Dividends are a cornerstone of equity investing and over the decades they have produced a significant portion of the stock market’s total return. Previous Leuthold research has identified a strong dividend influence on total returns for small and midcap companies. Looking at S&P 500 constituents, we see that dividend growers outperformed companies that had flat or declining dividends – an expected outcome. However, we also found that companies not paying dividends convincingly outpaced dividend payers. This is contrary to the results in other market segments, but the explanation for this becomes apparent in the course of our research.
Dividends are a cornerstone of equity investing and, over the decades, they have produced a significant portion of the stock market’s total return. Previous Leuthold research has identified a strong dividend influence on total returns for small and mid-caps; a client recently asked if we found the same effect in the universe of S&P 500 companies. Specifically, have S&P 500 dividend-payers outperformed non-payers, and, second, have dividend growers outperformed non-growers?
Companies are returning cash to investors at a level never before seen. Does the historically high level of cash being returned to shareholders crowd out the use of cash elsewhere? One wide-spread concern is that by shelling out cash through dividends and share buybacks, companies are spending less on capital expenditures. Is that a real concern?
Companies are returning cash to investors at a level never before seen. Counting dividend payouts and outstanding share repurchases, the amount of cash returned back to investors crossed the $1 trillion mark for the first time in January 2016 (based on trailing twelve-months’ total for the largest 500 companies, Chart 1).
Share repurchases have been a major driver in the extension of the bull market, but this month’s “Of Special Interest” outlines several factors which are likely to contribute to a deceleration in corporate repurchase activity over the next several quarters.
In this business, it is often best to conveniently forget what was said in the past. But unfortunately, when the opinions are written down and published, this does not always work. At any rate, this publication has a sometimes embarrassing commitment to full disclosure. So again, we will include our old (1986) crystal ball gazing right along with this year’s predictions.
The current 1974-1986 secular bull market period is similar to the 1949-1962 period (not 1921-29) in a number of ways. In this study, we compare earnings and dividend trends, as well as price action. If the 1949-1962 script is playing over again, the P/E expansion may be about over, with a non-economic bear market due.
In this “In Focus” feature, 103 years of common stock dividend yields are compared. Today’s prevailing yields are put in historic perspective. Then various future stock market models are constructed, employing a variety of future earnings and dividend growth rates. Considering dividend yield history, the “super bulls” target of DJIA 3000 before the end of the decade seems close to impossible.