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Point 1: In my view the primary cause of shrinking dividends is asset inflation and anticipated future asset inflation.
The primary cause of asset inflation is credit expansion, which accompanies the structural decline in (many) interest rates. Demographics and increasing numbers of investors is also an issue.
Let's create a quick asset inflation example in the real estate world. An apartment building is for sale with 10 apartments that pay $500 per month. So that $5,000 per month is your dividend. So how does the price of the building work out?
As the price of assets is more than a little connected to the cost of money — the selling price of the building will be different with different interest rates — as few landlords pay cash.
Example A:
$500,000 for the apartment building
$3,243 per month 30 year fixed mortgage @ 6.750%
Rent Roll = $60,000
Effective Dividend (not including other expenses) = 12%
Example B:
$700,000 for the apartment building
$3,241 per month 30 year fixed mortgage @ 3.750%
Rent Roll = $60,000
Effective Dividend (not including other expenses) = 8.5%
Point 2: Interest rates are not set by a market. Short term rates are set as follows: The Kommissar of Ka$h puts on his big fur hat, looks up from his 900 sq. ft. mahogany conference table at one of the various Masonic symbols on the wall. Then, after going into a trance and channeling the soul of John Law, the short term rates are announced to the other FOMC members, who get up from their knees and call CNBC.
In reality, money is DEAR. If I had a going business that needed to borrow for expansion, that money would not be inexpensive. Of course Goldman Sachs could borrow for zero and lend me some. ZIRP is a distortion.
Long term rates have much input from market participants, but they can be drowned in a sea of new green paper. The FED can buy 30 year treasuries or mortgage backed securities, or backstop Fannie and Freddie — by creating Trillions in Symbolic Money.
Point 3: I disagree with the comment in the earlier feedback your received suggesting that as our financial system has developed, it has reduced risk, hence the lower dividend rates. I believe the opposite is true. Low interest rates are NOT a sign of low risk. They are a sign of massive credit expansion — and $50 TRILLION dollars of Total Credit Market Debt. The cost of "capital" has dropped — because we PRINT IT. A Federal Reserve Note is completely symbolic — it is an IOU Nothing.
While numerous things could cause a decline in interest rates, I believe that in our fiat world — ultra-cheap money reflects exhaustion of the credit system. It's a classic policy error — your society (at all levels) has Too Much Debt. De-leveraging means massive short-term pain and mass insolvency. So the Fed tries to get the credit cycle "re-started" at an insane level. Thus, low rates allow debtors to muddle through and not de-leverage. But too few new borrowers emerge to reflate the bubble economy because they have Too Much Debt. Modern societies with complex financial systems and central banks think they have the power to motor out of these sort of problems. But in reality all they can do is to take an acute problem and make it chronic.
Japan is one example of a post-bubble society. I think we are in worse shape fundamentally and would be lucky to have their current problems 20 years from now.
During the so-called "Robber Baron" era there was NO quadrillion dollar (notional) derivatives market, NO shadow banking system, NO major institutions with 40:1 leverage — and no electronic markets that can spread panic in a nanosecond.
NO bubble in US history compares to our current run-up.
At NO time in US history was our society comprehensively bankrupt — where not only were consumers and businesses in trouble — but the Federal Government itself is underwater by orders of magnitude more than the size of our annual economic output. Nor have we ever been so dependant on imported capital, oil and strategic materials.
We have too much debt and the credit system is exhausted. Think low-interest rates are a sign of economic health? How about JAPAN?
Markets are not efficient, rational or un-manipulated, and RISK is astronomically higher now than perhaps at anytime in our past.
Pathetic dividends from equities are a sign that said assets are overpriced — one of many signs.
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