Author Topic: only 1.4% dividends?  (Read 5010 times)

mohawkbrah

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only 1.4% dividends?
« on: March 18, 2016, 01:39:26 PM »
So im from the UK and im investing in the Vanguard US equity index fun


linky - https://select.bestinvest.co.uk/fund-factsheets/vangusei/vanguard-us-equity-index-acc#overview

is this sort of low dividends usual for US equity?

i only ask because the UK equity index has a dividend of 4.7% atm (albeit poorer overall returns)

johnny847

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whodidntante

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Re: only 1.4% dividends?
« Reply #2 on: March 18, 2016, 10:40:57 PM »
I've been buying more ex US stocks since the dollar became strong.  The grass is always greener on the other side. 

GrowingTheGreen

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Re: only 1.4% dividends?
« Reply #3 on: March 19, 2016, 09:03:52 AM »
The dividend for the S&P 500 is very low in comparison to what it has been in at other times:

S&P Historical Dividend (Real Dollars).  Using January Data.
1950: 6.8%
1960: 3.2%
1970: 3.5%
1980: 5.1%
1990: 3.8%
2000: 1.17%
2016: 1.9-ish%

Source: http://www.econ.yale.edu/~shiller/data.htm

protostache

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Re: only 1.4% dividends?
« Reply #4 on: March 19, 2016, 09:37:39 AM »
The dividend for the S&P 500 is very low in comparison to what it has been in at other times:

S&P Historical Dividend (Real Dollars).  Using January Data.
1950: 6.8%
1960: 3.2%
1970: 3.5%
1980: 5.1%
1990: 3.8%
2000: 1.17%
2016: 1.9-ish%

Source: http://www.econ.yale.edu/~shiller/data.htm

The popular thing to do for the past decade or so has been to return money to shareholders via share buyback programs. This increases earnings per share, which is one of the more popular ways to gauge compensation for CEOs. If you're a CEO with a lump of cash to return to shareholders and your options are a) pay them with cash dividends or b) decrease the outstanding share count, thus gaming EPS, thus raising your bonus in the following quarter, which would you do?

GrowingTheGreen

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Re: only 1.4% dividends?
« Reply #5 on: March 19, 2016, 09:53:29 AM »
The dividend for the S&P 500 is very low in comparison to what it has been in at other times:

S&P Historical Dividend (Real Dollars).  Using January Data.
1950: 6.8%
1960: 3.2%
1970: 3.5%
1980: 5.1%
1990: 3.8%
2000: 1.17%
2016: 1.9-ish%

Source: http://www.econ.yale.edu/~shiller/data.htm

The popular thing to do for the past decade or so has been to return money to shareholders via share buyback programs. This increases earnings per share, which is one of the more popular ways to gauge compensation for CEOs. If you're a CEO with a lump of cash to return to shareholders and your options are a) pay them with cash dividends or b) decrease the outstanding share count, thus gaming EPS, thus raising your bonus in the following quarter, which would you do?

Very insightful comment. So, in your opinion, do you see dividends remaining low? What caused this shift? Surely CEOs had cash to return in the 50s through 80s.

protostache

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Re: only 1.4% dividends?
« Reply #6 on: March 19, 2016, 10:09:26 AM »
The dividend for the S&P 500 is very low in comparison to what it has been in at other times:

S&P Historical Dividend (Real Dollars).  Using January Data.
1950: 6.8%
1960: 3.2%
1970: 3.5%
1980: 5.1%
1990: 3.8%
2000: 1.17%
2016: 1.9-ish%

Source: http://www.econ.yale.edu/~shiller/data.htm

The popular thing to do for the past decade or so has been to return money to shareholders via share buyback programs. This increases earnings per share, which is one of the more popular ways to gauge compensation for CEOs. If you're a CEO with a lump of cash to return to shareholders and your options are a) pay them with cash dividends or b) decrease the outstanding share count, thus gaming EPS, thus raising your bonus in the following quarter, which would you do?

Very insightful comment. So, in your opinion, do you see dividends remaining low? What caused this shift? Surely CEOs had cash to return in the 50s through 80s.

