| The correlation between
high yielding equities and attractive long term performance has
been exhaustively studied over the past few years. Most studies
point to a positive impact of dividends on investment returns. We
have included a few of the studies on this page as we hope that
they will provide you with some insight into a time-tested approach
to investing in the equity markets. |
| Rolling
Excess Return of High-Yield Stocks vs. S&P 500 |
This chart illustrates the
rolling excess return of high-yield stocks
over the S&P 500 over 3, 5, 7, and 10-year periods. HIgh-yield
stocks
outperformed the S&P 500 in 71% of the 3-year periods and 84%
of the
10-year periods. |
|
Global
Dividend Strategy
Credit Suisse (Jan. 2009)
|
In
the majority of markets examined, the maximum performance was
delivered by companies with high dividend yields and low payout
ratios. Stocks with high yields generally outperformed those with
low yields in all markets examined.
|
|
Returns
of S&P 500 Stocks by Dividend Policy
Ned Davis (Nov 2004)
|
A
look at stock market returns from 1972 based on dividend policy.
Dividend growers and initiators gained 10.6% annum vs. a 4.3%
gain per annum for non dividend-paying stocks.
|
|
Initial
Look at Dividend Slices
Graphs
of Dividend Slices
John Walter Russell (2007-2008)
|
Among
dividend paying companies (slices B, C and D), the regression lines
are nearly parallel. To an excellent approximation, companies with
higher dividend payments have higher returns. That is, slice D is
consistently better than slice C, which is consistently better than
slice B. |
|
Surprise!
Higher Dividends = Higher Earnings Growth
Robert Arnott and Clifford S. Asness (December
2001)
|
Finds
that low payout ratios historically precede low earnings growth.
Empirical facts conform to a world in which managers possess private
information that causes them to pay out a large share of the earnings
when they are optimistic and a small share when they are pessimistic.
The facts also fit a world in which low payout ratios lead to inefficient
empire building, the funding of less-than-ideal projects and investments,
leading to poor subsequent growth, while high payout ratios lead
to more carefully chosen projects with relatively high returns. |
|
Keeping
Faith with Stocks (excerpt from Credit Suisse Global Investment
Returns Yearbook 2009)
Elroy Dimson, Paul Marsh and Mike Staunton (2009)
|
Breaks
out the historical equity premium into three components: (i) geometric
mean dividend yield net of the real risk free rate, (ii) annualized
growth rate of real dividends, (iii) the annualized change in
the price/dividend ratio over time. Finds that the dividend yield
has been the dominant factor historically. $1 invested in US stocks
at the start of 1900 and reinvesting all dividend income would
have grown in purchasing power by 582 times, vs. 6 times for price
only return and 10 times for bonds.
|
|
The
Case for a High and Growing Dividend Stock Strategy in Retirement
Portfolios
Jack Garnder (2008)
|
An
allocation to high-dividend-paying stocks had a significantly
positive impact on both the portfolio's withdrawal rate and its
sustainability.
|
|
The Future
for Investors (chart taken from book)
Link
to book information
Jeremy Siegel (2005)
|
Jeremy
Siegel ranks the S&P 500 by dividend yield from 1957 to 2002.
The highest yielding quintile (top 20% of S&P 500 based on yield)
produced an annualized return of 14.27% vs. an annualized return
of 11.18% for the S&P 500 Index. |
|
Dividends
and the Three Dwarfs
Robert Arnott (2003)
|
Dividends
are the main source of the real return we expect from stocks. Dividends
not only dwarf inflation, growth, and changing valuation levels
individually, but they also dwarf the combined importance of inflation,
growth, and changing valuation levels. |
|
Company
Size and Stock Style Do Matter When Determining How Best to Use
Corporate Cash
DeMarche Associates (2006)
|
Looks
at corporate uses of free cash flow as a valuation metric. Examines
possible uses of cash - dividend increases, stock buy back, mergers
and acquisitions, research and developement, capital expenditures.
For the period 1990 - 2005, companies that use their free cash
flow to increase dividends outperformed companies that utilitized
their cash in other ways.
|
|
Dividend
Yields and Stock Returns: Evidence from a Country without Taxes
Michael Lemmon and Thanh Nguyen (March 2008)
|
The
positive relation between dividend yields and stock returns is
often attributed to tax policies. This study documents a robust
dividend yield effect in the Hong Kong market where neither dividend
income nor capital gains are taxed.
|
|
Do
Dividends Matter More in Declining Markets?
Kathleen Fuller and Michael Goldstein (Dec. 2005)
|
The
short answer is yes. Dividend-paying stocks outperform
non-dividend-paying stocks by 1% to 1.5% per month in declining
markets than in advancing markets.
|
|
A
Robust Estimation of the Relation Between Stock Returns, Size,
Dividend Yield and Payout Ratio
I.D. McManus, O. Gwilym and S.H. Thomas (June
2002)
|
Examines
the relationship between Returns and Dividends in the context of
the UK Stock Market. Concludes that the Payout Ratio is an important
adjunct to Dividend Yield in explaining returns. |
|
Corporate
Cash Reserves and Acquisitions
Jarrad Harford (November 1998)
|
Cash-rich
firms are more likely than other firms to attempt acquisitions.
Stock return evidence shows that acquisitions by cash-rich firms
are value decreasing. |
|
The Effect
of Dividend Initiaitons on Stock Returns
Yanli Wang (April 2005)
|
Consistent
with previous studies, the results show that dividend initiations
have significantly positive effects on stock returns. |
