SP500 Dividend Yields at Generational Lows. The search for yield has been the story in the Bond market for quite some time (since the 1980s) and it’s no different for stock dividens. It too has been in a multi-decade decline.
Looking at the thumbnail chart we can see these generational lows in the SP500 historical dividend chart. The current yield is 1.90%, the historical mean has been 4.42%, with the high of 13.84% in June of 1932 and the low of 1.11% in August 2000.
A lot of people on Wall Street will tell you not to worry about this too much. After all, they’ll say, today’s dividends are just one part of your future returns. You’ll also make money through dividend growth and capital gains. And the dividend yield itself is a misleading figure, they’ll argue, because it doesn’t count all the money that companies are returning to investors through stock buybacks. This is reasonable in theory.
The best historical analysis of stock-market returns is probably what was compiled by professors Elroy Dimson, Paul Marsh and Mike Staunton at the London Business School. They looked at returns from the U.S. and 18 overseas countries from 1900 through 2009. Their key findings were that investors made the lion’s share of their returns from the dividend yield—not from dividend growth, or from the capital gains derived from rising stock prices. In total, the yield accounted for about three-quarters of investors’ long-term returns.
What about stock buy backs? Standard & Poor’s did a study in 2011 and said that over the prior 10 years, members of the SP 500 spent the huge sum of $2.7 trillion buying back stock. That’s 40% more than all the money they spent on dividends. Yet during that same time the fully diluted issued share capital of the SP 500, including stock options, actually went up, by 3.6%. How can that be? While companies are buying back their stock, they were also issuing new shares. Many of those are new stock and options for executives and senior staff.
Though for sure the main cause of these low yields today, is the multi-decade bear market in yields, these stock-option programs have been responsible for a massive wealth transfer from the retirement accounts of middle-class America to the corporate elite over the past decade or so. Corporate stocks today, are well oiled financial instruments, that give the appearance of value, that can be taken away at the next crash, while their executives take off with the lion share of their value.
Blue Point Trading, William Thompson