In Search Of… Lost Stock Dividends?
17 Aug 2017
As a kid, I always loved a weekly series that aired from 1977 to 1982 called In Search Of, hosted by Leonard Nemoy. What better host could you have on a show dedicated to mysterious phenomenon than Mr. Spock himself? The Curse of Oak Island, The Disappearance of Amelia Earhart, and The Bermuda Triangle were among my favorite episodes. Here in the business of investing, we have our own mysterious phenomenon: “Where did dividends disappear to?” Most 401(k) plans offer a S&P500 index fund that American workers can invest in. The current dividend yield on the S&P500 is a futile 1.7%*! If you retired today, how would you like to live on $131/month? Based on a Fidelity Investments study, as of 2016, the average American worker has $92,500 invested in his/her 401(k), taking income now wouldn’t pay: ($92,500 x .017% = $1,572.50 / 12 months).
So “where did stock dividends disappear to?” Fortunately, we don’t have to go “In Search Of” any farther than Professor Robert Schiller and his 2013 Noble Prize winning lecture Speculative Asset Prices. Professor Schiller researched all the stock prices back to 1871 (he must not have too many other hobbies), in hopes to create a stock market chart to help the average investor. In doing so, Professor Schiller discovered that stocks have averaged 9.8% since 1871. In addition, Schiller discovered that dividends accounted for 4.5% of the stock market return! The historic dividend yield American workers should be getting is 4.5%. This means a pay raise for American workers from $131/mth to $346/mth, from reinvested dividends alone (4.5% vs. 1.7%). How did stock dividends get lost? Professor Schiller estimates that S&P500 companies are doing more “Stock Buy Backs”, over the last 5 years instead of paying out historical dividend rates. Are you ‘In Search Of” higher dividends?
* Sponsor companies can stop or reduce dividends at any time without prior notice & there is no guarantee of future income. Investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate with changes in market conditions and when redeemed, may be worth more or less than their original cost. Past performance is not a guarantee of future results. The Dow Jones Industrial Average and S&P 500 Index are an unmanaged measure of market conditions. It is not possible to invest directly into an index.