Why some people buy individual stocks when most feel impossible to do

[Zathras]

The thing about dividend payers is they tend to be large, boring stocks without the opportunity at huge gains.
This is one of the reasons the entire market doesn't dive into them.

For me, I prefer individual stocks as I can control the capital gains and have control over which businesses I choose to invest in and which I don't.
Much lower volatility of my income stream and lower transaction fees also make individual dividend stocks appealing to me.

It isn't for everyone, but it certainly isn't like the day trading/gambling some people equate it to.

 

[tulak]

I don't have any issues with owning individual stocks, even though I don't own any right now. If that's your interest and you have the time to spend researching companies, then I think you can do well. It'll always be debatable if you can do better than the market, because the reality is that sometimes you will and sometimes you won't.

The main reason I buy index funds is because it's easy. I don't have the time or primarily, the longer-term focus/persistence, to keep track of business's of individual stocks and their corresponding performance. For those that do, then they seem to do pretty well. Many of the members on the forum fit into this category, not to mention quite a few well known investors not on this forum.

The key piece, and what Clif points out above, is that just because you buy index funds doesn't mean that you are better off. I think regardless of how you invest, you need to be consistent. A person that speculates by buying individual stocks without due diligence is probably going to have the similar problems if he buys index funds.

I think most of the folks on the forum, regardless if they buy index funds or individual stocks, do well overall. This is because they have the right temperament for investing.

And as a side-note to another of Clif's comments, I track my yearly performance in my AA to the benchmark indexes. For the most part, they pretty much line up. It's not perfect, because I'm still buying/selling at various times in the year, but it's around .5% +/- of my benchmark allocation. I wouldn't be surprised if that's true for many other index-fund investors on the forum.

 

[Running_Man]

Read the article. It leaves open a couple of questions about the methodology:
- Did Siegel adjust for survivorship bias?
- Are the 2.5% extra return related to higher risk?
- How did he pick the "highest paying 100 dividend stocks" - ex ante or ex post? If he selected them after the fact, that would be pointless.

Will follow up on this once I've had more time to read up on the topic. I find this quite interesting.

Just as food for thought: If it were true that dividend payers consistently outperform the market without additional risk, wouldn't the market have priced it in long ago, leading to the effect vanishing?

Siegel didn't need to adjust for survivor bias, he took the top 100 dividend yielding stocks at the start of each year, then readjusted at the end of the year. As to how you pick the 100 highest yield stocks, you take the annual dividend at January 1 divide by the pricce and get a yield percentage. You then take the 100 highest and hold for a year.

As to risk, I would assume but do not know that the dividend stocks actually had a lower beta and as such were probably less risky.

And yes Peter Thiel is a poor speaker, though I really enjoyed his thoughts.

 

[MichaelB]

Good video, Running_Man, thanks for posting it. I'd read many references about Peter Thiel and appreciate an opportunity to hear him.

Having sat through more 1K presentations, his style wasn't that bad. He's clearly not a professional communicator, but I'll take his substance over more polish any day.

His message on technology has some common aspects with Marc Andreessen's views on innovation. Food for thought.

 

[RISP]

As to how you pick the 100 highest yield stocks, you take the annual dividend at January 1 divide by the pricce and get a yield percentage. You then take the 100 highest and hold for a year.

But you do not know the dividend for any given year already on January 1. We would need to know whether Siegel just looked at the data for, say, 1957 and compiled a list of the 100 companies with the highest dividend relative to their January 1 stock price. That kind of ex-post exercise would be pointless IMO. What you need are expected dividends at the beginning of each year, and I can't imagine how to get that information for decades past. Alternatively, maybe Siegel simply used 1956's dividends to estimate 1957. I haven't made up my mind whether that would yield an acceptable result.

Siegel didn't need to adjust for survivor bias, he took the top 100 dividend yielding stocks at the start of each year, then readjusted at the end of the year.

So you are saying his list for 2002 would have included WorldCom, despite the fact that they failed to pay any dividend and were bankrupt by the end of the year. Would be good to get our hands on his actual study and/or data to verify this.

 

[RISP]

Speaking of something being impossible, even Burton Malkiel, the author of the "A Random Walk down Wall St", told of this joke.

Two economists were taking a walk down the street while discussing an interesting topic, when they spotted a $20 bill on the sidewalk. One bent down, ready to pick it up when his friend stopped him.

The friend said "Don't bother. It's a mirage. If that $20 bill were real, somebody else would have picked it up long ago".

