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ERD50 02-06-2011 04:52 PM

SPY DIVS and Inflation vs 'safe bonds'
A few recent threads (this, this, and this one) got me thinking more about the 'live off the dividends' approach. I did some searching, and I think I got this right, but maybe I'm slipping up on the 'inflation adjustment' or something. Anyway, I found it interesting and would appreciate verification/correction:

DATES&P500 NAVS&P500 % YLDcalc div$

That table has inflation adjusted NAVs for S&P500. I checked it against CPI numbers and a non-adjusted source, and it seems to make sense. So if (big IF) I'm reading this right, I come to this conclusion:

A person could have B&H the S&P500 in 1950, 1960, 1970 or 1980, and collected ( and spent) dividends in the 3%-7% range at that time (far above the 1.8-2% range we used in the 5 year treasury examples). Now, the yield % has gone down since then, but the NAV has gone up, so my "calc div$" column seems to show that the actual dividends received have gone up, even after adjusting for inflation. And the untouched principal has gone up, even after inflation.

Take one specific example - 1980, collect a 4.61% yield, and that dividend increases beyond inflation (at least at each decade snapshot). It's possible there were periods of time where the divs dipped below inflation, but I would think if someone was a bit more conservative and pulled 4% instead, the re-investment of the 0.61% would cover any dips.

If you started in 1970, you would have seen a small drop in divs (10%) from a starting WR of 3.49%, but they recover in following decades.

And if I go back 13 years to a time with yields as low as they are today, it still looks good today (though a slight dip in divs at year 2000):

DATES&P500 NAVS&P500 % YLDcalc div$

If this is correct, I think maybe many of us have been discounting the value of those S&P dividends.


Inflation data from: Historical Consumer Price Index
S&P price and yield data from: S&P 500 Price, Inflation Adjusted Chart
Some insight here: Political Calculations: The History of S&P 500 Dividends in Pictures

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