If I were a dividend, I’d fire my press agent. I’d be jealous and feel neglected because stock prices get a lot more attention than they deserve. The only time dividends make headlines is when they get reduced, because dividend cuts (or omissions) often go hand in hand with stock price declines. The stock is a victim; the dividend is the bad guy.
But if I were a dividend, I’d be more upset because I never get the credit I deserve. Over the past century dividends delivered close to half of all stock market returns. Think about that. If you were fortunate to be alive for the past 100 years and had your money invested in the stock market, half of your returns would have come from dividends.
However, the above statement needs an important clarification: It sometimes takes decades for investors in broad stock market indexes to obtain “average” returns. Historically, the stock market has gone through exciting phases of above-average returns (secular bull markets), which were usually followed by less satisfying phases of below-average returns (secular sideways markets), each lasting about a decade and a half.
I have written about why my research leads me to believe we are in a long-lasting sideways market. During the past three sideways markets, dividends were responsible for more than 90 per cent of stock market returns. Yet the current dividend yield of the S&P 500 index is only 2.1 per cent, less than half of what stocks yielded, on average, over the past century.
A few months ago a client asked my firm if we could come up with a defensive stock portfolio that would yield more than 7 per cent. In an environment in which the Federal Reserve has let loose a jihad on interest rates and carpet bombed anything even remotely resembling yield through its purchase of riskless (or near-riskless) instruments of all durations, I thought it was not doable. Most stable, income-producing assets (I am not even talking about bonds), such as real estate investment trusts, yield a miserable 3 per cent or so and are likely to be candidates to short, not buy, in the long run.
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