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Cut-Throat
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wabmester
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- Dec 6, 2003
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You want to know the correct way to predict the future, eh? Of course, it depends on who you ask.
If you ask Bernstein, simply take the historic dividend growth of 4.5% and add the current dividend of 1.6%, and you get an expected nominal return of 6.1%:
http://www.efficientfrontier.com/ef/403/fairy.htm
Or, take the Bogle approach, and take the current dividend + a SWAG at future earnings growth + another SWAG at P/E growth, and you get around 7.5% nominal:
http://www.vanguard.com/bogle_site/sp20030605.html
According to Vanguard, today the 5-year average of earnings growth for TSM is 6.8%, the dividend yield is 1.63%, and the P/E is 21.1.
So, if you were to ask Bogle today, assuming he still thinks the market should have a P/E of 18, then he would expect:
1.63% + 6.8% - 16.7%/10 = 6.76% over the next decade
If you ask Bernstein, simply take the historic dividend growth of 4.5% and add the current dividend of 1.6%, and you get an expected nominal return of 6.1%:
http://www.efficientfrontier.com/ef/403/fairy.htm
Or, take the Bogle approach, and take the current dividend + a SWAG at future earnings growth + another SWAG at P/E growth, and you get around 7.5% nominal:
http://www.vanguard.com/bogle_site/sp20030605.html
According to Vanguard, today the 5-year average of earnings growth for TSM is 6.8%, the dividend yield is 1.63%, and the P/E is 21.1.
So, if you were to ask Bogle today, assuming he still thinks the market should have a P/E of 18, then he would expect:
1.63% + 6.8% - 16.7%/10 = 6.76% over the next decade
Cut-Throat--
Loved the Salmon picture, by the way.
Chuck-Lyn had this post on Gordon Equation from another thread:
<beginning of quote> checked the link you provided above. It states that
real dividend growth is roughly 2-3% per year. If
we use 2.5% real then the Gordon model projects
1.56% + 2.5% = 4.06% real for TSM, or about 7%
if you add back in inflation at 3%. The earnings
model cited in your link projects 4.7% real or about
7.7% with inflation. Both numbers suck but we have
to live with them, I suppose. <end of quote>
That falls in line with what I use, and I got it from Warren Buffet a few years ago -- basically 7% nominal, 4% real returns from equities. I do have value and small tilts, along with international (plenty of emerging markets) so I give myself a bit of a bump from these sometimes hard-to-accept numbers.
Now are we optimists, realists, curmudgeons or pessimists for using these projections?
ESRBob
Loved the Salmon picture, by the way.
Chuck-Lyn had this post on Gordon Equation from another thread:
<beginning of quote> checked the link you provided above. It states that
real dividend growth is roughly 2-3% per year. If
we use 2.5% real then the Gordon model projects
1.56% + 2.5% = 4.06% real for TSM, or about 7%
if you add back in inflation at 3%. The earnings
model cited in your link projects 4.7% real or about
7.7% with inflation. Both numbers suck but we have
to live with them, I suppose. <end of quote>
That falls in line with what I use, and I got it from Warren Buffet a few years ago -- basically 7% nominal, 4% real returns from equities. I do have value and small tilts, along with international (plenty of emerging markets) so I give myself a bit of a bump from these sometimes hard-to-accept numbers.
Now are we optimists, realists, curmudgeons or pessimists for using these projections?
ESRBob
how about:
The Two-Percent Dilution by Bernstein, which pretty much says that investors only actually got b/w 1-1.5% in real dividend growth. Dimson, Stanton, and Marsh seemed to agree - stupid share issuances. Add that to the say 1.5% of Vanguard's TSM or VFINX (depending on whether you use the yield from Vanguard or M*), and get around 2.5-3.0% real expected return on the stock market.
- Alec
The Two-Percent Dilution by Bernstein, which pretty much says that investors only actually got b/w 1-1.5% in real dividend growth. Dimson, Stanton, and Marsh seemed to agree - stupid share issuances. Add that to the say 1.5% of Vanguard's TSM or VFINX (depending on whether you use the yield from Vanguard or M*), and get around 2.5-3.0% real expected return on the stock market.
- Alec
