Posts filed under “Dividends”
With dividend payments at an all-time high and much of the Treasury yield curve effectively at zero, dividend-paying stocks have been in vogue as of late. Many investors are willing to reach out a bit further on the risk curve to capture this extra yield.
Rather than viewing dividend stocks as a way to capture extra yield, in the past we have stressed that dividend stocks should simply be viewed as a slightly less risky form of stock investing. As such, we should expect dividend- paying stocks to outperform during bear markets and underperform during bull markets.
By comparing the S&P Dividends Aristocrats Total Return Index and the S&P Equal Weight Total Return Index, we can see this is indeed the case. The S&P Dividends Aristocrats Index measures the performance of stocks in the S&P 500 that have consistently increased dividends for at least 25 consecutive years. The index is equally weighted, so we compare its total return to that of the S&P 500 Equal Weight Index.
During the bear market from October 11, 2007 to March 6, 2009, dividend-paying stocks outperformed the S&P 500 Equal Weight Index by 11.6%. On an annualized basis, dividend stocks returned -35.74% versus -46.10% for the S&P Equal Weight Index.
During the bull market from March 6, 2009 to May 2, 2011, dividend-paying stocks underperformed the S&P 500 Equal Weight Index by 42.4%. On an annualized basis, dividend stocks returned 44.38% versus 56.64% for the S&P Equal Weight Index.
Click to enlarge:
During the bear market from May 2, 2011 through October 3, 2011, dividend-paying stocks outperformed the S&P 500 Equal Weight Index by 9.40%. On an annualized basis, dividend stocks returned -28.22% versus -45.26% for the S&P Equal Weight Index.
During the latest bull market from October 3, 2011 through March 15, dividend-paying stocks underperformed the S&P 500 Equal Weight Index by 6.94%. On an annualized basis, dividend payers returned 63.41% versus an annualized return of 84.33% for the S&P 500 Equal Weight Index.
To be sure that these past few bull/bear markets were the rule and not the exception, we also compared total returns of these two indices on all days when the S&P Total Return Index was up versus all days when the S&P Total Return Index was down. With data going back to the beginning of 1990, dividend-paying stocks returned an average of 66 basis points per day on days the stock market was up. The S&P Equal Weight Index returned an average of 78 basis points per day on those same days. On days the stock market was down, dividend-paying stocks returned an average of -67 basis points per day. The S&P Equal Weight Index returned an average of -81 basis points per day.
Rather than being concerned with reaching for yield, the charts and data on this slide and the previous slide suggest dividend stocks outperform during bear markets and underperform during bull markets. However, if investors are savvy enough to know which way the market was heading in general, why even bother distinguishing between dividend- paying stocks and non-dividend-paying stocks?
Charts Of The Week
Pictures of Current Interest
March 21, 2012
> Although markets have already rallied strongly in 2012, the move is still early if current price ratio trends behave similarly to recent history. The chart shows the price ratio of the SPDR S&P Dividend Index ETF (SDY) relative to the S&P 500 (SPY). A rising price ratio means dividend-oriented stocks are outperforming (risk-off), while…Read More
“We remain concerned over their ability to withstand stress in an uncertain economic environment. We strongly encourage [that the Fed’ delay any dividends or compensation increases until they can show that their earnings are strong and their assets sound. Given the continued uncertainty in the markets, we do not believe it is the right time…Read More
Nice SocGen expression of how the search for yield has manifested itself in different asset classes: > Click to enlarge Source: Societe General – Cross Agent Research The Global Income Investor January, 30, 2012
From this weekend’s Barron’s, a look at stocks that do — and don’t — have decent dividends: “The benchmark Standard & Poor’s 500 index has a dividend yield of just 2%, one of the lowest of any major global market. European stocks yield an average of nearly 5%, and even the historically low-yielding Japanese stock…Read More
The Wall Street Journal – Dividend Stocks Become the Heroes This year, the 100 stocks in the Standard & Poor’s 500-stock index with the highest dividend yields are up an average of 3.7% before dividend payouts, according to Birinyi Associates. The 100 lowest-yielding stocks are down an average of 10%. Dividend yield is calculated by…Read More
Seeking Alpha – Why Dividends Matter In A Changing Market Lately, it seems that dividend investing has become all the rage. Articles are being written at just about every financial site, talking about dividends. When you look at Money Watch, MSN Money, Kiplinger, Money Magazine, Forbes, Smart Money, and even here at SA, there is…Read More
Mike Santoli disusses valuation in this weeks Barron’s: “With those earnings coming, the question is whether the market has already paid for good results in returning to the upper end of its 2011 range. That’s another way of asking how stocks are valued here. The answer probably is fairly at best, and thus the market…Read More
The Fed is giving the green light to banks to resume paying divvies. I guess this means things are okay, everything is getting back to normal. This must also mean their extraordinary accommodation via zero interest rates should be ending soon as well, right? “The Federal Reserve cleared some of the 19 largest U.S. banks…Read More