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Dividends Historical Analysis
Old 11-30-2016, 11:58 AM   #1
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Dividends Historical Analysis

I was playing around with historical data on the S&P500, and got a hold of S&P500 return data from 1871 through 2015 that included Jan-Jan figures for overall return with and without dividend reinvestment and also with an without CPI adjustment (inflation).

I put this data into a text file and wrote a program to help analyze return numbers and make sense of the trends. I'm going to come up with some more analysis of this overtime, but something that struck me right from the start is the impact dividends have played on overall return over the last 145 years.

I started by looking at 30 ROLLING year averages:

It seems that in the 1870-1970 period dividends accounted for the vast majority of returns (often averaging about 70% of the total returns). In fact, from 1912-1942 dividends accounted for 5.87% CAGR growth and the total CAGR for that period was actually 5.80% meaning if you didn't reinvest dividends you'd have seen a loss overall for that 30 year period (a very rare thing). Dividends consistently sat within the 5.0-6.0% gain range over these long 30 year periods.

Continuing to look at these 30 year rolling returns... around 1940 (which would include the average return from 1940-1970) you see this downward trend in dividends yield through today. Consistently dropping each rolling 30 year period from 5.0 all the way down to our current 2.2%

Changing the rolling period to 10 years... you see decade by decade how things have changed:
decade - div yield CAGR - total CAGR (growth + dividend)
1870s: 6.6% | 9.9%
1880s: 5.2% | 5.7%
1890s: 4.4% | 5.7%
1900s: 4.8% | 12.0%
1910s: 6.0% | 4.7%
1920s: 6.1% | 15.5%
1930s: 5.4% | (0.2)%
1940s: 6.0% | 9.2%
1950s: 5.6% | 18.8%
1960s: 3.4% | 7.9%
1970s: 4.2% | 6.3%
1980s: 4.8% | 16.6%
1990s: 2.8% | 18.2%
2000s: 1.8% | (0.6)

2006-2016: 2.2% | 6.3%

I'm curious what the reason is that stock market returns have shifted away from dividends and towards... growth I assume? What is the reasoning behind this, and also is it a trend that looks to stay in place for the next 30-50 years... or does anyone think the markets will return to a dividend heavy model.
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Old 11-30-2016, 12:08 PM   #2
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Originally Posted by EvrClrx311 View Post
I'm curious what the reason is that stock market returns have shifted away from dividends and towards... growth I assume? What is the reasoning behind this, and also is it a trend that looks to stay in place for the next 30-50 years... or does anyone think the markets will return to a dividend heavy model.
I do not think the market has shifted away from dividends. The competing interest rates are so low, the dividend does not have to be as much.
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Old 11-30-2016, 04:17 PM   #3
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Does anyone know where I can find the average annual income dating back to 1870 (or at least back to 1900).

I'd be interested to run some analysis of birth year vs. FIRE probability... running a modeling of every birth year setting aside say 15% a year (annual average income) and seeing which ended up with the rosiest golden years... I'm curious to see which generations (or years) had it easiest for getting to FIRE based on market conditions for their career and retirement.

I'll have to look up bond rates also... and make some assumptions about modeling it off of AA consistently across the generations. I'm interested in digging a bit deeper than the FIRE calc here... just need to get my hands on the right kind of data
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Old 11-30-2016, 04:33 PM   #4
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Taxes have something to do with the shift in dividends. Total return is what counts.
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Old 11-30-2016, 04:57 PM   #5
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Originally Posted by EvrClrx311 View Post
I'm curious what the reason is that stock market returns have shifted away from dividends and towards... growth I assume?
One reason: buybacks. The US has shifted away from dividends towards buybacks for two major reasons:
  • It's more tax efficient
  • It increases bonuses of senior management
A bit more background (look at the chart!):

Musings on Markets: Stock Buybacks: What is happening and why?

Also, if you want some more data:
Online Data - Robert Shiller

Have fun!
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Old 12-02-2016, 10:17 AM   #6
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So another thing I thought to check with this was the impact of birth year on ability to accumulate wealth from the stock market. I came up with this first pass simplistic model, to outline what a difference a decade can make in when you started your working career. I'm fascinated by this, although it doesn't come as any surprise that getting horrible returns (or a recession) just before retirement would be a bad thing, it is still interesting to think that our ability (or rather the ease at which we get there) to create financial freedom from the market also depends on factors outside of our control.



