| |
| |
|
|
Let's begin with a look at the top chart, which is my monthly update of the S&P Composite and its dividend yield since 1871. As we can readily see, dividends have been shrinking over the past few decades, for reasons I mention in the update.
The second chart highlights the secular bull and bear markets since 1877. Obviously I'm ignoring individual 20% declines, the classic definition of a cyclical bear market, to keep our focus on the big picture. For example, the "Black Monday" the Crash of 1987, so stunning at the time, was little more than a nasty pothole on the steep climb from the 1982 bottom to the top of the Tech Bubble.
The Dividend Difference
So let's do some simple math on our table of annualized real returns for the secular trends in the second chart. The highlighted column shows the contribution of dividends by subtracting the annualized returns ex dividends from the annualized return with dividends included. The last column shows the percent change in the dividend yield from the previous trend.
The dividend return during the first cycle was right at 5% (4.99% in the table). The 14-year bear market from 1906 to the end of 1020 actually dividends increase by 8.4% (5.41% divided by 4.99% minus 1). The Roaring Twenties saw the dividends increase by 22.4%. During the Great Depression, the dividend yield fell slightly, but it still averaged above 5% for those twenty nasty years. But the decline in dividends continued. And during the last secular bear, they've been cut in half from the previous bull market.
The old strategy of living off dividends clearly isn't as feasible today as it was during previous secular trends.
As I've pointed out previously, even though our data covers a timeframe of nearly 140 years, there have been too few of these mega-cycles to make meaningful generalizations. Prior to the current bear, the shortest was the 14-year 1968-1982 bear. If last year was truly the bottom of the bear, it will take the record for brevity.
|
|
