Posts filed under “Dividends”

Do Dividends Matter? Maybe Not!

  • MarketBeat (WSJ Blog) – Here’s Why You Should Care about Dividends: ‘Bladder Theory’
    A particularly pesky commenter has been tagging some our recent flurry of dividend-focused posts with this question: “Why do people care about the dividend yield? Doesn’t Modigliani-Miller imply we shouldn’t care except for tax reasons? And for tax reasons, it seems no dividend is better since you can choose when to realize a capital gain, but not a dividend.”…The theory suggests investors should be agnostic as to how stocks generate return. For instance, if a stock yields 10% a year, 3% might be in dividends and 7% might be capital appreciation. But if the company, had not decided to pay that money out in dividends that that cash would still belong to the shareholder. It would just be sitting on the balance sheet of the company instead of in the shareholder’s pocket. That cash balance would be incorporated into the market’s view of the company’s prospects, likely raising the capital appreciation component of its total return over time. That’s the theory at least. But in practice there’s an emerging sense it’s not always a good thing for companies to be rolling in cash. Some argue it might be a good discipline for management to be forced to pay out dividends.
  • MarketBeat (WSJ Blog) – BofA Quant: Dividends Strongest Performing Theme This Year
    Savita Subramanian, quantitative strategist for Bank of America Merrill Lynch says that dividend-oriented strategies have delivered the most consistent returns in 2010, but dividends are still an unloved part of the market:

In 2010, dividend oriented strategies have offered the strongest and most consistent returns despite the “risk-on / risk-off” nature of the market, and dividend yield and dividend growth are strategy leaders in the year to date. However, our work suggests we’re still in the early stages of building interest, given that dividend yield still remains a somewhat underutilized investment theme. Fund manager holdings show that Utilities, Staples and Telecom Services – sectors with the most attractive yield – are the most hated sectors, and have been for quite some time.


The table below breaks down the performance of the S&P 500 stocks by dividend yield:

  • The top of the table shows the performance of the 135 stocks that do not have dividends
  • The middle of the table breaks down 365 stocks stocks that do have dividends by quintile (1 =73 lowest dividend yielding stocks, 5 = 73 highest dividend yielding stocks)
  • Since these measures are calculated on an equal weighted basis, the bottom of the table shows a proper benchmark, the S&P 500 equal weight index
  • April 23, 2010 was the S&P 500′s 2010 high (1217.28)

What we found is rather surprising:

  • Year-to-date, owning dividend yielding stocks versus non-dividend yielding stocks has not mattered.  The differences shown are not material. This stands at odds with the comments highlighted above.
  • Since the high of the year, however, higher dividend yielding stocks (quintiles 4 and 5) have materially outperformed the lower dividend yielding stocks (quintiles 1 to 3) and non-dividend stocks.
  • Similarly, from December 31, 2009 to April 23, 2010, lower dividend yielding stocks (quintiles 1 to 3) and non-dividend yielding stocks outperformed the higher dividend yielding stocks (quintiles 4 and 5).


When the market is rallying (through April 23), the more speculative non-dividend and lower dividend yielding stocks outperform the more conservative higher dividend yielding stocks.  When the market is moving sideways-to-lower (since April 23), higher dividend yielding stocks outperform.

This is not new and not unique to this environment.  Instead this is fairly typical market action.  It suggests the opinion that dividend yielding stocks present a unique opportunity is not supported by market returns.

Category: Dividends, Think Tank

James Montier on the Importance of Dividends

JM Man Different Time 8-23-10

Category: Dividends, Think Tank

Stocks vs Bonds

My disdain for the efficient market hypothesis came about by observing the difference between the stock and bond markets.  It was apparent that the Fixed Income traders were of a “rational” mindset so often lacking in the equity world. Indeed, I have frequently called Bonds the market that acts as “Adult Supervision.” So I got…Read More

Category: Dividends, Markets, Valuation

Understanding Lehman & AIG

A quick Bailout Nation excerpt: The decision to allow Lehman Brothers to go belly up has been roundly criticized by many people as a mistake that cost AIG dearly. That turns out to be an incorrect conclusion, a classic causation versus correlation error. It is much more accurate to observe that the same factors that…Read More

Category: Bailouts, Credit, Dividends, Real Estate

GE Bows to Pressures of Rough Economy

Barron’s Bob O’Brien says that GE’s shares were down on an otherwise up day for equities, as shares dropped to trading below $6 a share, the lowest since 1991. Will slashing dividends hinder rather than help?


Category: Dividends, Earnings, Valuation, Video

JPM Slashes Dividend 87%

About time: “J.P. Morgan Chase & Co. slashed its quarterly dividend late Monday to save $5 billion a year and said that its first-quarter has been “solidly profitable” so far. Shares of the giant bank climbed 4.7% to $20.42 during after-hours trading. The stock closed down 2% at $19.51 during regular trading. The quarterly dividend…Read More

Category: Corporate Management, Credit, Dividends, Valuation

Dividend to Earnings Payout Ratio

Another killer chart from Bob Bronson: Since the S&P 500 dividend to earnings payout ratio has skyrocketed to 113% with dividends being cut at a record pace, the price-to-dividend ratio high for both the coming Supercycle Bear Market low and for the eventual end of the Supercycle Winter Period remains as elusive to panicking investors…Read More

Category: Dividends, Markets, Technical Analysis, Valuation

Citigroup Buybacks & Dividends: $66 Billion Dollars

David Reilly is on fire: judgment by bankers helped get us into this crisis. They relied too much on borrowed money, lent too freely to shoddy customers and got taken in by their own sophisticated financial models. So you would think the last thing anyone would want to do is rely more heavily on their…Read More

Category: Bailouts, Credit, Dividends

S&P 500: Dividend Aristocrats

Within the S&P 500 there are about 52 companies dubbed “Dividend Aristocrats,” which are companies that hiked their dividends for 25 consecutive years, like McDonald’s and Wal-Mart. Barron’s Johanna Bennett explains


Category: Dividends, Investing, Video

The Terrible Lessons of TARP

With the government now debating the release of the second half of the TARP funds, perhaps now is as good a time as any to look at how successfully spent the first $350 Billion dollars were. The evidence is not very favorable. What I can say without reservation is that the TARP spending prevented large…Read More

Category: Bailouts, Corporate Management, Dividends, Taxes and Policy