Modeling Wealth Accumulation:

In this example I decided to explore what happens when a person consistently saves over their career. For this one I decided to make this accumulation phase 40 years (which could roughly correlate to someone starting to work at 22 and retiring at 62). I could tweak these numbers (and will in future models) but decided to just keep it simple for this first pass. So in this example we will assume the following:

* Starting Salary (in 2016 dollars) $30,000; individual saves 15% of salary every year for 40 years

* Annual salary raises of inflation + 1.25% (which would bring the persons salary to $48,699 at the age of 62, in 2016 dollars)

* (CPI) numbers are used in order to factor out inflation - or bring all examples to 2016 dollars. This allows us to compare market conditions in 1880s (using 2016 dollars) based on the above assumptions, to get apples to apples comparison of performance. Basically, we're not looking at the actual growth of your money in real value, but rather the growth minus inflation... or what your buying power would increase to. (It does no good to say today... yay I'll have $1,000,000 in retirement in 2050... if things cost twice as much in 2050 as they do today, then it's be better to think of that as you'll actually only have $500,000 in 2016 dollars once you reached 2050.)



Results:

Over a career of 40 years with an initial salary of $30,000 (2016 dollars) and a 1.25% raise each year, setting aside 15% of your salary towards retirement... you would have set aside a total of $231,703 (2016 dollars) into your retirement account. The worst year to have started working would have been 1881, because a combination of inflation an lackluster market conditions in 1915-1920 would conspire to inhibit your retirement account as it reached the finish line. Despite 40 years of compounding and growth, you'd end up with just $370,769 in 2016 dollars (knowing what we know about the great depression... you'd likely experience a roller coaster in retirement as you'd see your account skyrocket in the 20's only to CRASH hard in 1929). It's no wonder by great grandfathers generation was so conservative when it came to investing. Their parents lived this, and they grew up in that environment.

The best year to have started your career would have been 1926, makes sense that starting your accumulation phase just as the depression hit would award you a starting point of buying equities on extreme sale. This is why people shouldn't run from recession markets but rather embrace them for the discount that they are. Strong market conditions in the late 60's led this person to a final figure of $2,110,297



Another interesting point is just how big a difference a few years can make... based on when you started accumulating. Someone who started working in 1968 would have seen their retirement account grow to $1,228,427 by 1998... but someone starting just two years later would have ended up with $692,122 because the last year before retirement they would have been hit by the dot com burst.

That's an anomaly, the median result of that kind of accumulation period is to end up somewhere in the $900K-$1.1M range. About half of all results fell in that range. But there were periods of time where the market continuously was above it... example starting your career between 1912 and 1934 always left you with above $1.1 million... and a median return around $1.7 million, with four of the cycles ending with above $2 million.



This brings me to an important point about this model... it's not all that ideal because people tend to move towards more conservative investments (introducing bonds) as they get closer to retirement. I'm going to track down the inflation adjusted bond return numbers and create an Asset Allocation situation for my next model that will follow this framework but have someone shift slowly towards more conservative investments in the later years of their accumulation phase. Also, what ends up happening is that people who don't quite have enough just work a few years longer... so the strict 40 years isn't all that realistic... but still helps to hammer down the point that even if you're diligent with savings, the market factors still dictate a bit of when you can actually pull the plug on working.

What might be more meaningful is to look at how many years (from each start date) it takes to accumulate say $1.5M by saving 15% of your salary every year.