That's a good one, I remember it from the book. I always took it as a comment on the long-term vs. short-term perspective of the EMH: If you notice that 20$ bill today for the first time, of course you'll try to pick it up. It was probably dropped just a minute ago. But, if it has been lying around for years on a busy street, and you see it everyday on your way to work, you can be reasonable sure it's fake, painted on the sidewalk, or tied to a string that some kid will pull as soon as you bend over.

In other words, I'm not a proponent of the EMH in it's strict form. It seems pretty clear that, in the short run, there are market inefficiencies that can be exploited. I remember buying a small amount of shares in Deutsche Bank in 2011, after it was brutally beaten down by worries about the financial sector as a whole. Well-run company overall, solid financials, but it was dirt-cheap. I made over 60%+ in a few months. Currently trying to repeat with Lufthansa.

But I digress. My point is, the idea that dividend payers outperform, while having similar or even below-average risk, has been around forever. You can argue that those stocks are not "sexy" for individual investors, but don't you think that hedge funds, pension funds etc. would gladly buy them? The big guys (I'm shying away from the term "smart money") would exploit this kind of long-term market inefficiency to the point that it would go away.

 

[clifp]

But I digress. My point is, the idea that dividend payers outperform, while having similar or even below-average risk, has been around forever. You can argue that those stocks are not "sexy" for individual investors, but don't you think that hedge funds, pension funds etc. would gladly buy them? The big guys (I'm shying away from the term "smart money") would exploit this kind of long-term market inefficiency to the point that it would go away.

I think one of the advantages that individuals have over institutional money is we aren't required to avoid certain type of stocks.

For instance, I suspect the vast majority of the alpha I've made over the last decade has been due to Master Limited Partnership. Which have benefited both by declining interest rates, and the US energy boom. For tax reasons mutual funds can't own MLPs, and there is only one ETF with really high expenses and strange selections.

Likewise, the rise of social responsible investing has meant that a small amount of mutual funds and respectable amount of pension funds won't invest in tobacco, liquor, or gun companies and guess the latest trend
is greenhouse gas polluters. A lower demand for sin stocks means higher returns for the rest of us. for example tobacco stocks have had 21% CAGR over the last 15 years vs 4.6% for the S&P 500.

In the case of regular dividend stocks,while they are great for pension funds and the Wellesley of the world. There is a large class of money which won't go near them because they aren't sexy and aren't going to deliver home runs. If you are hedge and get to keep 20% of the profits above a threadhold, you aren't going to be sticking your money, in Coke, or P&G, or JNJ.

 

[RISP]

A lower demand for sin stocks means higher returns for the rest of us. for example tobacco stocks have had 21% CAGR over the last 15 years vs 4.6% for the S&P 500.

Less demand results in higher prices? How would that work?

In the case of regular dividend stocks,while they are great for pension funds and the Wellesley of the world. There is a large class of money which won't go near them because they aren't sexy and aren't going to deliver home runs. If you are hedge and get to keep 20% of the profits above a threadhold, you aren't going to be sticking your money, in Coke, or P&G, or JNJ.

You are addressing the issue that fund managers are incentivized to take higher risks. I'm not sure whether hedge funds' incentive schemes are as simple as you described, but it's certainly possible.

Still, I'm not buying the notion that there is a subset of stocks that consistently beats the market, while showing lower volatility. If that were true, hedge funds would have picked up on it. They would go long dividend stocks, short the rest of the market, and have a free lunch. I'm not going to convince any of you, and you are of course free to believe whatever you want. But I think you are wrong.

 

[clifp]

Less demand results in higher prices? How would that work?

Megan McArdle addresses this in one her columns. I'll reproduced the relevant portion here.

