The chart comes to us from Michael Gayed of Pension Partners, who points out that investors preferences for dividend versus the broader index is revealing of investor psychology:

“We all know that markets continuously go through ever-changing cycles of fear and greed, defense and offense right? Much like a pendulum, investor sentiment swings and goes through cycles as well. The above chart shows the price ratio relationship of the S&P 500 Dividend ETF (SDY) relative to the S&P 500 itself. A rising price ratio means that dividend stocks (SDY) are outperforming capital appreciation stocks (SPY). Notice outperformance means being either up more, or down less.

What do you guys notice here, particularly as it relates to the 0.43ish level over the past three years? Notice early 2009 (bull market following March low), late 2010 (start of QE2 equity rally), and where we are now. Is the pendulum finally swinging away from dividends and back to favoring capital appreciation? Does this suggest the bull market may indeed be real this time despite continued concerns over Europe?

Remember – price is truth. What you and I think does not matter. The only thing that matter is what the person we’re selling to thinks After all, that’s what sets price.”


Michael A. Gayed, CFA is Chief Investment Strategist at Pension Partners, where he structures portfolios. Prior to this role, Michael served as a Portfolio Manager for a large international investment group, trading long/short investment ideas in an effort to capture excess returns. In 2007, he launched his own long/short hedge fund, using various trading strategies focused on taking advantage of stock market anomalies. Michael earned his B.S. from New York University, and is a CFA Charterholder.

Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

9 Responses to “Preference for Capital Gains over Dividends Reveal Investor Psychology”

  1. Sechel says:

    Dividends are paid out of actual cash, and as such companies are much more careful to raise them when they believe they can be maintained. Companies get punished severely when they lower or eliminate dividends. I do agree that investor disregard for dividend payment(which historically is a huge contributor to stock performance) is an extreme version of risk on.

  2. Pantmaker says:

    Note this chart simply tracks “outperformance”…still gonna look like this if/when all asset classes collapse together. This gets my “who gives a crap” award. 2012 at these levels is not going to be a “risk on” success story…and man am I sick of the term “risk on”.

  3. Futuredome says:

    True, but they have been muddling for about 3 years now.

  4. “Remember – price is truth.”

    is that Correct?

    maybe, here..

    “… While most economists have come to agree that the pricing process is the most efficient method of allocating goods, its full implications have not been completely recognized.

    One woefully underdeveloped area of the theory of the pricing process remains the theory of capital, which could also be called the theory of the intertemporal pricing process (“intertemporal” because production takes place over time). In other words, how do prices regulate the distribution of goods through time? That is, how do prices affect the distribution of capital goods in an economy throughout the various stages of production?…”

    “…Thus, while the structure of production lengthens and widens in accordance with changes in the pricing process, there is simply an insufficient amount of saved real goods. When prices readjust, after a deceleration or the end of monetary expansion, the true nature of the scarcity of capital-goods is unveiled. Investments that were made are shown to be unsustainable, simply because there are not the required amounts of capital goods to finish them.

    Few people were aware of the risk involved in the loans being made, because the Federal Reserve unknowingly manipulated the pricing process in such a way that it masked the true nature of the market. For all intents and purposes, investors genuinely believed in the relative safety of their decision making. The 2008 collapse of the market came as a surprise precisely because the pricing process suddenly adjusted to show how unsustainable the housing boom was.

    There was no “irrational exuberance”; the exuberance was completely rational given the price signals at the time. A mass of market agents had simply been misled by a distortion-inducing monetary policy and a flawed, monopolized banking system…”

    We may gain, further, *Insight..

    “Price”, at any given Time, is just that–Produced at the margins..

    to equate it with “Truth” may be, deeply, deceiving..

  5. VennData says:

    “Price”, at any given Time, is just that–Produced at the margins..to equate it with “Truth” may be, deeply, deceiving..”

    OK, IBM lot sold to you at 10% above the close.

    LOL at the Right-Wing Austrian nonsense.

  6. VD,

    you, truly, are a communicable disease..

    with..”…OK, IBM lot sold to you at 10% above the close…”

    you are, merely, engaging in, yet, more of your ‘Command and Control’-fantasies..

    ‘Mutual Agreement’ and ‘Coercion’, contra to your misconception(s), lie not on the same side of the Bed..

  7. SWMOD52 says:

    I know folks like Barry believe you can time the market but 99% of us cant.

    Get paid quarterly.

  8. Futuredome says:

    Hoffer, you are in the command and control fantasies. Commanding from Mises himself, whore of the Rockafeller foundation.

  9. Futuredrome,

    that may be, but, do, tell me how ”…OK, IBM lot sold to you at 10% above the close…” bears, any, semblence to “Price”–as was discussed in the Post, above (…The only thing that matter is what the person we’re selling to thinks After all, that’s what sets price…from Michael Gayed)