Here are the results...
YEAR STARTED: 1871 bank passes $1.5M after 53 years
YEAR STARTED: 1872 bank passes $1.5M after 52 years
YEAR STARTED: 1873 bank passes $1.5M after 51 years
YEAR STARTED: 1874 bank passes $1.5M after 51 years
YEAR STARTED: 1875 bank passes $1.5M after 50 years
YEAR STARTED: 1876 bank passes $1.5M after 49 years
YEAR STARTED: 1877 bank passes $1.5M after 49 years
YEAR STARTED: 1878 bank passes $1.5M after 49 years
YEAR STARTED: 1879 bank passes $1.5M after 48 years
YEAR STARTED: 1880 bank passes $1.5M after 47 years
YEAR STARTED: 1881 bank passes $1.5M after 46 years
YEAR STARTED: 1882 bank passes $1.5M after 45 years
YEAR STARTED: 1883 bank passes $1.5M after 45 years
YEAR STARTED: 1884 bank passes $1.5M after 44 years
YEAR STARTED: 1885 bank passes $1.5M after 43 years
YEAR STARTED: 1886 bank passes $1.5M after 42 years
YEAR STARTED: 1887 bank passes $1.5M after 41 years
YEAR STARTED: 1888 bank passes $1.5M after 40 years
YEAR STARTED: 1889 bank passes $1.5M after 46 years
YEAR STARTED: 1890 bank passes $1.5M after 46 years
YEAR STARTED: 1891 bank passes $1.5M after 45 years
YEAR STARTED: 1892 bank passes $1.5M after 44 years
YEAR STARTED: 1893 bank passes $1.5M after 43 years
YEAR STARTED: 1894 bank passes $1.5M after 50 years
YEAR STARTED: 1895 bank passes $1.5M after 50 years
YEAR STARTED: 1896 bank passes $1.5M after 49 years
YEAR STARTED: 1897 bank passes $1.5M after 48 years
YEAR STARTED: 1898 bank passes $1.5M after 47 years
YEAR STARTED: 1899 bank passes $1.5M after 46 years
YEAR STARTED: 1900 bank passes $1.5M after 50 years
YEAR STARTED: 1901 bank passes $1.5M after 49 years
YEAR STARTED: 1902 bank passes $1.5M after 48 years
YEAR STARTED: 1903 bank passes $1.5M after 48 years
YEAR STARTED: 1904 bank passes $1.5M after 47 years
YEAR STARTED: 1905 bank passes $1.5M after 46 years
YEAR STARTED: 1906 bank passes $1.5M after 46 years
YEAR STARTED: 1907 bank passes $1.5M after 45 years
YEAR STARTED: 1908 bank passes $1.5M after 44 years
YEAR STARTED: 1909 bank passes $1.5M after 45 years
YEAR STARTED: 1910 bank passes $1.5M after 44 years
YEAR STARTED: 1911 bank passes $1.5M after 43 years
YEAR STARTED: 1912 bank passes $1.5M after 42 years
YEAR STARTED: 1913 bank passes $1.5M after 41 years
YEAR STARTED: 1914 bank passes $1.5M after 40 years
YEAR STARTED: 1915 bank passes $1.5M after 39 years
YEAR STARTED: 1916 bank passes $1.5M after 38 years
YEAR STARTED: 1917 bank passes $1.5M after 38 years
YEAR STARTED: 1918 bank passes $1.5M after 37 years
YEAR STARTED: 1919 bank passes $1.5M after 36 years
YEAR STARTED: 1920 bank passes $1.5M after 36 years
YEAR STARTED: 1921 bank passes $1.5M after 37 years
YEAR STARTED: 1922 bank passes $1.5M after 36 years
YEAR STARTED: 1923 bank passes $1.5M after 37 years
YEAR STARTED: 1924 bank passes $1.5M after 37 years
YEAR STARTED: 1925 bank passes $1.5M after 36 years
YEAR STARTED: 1926 bank passes $1.5M after 37 years
YEAR STARTED: 1927 bank passes $1.5M after 36 years
YEAR STARTED: 1928 bank passes $1.5M after 36 years
YEAR STARTED: 1929 bank passes $1.5M after 35 years
YEAR STARTED: 1930 bank passes $1.5M after 34 years
YEAR STARTED: 1931 bank passes $1.5M after 34 years
YEAR STARTED: 1932 bank passes $1.5M after 36 years
YEAR STARTED: 1933 bank passes $1.5M after 39 years
YEAR STARTED: 1934 bank passes $1.5M after 49 years
YEAR STARTED: 1935 bank passes $1.5M after 49 years
YEAR STARTED: 1936 bank passes $1.5M after 49 years
YEAR STARTED: 1937 bank passes $1.5M after 48 years
YEAR STARTED: 1938 bank passes $1.5M after 47 years
YEAR STARTED: 1939 bank passes $1.5M after 47 years
YEAR STARTED: 1940 bank passes $1.5M after 46 years
YEAR STARTED: 1941 bank passes $1.5M after 45 years
YEAR STARTED: 1942 bank passes $1.5M after 44 years
YEAR STARTED: 1943 bank passes $1.5M after 46 years
YEAR STARTED: 1944 bank passes $1.5M after 45 years
YEAR STARTED: 1945 bank passes $1.5M after 46 years
YEAR STARTED: 1946 bank passes $1.5M after 45 years
YEAR STARTED: 1947 bank passes $1.5M after 45 years
YEAR STARTED: 1948 bank passes $1.5M after 45 years
YEAR STARTED: 1949 bank passes $1.5M after 46 years
YEAR STARTED: 1950 bank passes $1.5M after 45 years
YEAR STARTED: 1951 bank passes $1.5M after 45 years
YEAR STARTED: 1952 bank passes $1.5M after 44 years
YEAR STARTED: 1953 bank passes $1.5M after 43 years
YEAR STARTED: 1954 bank passes $1.5M after 43 years
YEAR STARTED: 1955 bank passes $1.5M after 42 years
YEAR STARTED: 1956 bank passes $1.5M after 41 years
YEAR STARTED: 1957 bank passes $1.5M after 41 years
YEAR STARTED: 1958 bank passes $1.5M after 40 years
YEAR STARTED: 1959 bank passes $1.5M after 39 years
YEAR STARTED: 1960 bank passes $1.5M after 38 years
YEAR STARTED: 1961 bank passes $1.5M after 38 years
YEAR STARTED: 1962 bank passes $1.5M after 37 years
YEAR STARTED: 1963 bank passes $1.5M after 36 years
YEAR STARTED: 1964 bank passes $1.5M after 48 years
YEAR STARTED: 1965 bank passes $1.5M after 48 years
YEAR STARTED: 1966 bank passes $1.5M after 47 years
YEAR STARTED: 1967 bank passes $1.5M after 46 years
YEAR STARTED: 1968 bank passes $1.5M after 45 years
YEAR STARTED: 1969 bank passes $1.5M after 44 years
YEAR STARTED: 1970 bank passes $1.5M after 44 years
YEAR STARTED: 1971 bank passes $1.5M after 43 years