Let’s work it through with a little example. Let’s say there’s a stock market with $1 million invested in it by 100 investors, each of them with $10,000 in the market. In that market, there are 10 stocks, each of which has a market capitalization of $100,000. All the stocks are priced to yield a risk-adjusted 5 percent a year in some combination of dividends and capital appreciation, which means that everyone’s $10,000 portfolio earns $500 per annum, because they are good students of economics and they buy index funds rather than trying to beat the market.
Yes, this is a gross oversimplification, but it’s enough to illustrate our point.
Now imagine that one of our 10 stocks makes a controversial product -- call it Evil Sludge. Twenty of our investors -- call them the Moral Minority -- decide that they do not want to be involved in the production of Evil Sludge. Each of them has 10 shares of Big Evil Inc., which they sell, and they use the money to purchase an equally weighted portfolio of all the other shares.
The immediate effect is that the price of Big Evil falls, while the price of all the other shares rise. That’s the first-order effect. That seems to be where a lot of people are stopping in their mental model of divestment.
But let’s think about the second-order effect. The price of the other nine companies has now risen, so a $1,000 investment buys you fewer shares. What does that mean?
It means that the potential return has fallen. A $1,000 investment in a nonsludge stock used to earn you $50 a year. But now you aren’t getting as many shares for your $1,000. So maybe it earns you $45 a year. In financial jargon, the returns are inversely related to the price: All else being equal, the higher the price you pay, the lower the return; the lower the price, the higher the return.
But hey, Evil Sludge is evil, and the Moral Minority is willing to take a little financial hit in order to send a message to Big Evil.
OK, but what about the other investors? They don’t care about Big Evil; they care about returns. And just as the returns on other stocks fell when the Moral Minority decided to shift their portfolios, the potential returns on Big Evil Inc. have now risen; a $1,000 investment may now net you $55 or $60 a year. The rest of the investors can make free money by selling some of their other stocks to the Moral Minority and buying up Big Evil. Where does this process stop? When the returns on Big Evil fall to the same level as the returns on all the other stocks.

Now this adjustment very well may have taken place in the case of tobacco, both MO and PM are expensive IMO. But it is been profitable to invest in sin. I am looking forward to making money on the polluters as more institutional money sells them.

You are addressing the issue that fund managers are incentivized to take higher risks. I'm not sure whether hedge funds' incentive schemes are as simple as you described, but it's certainly possible.

Still, I'm not buying the notion that there is a subset of stocks that consistently beats the market, while showing lower volatility. If that were true, hedge funds would have picked up on it. They would go long dividend stocks, short the rest of the market, and have a free lunch. I'm not going to convince any of you, and you are of course free to believe whatever you want. But I think you are wrong.

In addition the Siegel study which is worth reading. Josh Peter in his Dividend book points out 3 different studies from the early 2000s showing an out performance of dividend stocks.

More recently there are fair number of recent studies from place like Standards & Poor. This Seeking Alpha article discuss them.

1. From 1980 to 2005, S&P 500 dividend payers outperformed non-payers by more than 2.6 percentage points per year.
2. S&P 500 Dividend Aristocrats beat the S&P 500 Index over the last 1, 3, 5, 10, 15, and 20-year periods as of March 31, 2012, with lower volatility as measured by standard deviation.
3. Dividend payers have been shown to outperform non-payers in a range of different interest rate environments. I found this item reassuring, as we are in a historically low-rate environment now, and eventually rates will tick upward.

There very well be hedge funds doing just what you suggest, it is hard to know. I will point out to the 85 year performance of Wellington as example of investment strategy that focus on almost exclusively on dividend stocks (for the 60% equity portion). Anyway I'm always suspicious this out performance can continue indefinitely, so I'd happy to read research point out that I am wrong, cause dividend stocks aren't cheap now days.

 

[Running_Man]

In addition to Clifp's points above I think of it like this using an example of a long term holding of mine Altria (MO)

A stock like Altria growing dividend at 8% per year should probably be priced to have the market dividend yield of about 2% not 4.42 % and as high as 5.5% in recent years. The market is/was pricing the stock for only an inflation adjusted return as punishment for being in the tobacco industry. When the Altria earns 8% additional income and raises the dividend 8% the next year the price rises 8%, you earn the 5% dividend and the 8% price increase for a 13 % gain and the market still does not realize the true value of the stock because of it's association with tobacco.

Now there are years like this current year when the market say, wait a minute this Altria really can earn money and raises the stock price and MO is up 24% YTD in a flattish to slightly up market, for a 29% total return and still the stock has not reached what the true value should be. But if you compare this stock and expect 8% growth and 4.4% dividend you can reasonably expect a 12.4% annual return vs the 8% growth and 2% return or 10% of the comparable market stocks. The MO investor's job is to determine if there is a reason for this pattern to change in the intermediate term or not and then hold through the negative press the stock will garner that makes the return possible to obtain.

