Dividends

Extrapolate the current state of affairs into the future at your own risk - “normalcy” is bound to return at some point.

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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.

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Leuthold’s thoughts about a potential near-term bull market correction, the current budget deficit, and observations on the political front.

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Dividends do matter, especially as an important component of total return. Also, a recent study published in the Financial Analyst Journal tries to get at the root of large cap, growth stock dominance in the 1990s.

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A March 30, 1998, WSJ piece reflects the optimism of this market, substituting earnings for dividends and ignoring any potential equity risk premiums.

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How much have dividends mattered in terms of historical stock market total returns, 1920 to date?

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Testing indicates that there is really only minimal stock market analytical value to the concept of “real” dividend yields. It is of very limited use in identifying overvalued markets on a short term basis. Longer term, we found no stock market analytical value here.

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Our “Testing the Yield” histogram supports a cautious equity market posture based on historical limited upside potential in periods of low dividend yield levels.

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T-bonds are now clearly in the lead in the 1995 Performance Derby. Do dividend yields matter? Polling the pros in Baltimore and Boston.

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“Polling the pros” in April, adjusting stock market dividend yields for “buybacks”, mutual fund flows, looking beneath the Finished Goods PPI, and the possibility of rising inflation and interest rates.

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In our view, the 1988 payout ratios below 40% do not (and should not) represent the start of a new contracting period in payout ratios. Rather, this current contraction is almost solely the result of the 1988 earnings explosion.

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Don Weeden’s two-in-one solution to the debt crisis…Do dividends matter anymore?

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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.

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With the market in a growth stock atmosphere, many don’t think dividends are important, but some of us do.

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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.

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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.

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