What I found particularly remarkable about these results is that someone who started working in 1931 setting aside 15% of their modest pay reached $1.5M in just 34 years... while someone who started just 3 years later in 1934 had to work an extra 15 years longer to achieve the same level of financial security. A combination of inflation in the 70's and a 50% surge in the market in 1933 that got the compounding started early, created this disparity.*

Maybe this needs a new thread as I'm not talking about dividends anymore? Or may be easier to just keep it all together in this thread. I'll post more as I have the time to check out other scenarios
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Old 12-02-2016, 10:53 AM   #7
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The average person in my parents' time and earlier wasn't buying stocks and bonds (well, maybe some savings bonds). So looking at the market doesn't really apply, does it?
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Old 12-02-2016, 10:59 AM   #8
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The average person in my parents' time and earlier wasn't buying stocks and bonds (well, maybe some savings bonds). So looking at the market doesn't really apply, does it?
Good point, I have to admit that I'm ignorant to the time period... I'm in my 30's. Doesn't surprise me though that it wasn't easy a century ago to buy stocks.

Was that by design (such as only the rich having access), or due to lack of available knowledge in how to do so?
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Old 12-02-2016, 11:20 AM   #9
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Good point, I have to admit that I'm ignorant to the time period... I'm in my 30's. Doesn't surprise me though that it wasn't easy a century ago to buy stocks.

Was that by design (such as only the rich having access), or due to lack of available knowledge in how to do so?
You should read this book if you want insight into what the investment climate was like in the 1930's, The Great Depression, A Diary: https://smile.amazon.com/Great-Depre...+of+depression

Probably this is available in your public library. I think all investors should take a look at this book. When I form my investment choices, I have to prepare for the worst and this was near the worst historically.
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Old 12-04-2016, 07:00 AM   #10
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A bit of flavor here also:
https://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929

One thing that struck me was that people simply had no idea what stocks were actually trading at - the ticker tape was hours if not days behind reality.

Total chaos. It wasn't by design, it was because of technology (lack of).
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Old 12-04-2016, 07:18 AM   #11
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Interesting. Theoretically if markets were completely efficient, which it is not, the reduction of dividend rates meant there are more opportunities for investment (vs. return of excess capital to shareholders). I think the real reasons why you see this trend are investing in stocks becoming more mainstream, different taxation models, and shifting toward more equities (vs. bonds).

It would be interesting to add inflation rates, P/E, and tax rates on capital gains and dividends to your data set.
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Old 12-04-2016, 04:11 PM   #12
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......
I'm curious what the reason is that stock market returns have shifted away from dividends and towards... growth I assume? What is the reasoning behind this, and also is it a trend that looks to stay in place for the next 30-50 years... or does anyone think the markets will return to a dividend heavy model.
Besides buybacks enriching upper management.

Could another reason be that dividends were simply increased slower as they are a fixed cost to be met vs growth in share price, so easier for management to mange.
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