Using this as an example of what is discussed in the video, this is a optimistic deterministic approach to stock investing. And by looking for these types of stocks and working to see that the assumptions are correct often I wonder why this is not so obvious to everyone, but I realize many are in the world that returns must be indeterminate and therefore only the portfolio approach can work, and since in total the market average is what is earned by the market, my excess returns cannot be possible or else must be a result of taking abnormal risks. But I think there are a large number of investors who think dividends are bad for either tax or not properly allocating capital or else as Clifp says do not provide enough upside to be worth the investment and avoid the stocks and leads to these continual outsized gains.

 

[RISP]

The market is/was pricing the stock for only an inflation adjusted return as punishment for being in the tobacco industry.

(emphasis mine)

Hm. How do you know investors are not wary to buy it for other reasons, like a fear of law suits, higher taxes on their products, more regulation of tobacco sales, and so on?

 

[RISP]

Megan McArdle addresses this in one her columns. I'll reproduced the relevant portion here.
[...]
This Seeking Alpha article discuss them.

Thanks for the material. The example is interesting - I need to think about that a bit more before commenting. Will also read the Seeking Alpha article, but it might take me a few days.

What you, clifp, and Running_Man described in your latest posts is the phenomenon that stocks can be undervalued for a while. I agree that this happens and can be exploited (see my earlier posts), which means the EMH in its strict form does not hold true. But this has nothing to do with dividends.

I need to do more research on the topic. Hopefully I can get my hands on one or two of the studies clifp quoted. It's always tough to argue about research without being able to review the data and methodology.

One quick comment on this: "dividend payers outperformed non-payers".
Apart from my still open question whether dividend stocks were selected ex ante or ex post, could this result from a bias in sampling? If you compare against non-dividend payers, you will include some companies which are in financial distress and currently unable to pay out a dividend. Maybe the question is more, which companies are solid and which are in danger of going under? In this case, dividends might indeed be a signal towards investors. OTOH, WorldCom paid a dividend, and Berkshire Hathaway doesn't..

 

[NW-Bound]

Is there a free lunch?

Yes, Virginia, but there is a caveat.

Many people here already know what I am about to say, but please indulge me if you find this boring.

I am not familiar with dividend stock strategy by Siegel, nor follow "sin" stocks. But I know about the Farma-French study that shows that value stocks outperform growth stocks. Does that come with an increase in volatility? I am not sure, but will get back to this later.

The effect is called "value tilt". How large is this effect? Over a long period, it's HUGE. Historical data shows that from Jan 1980 to Dec 2010, a period of 31 years, $10K invested in large cap growth stocks became $187K, but in small cap values, it became $602K. In the same period, investing in S&P 500 yielded $281K.

Note that the above are ideal values. One has to buy stocks in an MF or ETF and that incurs some costs. So, using Vanguard flagship VFINX, you would get $263K instead of $281K.

The data above is from a Web page by Fidelity (see below). The page by Fidelity shows all 6 categories: large-cap value/growth, mid-cap value/growth, small-cap value/growth, but not for S&P. So, I took the S&P and VFINX numbers from Morningstar. The data shows that value soundly beats growth in all 3 market cap categories after 31 years.

So, if value stocks are that great, what's the gotcha? Are they more volatile? If so, then that is the cost of the lunch, some say.

Looking at the data, I don't think that's the case. Instead, I believe what happens is that when value beats growth, it is only by a small amount. But when value trails growth, it is by a huge amount. In 1999, growth stocks jumped 50%, while value stocks were flat.

Yet, in the long run, value beats growth so soundly. The hare and the tortoise again. Nothing can beat the index every single year, because investors will flock to the winners and drive them into bubble territory and they crash hard subsequently. By the same token, individuals bailed out of value stocks during go-go years, and piled on to growth stocks which crashed hard when the bubble burst. Money managers did not do that well either, because they were pressured by their constituents to keep up with the index. In a year like 1999, if you were flat while the S&P was bid up 50%, you would be called stupid and lost your job. And so, you were not able to keep your career, so that later you could say that you beat the index and proved the "coin tossing monkey" argument wrong.

So, there is a "free lunch", but you have to be willing to wait for it, and investors are simply too impatient.

For more, see: https://www.fidelity.com/learning-c...g/trading/value-investing-vs-growth-investing.

 

[Running_Man]

But you do not know the dividend for any given year already on January 1. We would need to know whether Siegel just looked at the data for, say, 1957 and compiled a list of the 100 companies with the highest dividend relative to their January 1 stock price. That kind of ex-post exercise would be pointless IMO. What you need are expected dividends at the beginning of each year, and I can't imagine how to get that information for decades past. Alternatively, maybe Siegel simply used 1956's dividends to estimate 1957. I haven't made up my mind whether that would yield an acceptable result.


