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Stingy Investor Tip Sheet

Dividend Downturn

An article in the Economist discusses opportunities in the dividend swap market. But, as a regular dividend investor, I was alarmed when the author revealed that "American dividends more than halved between 1929 and 1931." That's a whopper of a dividend decline.

It also reminded me that I have data for the S&P500 (or more accurately its predecessor indexes) close at hand. So, I took a look at the dividend carnage by creating two graphs. The first graph shows the absolute value of the S&P500's dividend payments in the early years. The second shows its dividend yield.

As you can see, the Economist was right. Dividend payments declined precipitously after a peak in 1930. From top to bottom, the S&P500's dividend rate plunged from a high of $0.98 at the end of 1930 to a low of $0.44 at the end of 1933.

The big dividend-yield spike in 1932 occurred when the dividend payments had already fallen to $0.66. It also happens the highest yields coincided with the bottom of the 1929-1932 bear market.

As a fan of dividend stocks, I sure hope we don't see similar dividend reductions this time around.

02/02/2009   11:45 PM EST   Permlink   save & shareDividends

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