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Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 02:58 PM   #81
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Re: Dividend Stocks in place of Bonds

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Originally Posted by 3 Yrs to Go
From 1980 to 2006 the S&P has produced total average annual returns of 13.1%, including reinvested dividends. Average dividend yield over that period was 2.79%.
I think the problem is more complicated than a simple two or three factors, and here's one that hasn't been brought up yet. I've been re-reading Maggie Mahar's "Bull!", which includes an entire chapter on why company execs worked very hard to kill dividends and to boost share buybacks.

Options.

Back then options were "free money" that didn't count against profits. Now that options require some standard of cost accounting, they may be less favorable than restricted stock. What if an exec can collect dividends from that restricted stock instead of having to wait for the price to rise (or even having to leave the company)?

Dividends were also much more heavily taxed in the ending years of the 20th century. Favorable tax policy has been a strong driver in the "growth" of dividend funds since 2003.

As for execs and cash allocation, I think research has shown that they generally suck at it. What execs are best at is optimizing a process (usually by whittling away at the costs) and improving sales (especially with slightly different brands or global marketing). What execs truly suck at is figuring out what to do with the resulting fire hose of profits. If there were more people who knew what to do with a cash flow then there'd be a lot more insurance companies & Buffetts.
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Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 03:01 PM   #82
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Re: Dividend Stocks in place of Bonds

Ding Ding Ding!!!

An interesting read...

http://www.pbs.org/wsw/opinion/geoff1219.html
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Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 03:25 PM   #83
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Re: Dividend Stocks in place of Bonds

interesting thing about the double taxation on the dividends. but it goes back to my origional statement. dividend stocks out perform because investors like them ,its a mental thing. not for sound economic reasons .


hmmmm isnt that how this thread got started?
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Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 04:54 PM   #84
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Re: Dividend Stocks in place of Bonds

For almost every investment set and priced to market, that statement is true.

At least you get paid along the way with a dividend stock while people are being irrational .
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Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 04:59 PM   #85
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Re: Dividend Stocks in place of Bonds

yep just look at gold when its hot
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Re: Dividend Stocks in place of Bonds
Old 05-19-2007, 06:48 PM   #86
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Re: Dividend Stocks in place of Bonds

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Originally Posted by Cute Fuzzy Bunny
There has been a little pickup since the 70's, but its a far more muted change than you'd expect if you believed that a dollar not paid out in dividends equaled a dollar increase in stock price.
Dude, you can quote yourself all you want and pretend it says something it doesn't . . . or you could simply say "I was wrong."

"A little pick-up since the 70's" is actually 200 bp in average annual returns. Meanwhile dividend yields are more than 100bp lower.
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Re: Dividend Stocks in place of Bonds
Old 05-20-2007, 07:22 AM   #87
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Re: Dividend Stocks in place of Bonds

I was wrong?

Hmmm...seems like in looking at the data and seeing that (excepting the late 90's irrational exuberance) that returns were trending downward with dividend cuts.

Not to mention that most pundits from Bernstein to Bogle are predicting lower future returns as a direct function of reduced dividends.

And theres that pesky article I linked to that directly suggests that executives tend to just not do good things with money left in their hands.

All of which seems to point to both of your thesis' being incorrect.

But I guess if you say it a few more times it might become true.
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Re: Dividend Stocks in place of Bonds
Old 05-20-2007, 07:41 AM   #88
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Re: Dividend Stocks in place of Bonds

Heh heh heh he heh heh - anyone notice how many new mutual funds have come out(pick your time period) recently with the D word in them - as in Pssst - dividends!

It's Wall Street feeding the ducks.

NO! NO! NO! The Norwegian widow had nothing to do with it/will not speak to anyone without her lawyer present/reserves the right to take/drink the fifth if served.

It's all Clinton's fault - or maybe the tax cut on dividends.

heh heh heh - we have any Sun spot or eclipse cycles going on? :
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Re: Dividend Stocks in place of Bonds
Old 05-20-2007, 02:04 PM   #89
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Re: Dividend Stocks in place of Bonds

Lets see, now that I have a bit more time...

http://www.fpanet.org/journal/articl...p0702-art8.cfm

Examination of models and papers put forth by Siegel, Fama and French, Schiller and others.

Bottom line conclusions:

"Fama, French and most other scholars agree with the following points: (1) market returns in the last half of the 20th century, especially returns in the 1980s and 1990s, were better than expected because market multiples rose unexpectedly; (2) a substantial decrease in the equity risk premium is largely responsible for the sharp rise in market multiples. As we shall see, a decrease in the equity risk premium has implications for future stock returns."
[...]
"The decrease in the payout ratio increases the dividends multiple to 23.8, but the equilibrium stock price and earnings multiple are not affected."
[...]
"Let us look at the implications of these examples. Fischer Black (1976) reviews dividend policy and concludes that theory provides no help in determining why firms pay dividends or in determining the market’s optimal dividend payout policy. Historically, the market’s dividend payout ratio has declined sharply and unexpectedly since the early 1980s. Both theory and history suggest that the market’s dividend payout ratio is unstable. An unstable payout ratio implies an unstable dividends multiple, which implies the dividends model is invalid."
[...]
"Fama and French (2001) predict that the future dividend growth rate will repeat a historic average; they do not project faster growth due to today’s low dividend payout ratio."

In other words, the primary driver of the earnings increase you've noted is an increase in market multiples, and not having anything to do with dividends. In fact, this range of scholars appears to find no correlation whatsoever between dividend payouts and stock prices.

Quote:
Originally Posted by 3 Yrs to Go
Dude, you can quote yourself all you want and pretend it says something it doesn't . . . or you could simply say "I was wrong."

Will you be following your own advice at this juncture?
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Re: Dividend Stocks in place of Bonds
Old 05-20-2007, 02:28 PM   #90
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Re: Dividend Stocks in place of Bonds

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Originally Posted by 3 Yrs to Go

Huh?? Average recovery for unsecured bonds in bankruptcy is about 60 cents on the dollar. Average recovery for equity is just about 0.

Average 10-year default rate for investment grade corporates is something in the low single digit percentages. Average percentage of individual corporate equities that decline by 40% or more over a 10-year period . . . substantially higher.

Interesting data do you have a source? One thing that I wonder about when they quote default rates is are they really making a fair comparison. 6 years GM had an A credit rating well above junk.
If it goes bankrupt in the next few years is going to increase the default rate for investment grade corporates or because its been junk status for the last few years are its bonds not going to be considered "investment grade"?
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