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Take Out Dividends and Stocks Return Less That Treasuries… Since 1900
Are you getting paid?
For much of the 20th century,
investors bought stocks for one reason: dividends. In fact, before the SEC act
of 1934 was passed, dividends were THE ONLY reason you’d buy a stock.
Prior to this, there was no such thing
as accounting standards or SEC filings AT ALL. You literally had no idea if a
company even MADE money. So the only reason you’d even consider putting your
money into the stock market was because a company paid out a dividend (you got
some kind of return).
Dividend or income investing continued
to dominate the investment landscape after the SEC Act of 1934 was implemented.
In fact, many of the most popular valuation methods used for valuing stocks
involved dividends (stock dividends vs. yield on Treasuries, Price to Dividend,
etc.). And it wasn’t until investors became “growth” obsessed in the last 30
years (thanks to the mega-bull market from 1982-2001) that Earnings superseded
Dividends in terms of importance.
Which is a HUGE mistake.
It’s common knowledge that stocks return
an average of 6% a year (at least going back to 1900). However, Elroy Dimson, Paul Marsh and
Mike Staunton from the London Business School recently revealed that when you
remove dividends, stocks’ gains drop
to a mere 1.7% a year (even lower than the return from long-term
Treasury bonds over the same period).
Put another way, dividends account for 70% of the average US stock
returns since 1900. When you remove dividends, stocks actually offer
LESS reward and MORE risk than bonds. If you’d invested $1 in stocks in 1900,
you’d have made $582 with reinvested dividends adjusted for inflation vs. a mere
$6 from price appreciation.
That’s only 600% in gains… over 109
years.
I want to be clear, this article is not
meant to imply Treasuries are a better investment today than stocks. Everyone
knows, deep down, that the US is going to default on its debt. It’s only a
matter of time. And personally I believe both stocks and bonds are in massive
bubbles that will both collapse within the next 24 months.
However, my point is that when it IS
time to buy stocks again (maybe in several years or more) you need to focus on
stocks that pay hefty dividends. This is the only way to make the real serious
gains from the market for the long-term.
However, it’s likely going to be a
long-time before stocks are a long-term buy.
Good Investing!
Graham Summers
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So....in one article you say the Dollar is doomed and in the other you say Treasuries are the best return....nice work, you must be really good analysts.
A government cannot become insolvent with respect to obligations in its own currency
"If you remove dividends . . ."
Isn't that a bit like saying "If I remove testicles from my uncle, he'd be like my aunt"?
+ minus 2
It depneds on one's needs, time horizon, and how nimble (= lucky) one is as a trader!
I wondered why vampires that live for hundreds of years weren't fabulously wealthy. Only vampire squids living on Wall Street can make the big returns in incredibly short periods of time.
huh? Vampires are extremely wealthy.. Werewolves are the poor folk
Buy silver bullion at two to one margin; in a foreign account; and relax. Check back in two years.
take away dividends lol
take away the brain and the head drops to the feet .
take away the meat and you have a bun sandwich.
take away the company you have no stocks
take away the Fed and you have honest money
take away The T-Bird and no more fun fun fun .
Value investors given a time line less than two minute charts understand the wonderful results of compounding interest.
So they buy stocks with dividends ,
so whats the point of the article
(to get people to buy their reports )
the people that buy the stocks with out Dividends have a shelf life of a diaper .
and the latest point and finger book , with dog eared pages making Nissan a bundle.
rapping on a gameing device to buy and sell .
let me buy that stock you keep the dividends duh .
a study on the mating habits of a bean counter
Bonds were overpriced in 1990; and they became even more overpriced; the market can remain irrational longer than you can remain liquid. So what. Did you understand the brave new world of bullshit shpeak; or did you not.? I waited 8 years in cash; and I was too early; to buy into Silver; which had to come back into favor;;;; there was, and is , no althernative; sorry for being early. What did you think was going to happpen? Unicorn spawn?
Hey, some old fart named Richard Russell has been saying this for years. Everything old is new again.
when you remove dividends, stocks’ gains drop to a mere 1.7% a year (even lower than the return from long-term Treasury bonds over the same period).
A stat guaranteed never to grace the CNBC teleprompter.
"When you remove dividends, stocks actually offer LESS reward and MORE risk than bonds."
Duh, when you remove interest, bonds actually offer LESS reward and MORE risk than stocks"
Rediculous postulation.
How many bonds don't pay any interest?
How many stocks don't pay any dividends?
Hate posting the incredibly obvious but every stock could pay the equivalent of a dividend merely by selling some of it at periodic points in time.