Prior to 1982 it was difficult for companies to buy back their own shares because SEC rules prohibited it (they were considered a form of fraudulent market manipulation). So, prior to 1982 the only way to return money to shareholders was via dividends. After 1982 companies could make share repurchases under certain circumstances in rule 10b-18, and in 2003 the SEC adopted modifications to the rules that sort of blew the doors open.

The other thing to keep in mind is that two of the top 10 components of the S&P 500 pay no dividends right now because they consider themselves "growth" companies. I.e. Facebook and Alphabet have lots of opportunities for reinvestment and thus have little cash available to return, whereas Johnson and Johnson, AT&T, and PG all have healthy, stable profit margins and fewer opportunities for growth, so they pay dividends and have big share repurchase programs. The other company in the top 10 that doesn't pay any dividends is Berkshire Hathaway, and Buffett and Munger have explained many times why they don't.

Edit to answer your question: with regards to the S&P 500, I have no idea. It depends a lot on what happens to Alphabet and Facebook. Assuming they don't go bust, at some point they'll run out of opportunities and be forced to return money to shareholders in some fashion.

There will always be companies that pay dividends. For example, the oil majors pay big dividends, partly to compensate shareholders for massive, multi-decade fluctuations in share prices. Large stable non-cyclical consumer products companies like PG, General Mills, and Pepsi all pay reasonable dividends and are in no danger of evaporating. Hershey is also interesting, because it essentially exists to fund the Hershey School via dividends on the class B shares. 10% of the company is owned by the trusts that fund the Hershey School via these class B shares which have 10 votes each and give the trusts voting control. In addition, each B share gets a 10% dividend premium on top of the common share dividends each common share gets 10% more dividends on top of what the class B shares get.
« Last Edit: March 19, 2016, 10:23:42 AM by protostache »

dreams_and_discoveries

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Re: only 1.4% dividends?
« Reply #7 on: March 20, 2016, 02:59:09 AM »
See I'm using this to my advantage - dividends are highly taxed for me at the moment, so my taxable account has a US trackers only - the lowest dividend rate I could find. I'm counting on capital growth, which we get tax free allowances for each year that I never use. I keep all the high dividend UK stocks in my tax free ISA.

seattlecyclone

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Re: only 1.4% dividends?
« Reply #8 on: March 20, 2016, 08:33:05 AM »
As a shareholder I prefer buybacks to dividends. Buybacks return capital only to people who wanted to sell their shares anyway, giving unrealized gains to the rest of us. This lets me pay less tax now, and maybe none at all if the 0% rate for lower-income folks continues after I retire.

johnny847

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Re: only 1.4% dividends?
« Reply #9 on: March 20, 2016, 09:35:50 AM »
As a shareholder I prefer buybacks to dividends. Buybacks return capital only to people who wanted to sell their shares anyway, giving unrealized gains to the rest of us. This lets me pay less tax now, and maybe none at all if the 0% rate for lower-income folks continues after I retire.

Same here.

Of course, the first step to reaching this conclusion is to realize that every time a dividend is issued, the share price drops by the value of the dividend, but some people on this forum can't seem to get that through their head.

protostache

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Re: only 1.4% dividends?
« Reply #10 on: March 20, 2016, 01:36:20 PM »
As a shareholder I prefer buybacks to dividends. Buybacks return capital only to people who wanted to sell their shares anyway, giving unrealized gains to the rest of us. This lets me pay less tax now, and maybe none at all if the 0% rate for lower-income folks continues after I retire.

Same here.

Of course, the first step to reaching this conclusion is to realize that every time a dividend is issued, the share price drops by the value of the dividend, but some people on this forum can't seem to get that through their head.

Technical truth is the best kind of truth. Because yes, while the market makers tend to adjust the previous day close price by the dividend amount prior to the opening auction, it really doesn't matter except to the short term traders that used to be able to arbitrage dividend dates. For everyone else, short term fluctuations in price for any reason are completely irrelevant. The only thing that matters is long term total return.

FIRE4Science

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Re: only 1.4% dividends?
« Reply #11 on: March 23, 2016, 11:05:44 AM »
I think it's because Index funds are overpriced right now and thus "Extremely High", since bonds and real estate are so high also and investors want to park their money with the herd and not think too much.