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Stingy Investor Tip Sheet
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| Delving into Dividends |
It might surprise you, but dividends are the primary source of
long-term returns for stock investors. From 1900 to 2008 U.S. stocks
provided average annual real returns of 6.0% including reinvested
dividends. However, without the dividends, U.S. stocks only gained
1.7% a year over the same period. That's why I decided to take a
close look at the history of U.S. dividends with the help of Robert
Shiller's data.
First up, the following graph shows the S&P500's dividend yield from
1890 through to March 5, 2009. As you can see, yields have been quite
low by historical standards for many years and are only starting to
rebound. Just keep in mind that a slew of recent dividend cuts have
yet to be fully incorporated into the data. Current yields are likely
lower than they appear.
(click for larger version)
The next graph shows the dollar amount of dividends paid, on an annual
basis, by the S&P500 in both nominal and real terms. That is, both
without and with adjustment for inflation.
(click for larger version)
Because the last graph doesn't clearly show the early history of
nominal dividends, the next one does. Just keep in mind that I've
multiplied nominal dividends by 10 in this graph so that you can more
easily compare them to real (inflation-adjusted) dividends.
(click for larger version)
The next three graphs show the S&P500's inflation-adjusted price along
with inflation-adjusted dividends. As a result, you can see how
dividends fared during previous periods of distress. I again
multiplied the value of dividends (by 10 or 20) so that they can be
more easily matched up with moves in the price index.
(click for larger version)
(click for larger version)
(click for larger version)
Dividends are great but they depend on earnings. The next graph shows
both the S&P500's inflation-adjusted earnings and dividends. You can
see that the S&P500's earnings have been comfortably higher than its
dividends most of the time. But that's not the case today. (The last
time earnings failed to cover dividends was in the 1930s.) It also
appears that much of the dividend growth in recent years was
ill-advised.
(click for larger version)
The next graph shows the history of the S&P500's dividend payout
ratio. You'll remember that the payout ratio is calculated by
dividing dividends by earnings and the result expressed as a
percentage. The median payout ratio of 58% is also highlighted. The
S&P500's current payout ratio is very high compared to its historical
norms.
(click for larger version)
The next graph shows the S&P500's dividend yield. It is followed by
two more graphs that show returns (nominal and real) for the
20 years after the S&P500 hit a particular dividend yield.
(click for larger version)
(click for larger version)
(click for larger version)
The next three graphs are just like the prior three with one
difference. They use dividend yields based on average dividends over
the prior 10 years. I call this yield10 and the idea is to use an
average to better reflect the long-term dividend trend.
(click for larger version)
(click for larger version)
(click for larger version)
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| | 03/13/2009 11:30 PM EST Permlink save & share | Dividends |
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