This article is almost as idiotic as Krugman's latest assertions that the value of any equity is the NPV of it's dividends.
"what a stock is worth is the present discounted value of the dividends on that stock - period, end of story. " Nobel prize winning economoron Paul Krugman.
http://web.mit.edu/krugman/www/dow36K.html
The imbecile here can rebutt that with any "dividend" amount can be adjusted merely by selling some of the stock periodically.
Zakley!
All bonds don't pay any interest; the interest is always absorbed by inflation. the exception to this rule was from 1980 to 1994; this will not be repeated. "Bonds are instruments of guaranteed confistication"; Franz Pick.
When AAPL pays a dividend I will know dividends are back in fashion...
Main point: you know why utilities, telecoms, royalty trusts, REIT's, some consumer staples companies, etc. pay dividends? Because they actually make money, real, actual money, that they can actually return in the form of a portion of the net profit to their investors. When I see a dividend (that isn't completely outrageous) from a company that's making a net margin, that tells me "this company is at least currently solvent".
Growth stocks. Fuck you.
Signed,
-An investor in tech stocks in the late 90's
AAPL doesn't pay a dividend they must not have made any real money while Global Crossing and Enron did pay a dividend and they must have made real money or been really solvent.
JFC reading this crap is paneful.
Agreed. Companies have restated earnings, but no company has ever restated dividends. Earnings are an opinion, dividends are fact.
I used to think dividends were for old people, but my 20 years of experience with them in no small part has made me very wealthy (ok - I lived way below my means those 20 years as well -- a very foreign concept in the US). Above average investment returns are not that difficult unless one is trying to hit more than a single or double -- taking on risk by swinging for the fences is fools gold.
It's like the lottery -- a few big winners which you hear lots about coupled with many millions of losers whose greed clouds any basic understanding of statistics.
For crikey sakes, at least check your title for grammatical errors.
That's a spelling error Einstein. His grammar is fine.
Dammit, your write! :)
+ 101
I also wonder if their study took into account the survivorship bias that always seems to creep into "long term' studies of stocks....in other words, stocks that go kaput and disappear completely do not get counted...only the ones that continue to survive get counted. That oversight of the failures always skews reports on the market far higher than what an actual investor would experience, because he is going to invest in a few dead dogs along the way.
I dont agree. A company who gives dividends is low growth. They are basically cutting their own throat, no one is in a position to leak money off where there are competitors, and changing market environments.
It is also dilutive to the reinvestment of cash into stock, broker takes a piece, double taxation, other broker fees, etc.
The poster does not take into account picking stocks, it just throws them all into a basket.
I would like to see the growth (revenue & stock price) of dividend giving companies VS non dividend companies in the same sector.
All one should care about is total return (high or low sales growth is interesting, but nothing if it does not translate into above average total return (divs +/- change in share price). Do dividend paying stocks generally outperform the total return of non-dividend paying stocks over the long term (5-50 years)? Am betting they do. Do dividend paying stocks generally outperform the total return of non-dividend paying stocks over the long term after adjusting for risk? Nearly certain they do.
Reality is that many corporations fritter away (or earn very low rates of return on) retained earnings (earnings they do not return to shareholders in the form of dividends). This precipitated the whole Sloan / EVA analysis about 20 years ago.
Shareholders seem to be generally better off getting paid most of the company's earnings as dividends and if the company needs additional capital to grow, it can go back to the market to "ask" for some more (understanding their are some frictional underwriting costs in doing such). If the market is reluctant to provide a company with more capital (through a high price for that capital), then you know you should not let the company keep the shareholders' earnings.
"I dont agree."
Yeah, facts are a bitch.
I don't understand the logic behind this analysis, or the value of it.
If you take out interest payments, treasuries return nothing.
Stocks DO pay divdends, and comparing the return of stocks sans divs to treasuries is theorhetical and useless.
Stocks that don't pay dividends provide return through capital app. Paying dividends is merly an accounting/marketing issues. It doesn't affect long-term return whatsoever (besides some minor tax implications).
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if you're actually a student of this subject; all one can say is; you really have a lot to learn.
Holy fuck did you ever miss the point here.
no, he's not missing the point. if you invested in "the total market" which is implied by the author, then dividends would be included in the the returns. So it's pointless to then take them out.
A more appropriate comparison would be to take something like the "dogs of the Dow" and compare their returns, including dividends, to other benchmarks. (S&P, R2K, DJIA etc)
take interest payments out of treasuries and then compare?
take your head out of your ass and the air seems cleaner somehow