of the total's variance), and the five shares sum to 100% at every holding period.
Each factor's share of the variation, by holding period (averaged across all start years):
- 1 year: the multiple 54%, margins 40%, revenue growth 8%, share count and dividends about 0%
- 3 years: margins 48%, the multiple 34%, revenue growth 19%
- 5 years: margins 42%, the multiple 32%, revenue growth 26%
- 10 years: revenue growth 38%, margins 36%, the multiple 23%, share count 5%, dividends -2%
- 20 years: revenue growth 42%, margins 28%, the multiple 21%, share count 13%, dividends -4%
The multiple's dominance ends fast: it alone accounts for more than half of the variation only for holds shorter than about sixteen months. That is the empirical version of the old line about the market being a voting machine in the short run. What replaces it is the business, in stages: first margins (the earnings lottery of any given year fades slowly), then revenue growth, which by twenty years drives twice the variation the multiple does. Share count is a slow burner that reaches 13% at twenty years, which is buybacks and dilution compounding.
We ran the same split of 10-year outcomes separately for each purchase year, 1993 to 2016. The multiple's share of returns peaked near 40% around the dot-com bubble (1998-2001 starts) and again post-crisis (2009-2012). Those two peaks are the same height and opposite phenomena, which the share alone cannot tell you: it measures how much the multiple mattered, not which way it cut.
For the bubble cohorts it mattered because it collapsed (the median share's re-rating contribution ran -3.4 to -0.5pp a year for 1998-2000 starts); for the post-crisis cohorts because it recovered (+1.7 to +4.8pp a year for 2008-2012 starts). In no purchase year did it exceed half in either direction, and revenue and margins together carried at least half of the variation in 23 of the 24 years (the single exception is 2000, at 49%).
Dividends are a big part of the level of returns: the median share held ten years compounded at about 8.2% a year, of which roughly 5.3 points was revenue growth and 2.6 points dividends. But dividends barely register in the variation between shares, and at long horizons their share is slightly negative. That is not dividends subtracting from anyone's return; every share's dividend contribution is zero or positive. It means the shares collecting the most from dividends tended to have weaker totals: the highest yielders skewed toward businesses that went nowhere, and a high trailing yield is often high because the price has already fallen (rank correlation of the dividend contribution with 10-year outcomes: -0.16). Dividends decide what the market pays on average, not who wins.