So you are saying his list for 2002 would have included WorldCom, despite the fact that they failed to pay any dividend and were bankrupt by the end of the year. Would be good to get our hands on his actual study and/or data to verify this.

You are kidding right? Almost every single stock quote site shows the current dividend yield which would be based on the most recent dividend approved by the board of directors. If World Com was in the S&P 500 at the start of 2002 of course they would be included. Feel free to email Jeremy Siegel for the actual data, maybe he has it available.

 

[photoguy]

Is there a free lunch?
So, if value stocks are that great, what's the gotcha? Are they more volatile? If so, then that is the cost of the lunch, some say.

I haven't looked at the long term stats but on daily basis it seems like the change is x2 for my value funds vs S&P 500. I.e. if S&P 500 goes up 1% the value indexes go up 2% and vice versa.

Looking at the data, I don't think that's the case. Instead, I believe what happens is that when value beats growth, it is only by a small amount. But when value trails growth, it is by a huge amount. In 1999, growth stocks jumped 50%, while value stocks were flat.

Well there are those years in 2000 and 2001 when small value trounced s&p 500. I think vanguards version of the funds were up +30.9% and +25.7% (on arithmetic difference).

So, there is a "free lunch", but you have to be willing to wait for it, and investors are simply too impatient.

I don't think it's a free lunch but I have a huge chunk of my AA devoted to it.

 

[sengsational]

Re: Free Lunch

Also a value tilt approach, the best I've seen is the magic formula/little book thing. I think it stands a better chance than standard value tilt since you're not competing with fund managers (the market cap on the companies in the magic formula approach are too small for the fund managers to bother with).

 

[photoguy]

Also to tie NW-Bound value (fama-french) thread with Siegel's dividends, my understanding is that there is significant overlap between value stocks and dividend payers. I.e. dividend stocks will tend to load on value as per Fama-French's model.

This article compares various "value" metrics of which D/P is one:

Swedroe: Not All Value Metrics Are Equal | ETF.com

Sengsational -- do you have a link for the "magic formula"? I'm not familiar with that.

 

[NW-Bound]

I haven't looked at the long term stats but on daily basis it seems like the change is x2 for my value funds vs S&P 500. I.e. if S&P 500 goes up 1% the value indexes go up 2% and vice versa.

What you say may be true. I do not pay attention to the small cap ETFs that I have, because I own some stocks that have beta much higher than 2.

Well there are those years in 2000 and 2001 when small value trounced s&p 500. I think vanguards version of the funds were up +30.9% and +25.7% (on arithmetic difference).

That's simply the revenge of the small caps after they trailed the S&P by 50% in 1999. Reversion to the mean, baby!

I don't think it's a free lunch but I have a huge chunk of my AA devoted to it.

Well if one can ignore the higher daily fluctuations, it looks like a free lunch to me. And of course, one must also have the stomach to see it significantly underperforming the S&P some years. If one considers the price to pay to get 2X performance over a longer period, I do not think it is that dear.

And of course, how about owning both value and growth, watching them, then do some rebalancing?

 

[flyingaway]

I just sold my last individual stocks, 70 shares of AAPL., yesterday I will not pay attention to the price of AAPL any more, nor their products. I do not to plan to own any individual stocks from now on.

 

[clifp]

Also to tie NW-Bound value (fama-french) thread with Siegel's dividends, my understanding is that there is significant overlap between value stocks and dividend payers. I.e. dividend stocks will tend to load on value as per Fama-French's model.

This article compares various "value" metrics of which D/P is one:

Swedroe: Not All Value Metrics Are Equal | ETF.com

Sengsational -- do you have a link for the "magic formula"? I'm not familiar with that.

Exactly. I consider myself a value investor, who mostly invests in dividend stocks. Although Berkshire is my largest investment for the obvious reason that Buffett, even with all the handicaps of size is a better value investor than I'll ever be.

I think dividend stocks are mostly value stocks, and most value stocks pay dividend. So they are mostly interchangable in my mind.

I think not only do value stocks offer modestly higher returns than growth stock they do so with moderately lower volatility. Which really is a free lunch. This value tilt persist for long periods not despite the lower volatility but because of it.

I have a one word explanation.

