Your Survival Guy wants you to be paid to invest in stocks. Think of investing as collecting cash, much like a landlord collects the rent. Too much weight is given to prices. Prices are a qualitative event. They’re opinions. Show me the money. That’s quantitative. In The Wall Street Journal, Jon Sindreu discusses the future of dividend investing, writing:
This might seem to validate what the Federated Hermes portfolio manager and market historian Daniel Peris argues in his new book, “The Ownership Dividend.” He says that ultralow interest rates and the rise of high-growth digital companies neutered the power of dividends, but only temporarily.
U.S. stock data from the economist Robert Shiller shows that the contribution of dividends to total returns averaged 80% from the 1870s to the 1950s, with the rest made up of capital gains. This past decade, it was 30%. The average dividend yield has been stuck below 2% for most of the past 25 years, compared with a historical average of 4.3%.
“The notion that large, successful businesses wouldn’t make a cash distribution to company owners is00
abnormal,” says Peris.
From the launch of the Amsterdam stock exchange in 1602 until the mid-20th century, buying a share in a company was almost exclusively about the dividend that investors could expect to receive. A more-mature tech sector, higher rates and heightened scrutiny of buybacks will lead minority shareholders to demand income again, Peris argues.
But many of today’s investors own stakes in companies through diversified savings portfolios and 401(k)s. It is unclear whether they care as much about dividends as their forebears did.
Of course, price gains unmatched by profit are speculative and can easily reverse. But if earnings rise in tandem, the company’s owners might not mind whether cash is distributed or kept on the balance sheet (tax considerations notwithstanding).
Perhaps this wasn’t the case in the 17th century, when selling shares was harder. But in today’s highly liquid markets, stock prices tend to fall when dividends are paid, leaving stockholders even. The financial economist Fischer Black argued this in his seminal 1976 paper, “The Dividend Puzzle.”
Action Line: When you want to discuss dividends in your portfolio, I’m here.
Originally posted on Your Survival Guy.
