Dividends growing at higher rates than inflation?

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skor99
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Dividends growing at higher rates than inflation?

Post by skor99 » Mon Oct 09, 2017 2:21 pm

I have been looking at my dividend data from all my equity as well as bond holdings and see that in aggregate it has been growing between 6-10% per year - at an average of about 7.5 % . That is much higher than inflation.
Am I missing something or are other folks seeing the same thing ? Also, what does that signify ? Is it a normal bull mkt characteristic to have higher than inflation dividend growth or is it different this time ? 70-75 % of it is stock dividends with the rest from bonds .

jebmke
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Re: Dividends growing at higher rates than inflation?

Post by jebmke » Mon Oct 09, 2017 2:30 pm

Are you looking at specific dividend rates -- like the per share payout of Total Stock Market? Over what period. I don't keep track of dividends except for taxes so I am not sure. I think the long term trend (say, 100 years) dividends have beaten inflation by a little). I looked at this about 30 years ago and that was what I remembered from the data.
When you discover that you are riding a dead horse, the best strategy is to dismount.

david1082b
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Re: Dividends growing at higher rates than inflation?

Post by david1082b » Mon Oct 09, 2017 2:42 pm

Since 1990, S&P 500 dividend growth per year:

Mean: 5.87%
Median: 6.06%

http://www.multpl.com/s-p-500-dividend-growth

Boglegrappler
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Re: Dividends growing at higher rates than inflation?

Post by Boglegrappler » Mon Oct 09, 2017 2:54 pm

Some of my dividends have been growing pretty well over the past seven or eight years.

One of the things to be aware of is that dividends cannot grow faster than earnings grow, in the long run. Take a look at your companies and see if they are paying out a higher and higher share of earnings per share as dividends per share. If they are, either earnings are going to have to grow faster in the future to support the dividend growth, or dividend growth is going to slow down to match the pace of earnings growth.

My sense is that more than a few companies have been raising dividends more aggressively than might be justified.

mptfan
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Re: Dividends growing at higher rates than inflation?

Post by mptfan » Mon Oct 09, 2017 2:57 pm

Boglegrappler wrote:
Mon Oct 09, 2017 2:54 pm
One of the things to be aware of is that dividends cannot grow faster than earnings grow, in the long run.
That's not true. Although if you define "the long run" as 100 years, that may be true, but it is not true for long periods of years. A wise person once said "in the long run, we are all dead."

avalpert
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Re: Dividends growing at higher rates than inflation?

Post by avalpert » Mon Oct 09, 2017 3:38 pm

Since stocks appreciate at a rate higher than inflation wouldn't you expect your dividends to do so as well - I mean, the dividend yield would have to shrink at a rate faster than stocks real return for that not to be the case.

This is another red herring distraction driven by misguided focus on dividends rather than total returns.

avalpert
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Re: Dividends growing at higher rates than inflation?

Post by avalpert » Mon Oct 09, 2017 3:42 pm

mptfan wrote:
Mon Oct 09, 2017 2:57 pm
Boglegrappler wrote:
Mon Oct 09, 2017 2:54 pm
One of the things to be aware of is that dividends cannot grow faster than earnings grow, in the long run.
That's not true. Although if you define "the long run" as 100 years, that may be true, but it is not true for long periods of years. A wise person once said "in the long run, we are all dead."
That's right, as long as the dividend payout ratio is less than 1 than earnings growth is not a constraint on dividend growth - at some point if you kept outpacing earnings growth you would eventually hit that limit but we are a long way from there.

psteinx
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Re: Dividends growing at higher rates than inflation?

Post by psteinx » Mon Oct 09, 2017 3:49 pm

Boglegrappler wrote:
Mon Oct 09, 2017 2:54 pm
One of the things to be aware of is that dividends cannot grow faster than earnings grow, in the long run.
Not quite true (or at least too vague, as stated).
I would phrase it as

"Dividends cannot grow faster than the earnings yield, in the long run."

or,

"Dividends cannot grow faster than earnings per share, in the long run."

Imagine a company with $100M in earnings, paying out $20M of that in dividends, using the remainder to buy back shares (and doesn't otherwise issue any new shares). Even if total earnings for the company stay flat at $100M (i.e. 0% growth), earnings per share will grow as shares are bought back, and dividends to a common shareholder will also grow over time, assuming the company continues to pay out $20M in dividends annually (to a shrinking number of shares outstanding).

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Phineas J. Whoopee
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Re: Dividends growing at higher rates than inflation?

Post by Phineas J. Whoopee » Mon Oct 09, 2017 4:03 pm

Boglegrappler wrote:
Mon Oct 09, 2017 2:54 pm
...
One of the things to be aware of is that dividends cannot grow faster than earnings grow, in the long run. Take a look at your companies and see if they are paying out a higher and higher share of earnings per share as dividends per share. If they are, either earnings are going to have to grow faster in the future to support the dividend growth, or dividend growth is going to slow down to match the pace of earnings growth.
...
I agree with mptfan's comment upthread, and would like to embellish a little.

The aphorism, which captures something important, is that earnings can't grow faster than gross domestic product (GDP). I'll leave aside the subtle ways in which that's an approximation, for now.

Dividends can grow faster than earnings or GDP, because companies can choose to distribute more of their earnings as dividends. Furthermore, corporations can, and do, borrow money for no purpose other than to pay it out as dividends.

Can it go on forever? No. Herbert Stein famously wrote: "If something cannot go on forever, it will stop."

Forever, as they say, is a very long time. As noted upthread, John Maynard Keynes famously wrote: "But this long run is a misleading guide to current affairs. In the long run we are all dead."

PJW

Stryker
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Re: Dividends growing at higher rates than inflation?

Post by Stryker » Mon Oct 09, 2017 4:45 pm

I don't normally purchase a stock unless it's dividend has grown faster than inflation over the last 5 to 10 years. So far, out of 29 equities, I've only had one dividend cut this year. After I already sold it, some white knight came over the horizon from Omaha to help prop it up.

Most of the other stocks have already had decent increases. Waiting on a few others, that normally declare their dividend increases towards the end of the year. Beats the crummy less than inflation increases I used to get as a wage slave over a decade ago.

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