TESTOSTERONE

I and I believe many of the folks on the forum especially us more active investor could have ended up on Wall St. I don't know about the rest of you, but I was way more aggressive investor in my 20s than now days. Rather than write options, I bought them, rather than buying boring value stocks, I bought hot technology growth stocks. Bonds are you kidding . I had to buy mutual funds in my IRA/401K, and while I did own some S&P 500 index, I also owned plenty of Janus, and other small company growth funds.

Imagine a newly minted MBA from a top school, got a job on Wall St. He probably is familiar with Farma, and he know that he could outperform the index with a value tilt, and buy boring stocks but to what end. Great he beats the S&P 500 by 5% over 3 years with his value tilt, big deal. Do you think they give $5 million bonus on Wall Street for 5% beats, or give promotions for that?. Of course not. Who cares that 70% of money manager don't beat the index, I know I am one of the 30%, and that is how I get ahead. I have the balls to make big risky bets (especially with other people's money.).

As an older more patient investor, I am happy to exploit the young guns raging hormones. Now obviously you can do this with a value oriented index funds and such. I guess I have just enough testosterone left to do it with individual stocks.

So somewhat ironically, the folks that do the best on average, are those that don't follow Peter's advice and try and chart a completely new course.

 

[Totoro]

Just wanted to point out that if you buy the highest yielding dividend payers with a good track record you do the following:

• Limit yourself to solid companies. You can only fake dividends for a few years.
• Buy the cheapest ones in that list (with the highest yield)

So I would wager that it's not the dividend per se that gives you the outperformance, but that sustained dividend payment is still a very good sign of being a solid company. You'll probably (haven't tested) get similar results if you buy dividend aristrocrats with the lowest P/E ratio (with E average over 5 years or so). Dividend payers have a high payout ratio usually so there is a strong correlation between earnings and dividends.



As for why it works: by definition you buy the cheapest companies, so that gives you an advantage.


The other aspect is I believe psychology: solid stable companies give you a few % every year 'extra' over a period of 5 years or so. That's too long a time frame for a lot of investment managers and individuals, while in any given year the solid company may underperform.


2% outperformance in the long run however adds up when indexing gives you 4%. It basically increases your results by 50%

 

[RISP]

You are kidding right? Almost every single stock quote site shows the current dividend yield which would be based on the most recent dividend approved by the board of directors.

Of course I'm not kidding. Did you even read my post? There are two possible issues with that: (a) Is this a good estimate? Dividends can be reduced or cancelled. (b) Assuming we want to use those estimates, what do we take for past years? I don't think Morningstar will tell you the expected dividend yield for any past years, much less for 1957. Can you find this information in old copies of the WSJ? I honestly don't know - do you?
Your suggestion to contact Mr. Siegel about his methedology is a very good idea.

 

[RISP]

Imagine a newly minted MBA from a top school, got a job on Wall St. He probably is familiar with Farma, and he know that he could outperform the index with a value tilt, and buy boring stocks but to what end. Great he beats the S&P 500 by 5% over 3 years with his value tilt, big deal. Do you think they give $5 million bonus on Wall Street for 5% beats, or give promotions for that?. Of course not.

Why limit yourself to 5% (or 2%, or whatever)? If you truly belief that such a "free lunch" exists, this generates an exploitable arbitration possibility. By buying dividend payers and shorting non-dividend payers at the same time, you could generate risk free excess returns. And you could even leverage this strategy through the use of derivatives to generate as much money as you want.

I challenge all of you who really believe in such a glaring instance of mis-pricing to give it a shot. Please post your results, and good luck. I think you'll need it. But if it works, please remember who told you about that idea.

 

[RISP]

2% outperformance in the long run however adds up when indexing gives you 4%. It basically increases your results by 50%

You seem to be mixing up the 4% that is often considered a safe WR with the average stock return, which is generally believed to be closer to 10%. So even the proponents of this dividend approach claim that it pushes returns from about 10% to about 12%. Still huge, yes, but nowhere near a 50% increase.

 

[sengsational]

Also to tie NW-Bound value (fama-french) thread with Siegel's dividends, my understanding is that there is significant overlap between value stocks and dividend payers. I.e. dividend stocks will tend to load on value as per Fama-French's model.

This article compares various "value" metrics of which D/P is one:

Swedroe: Not All Value Metrics Are Equal | ETF.com

Sengsational -- do you have a link for the "magic formula"? I'm not familiar with that.

Magic Formula Investing

After reading the book and seeing people use it in internet investment simulations, I think it could still work in the future because the big players can't be bothered with these little companies that, if the big boys bought, would move the price so much.