Current Research On Dividend Studies

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snarlyjack
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Current Research On Dividend Studies

Post by snarlyjack » Wed Dec 06, 2017 7:55 pm

Here is some current research on dividend studies that I
thought you would enjoy. These studies (white papers)
were published by the Brandes Institute.

Enjoy...

https://www.brandes.com/docs/default-so ... rm-returns

https://www.brandes.com/docs/default-so ... of-returns

pkcrafter
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Re: Current Research On Dividend Studies

Post by pkcrafter » Wed Dec 06, 2017 8:59 pm

Thanks, jack.

From the conclusion in the first link--
We believe this research illustrates that the industry acceptance of five years as a long-term investment
horizon underestimates the potential of reinvesting and compounding income. By reinvesting the income
contribution of investment returns, investors can leverage the power of compound interest. Investors should
not let recent market experience distort their perspective, and particularly should avoid preconceptions that
income is less important than capital gains in its contribution to total equity returns. Income has served
as a significant component of returns, and the combination of reinvested income and capital appreciation
historically has presented the best option for long-term investors to realize optimal returns.
Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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triceratop
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Re: Current Research On Dividend Studies

Post by triceratop » Wed Dec 06, 2017 9:28 pm

Sorting based on dividends produced a 9.57% return premium from 1st quintile to 5th quintile, with 5.27% less volatility as measured by standard deviation!?! Forgive me if I don't believe that. Unfortunately, I can't quite spot what is wrong, but there is simply no way that is the whole story.

Image

Anyway, simply because income is a substantial part of total return, does not imply that one should select stocks with higher dividend yield. That's a fallacy, one they're only too eager for you to make.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

snarlyjack
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Re: Current Research On Dividend Studies

Post by snarlyjack » Wed Dec 06, 2017 9:46 pm

I realize that we have lot's of dividend post's here at Bogleheads.
And, to be very honest I have enjoyed the conversations & have
learned a lot. On all the pro's & con's of the dividend discussions.

I just wanted to share some of the latest studies...

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badbreath
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Re: Current Research On Dividend Studies

Post by badbreath » Wed Dec 06, 2017 9:52 pm

you forgot to taking out price of buying stock
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

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dougger5
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Re: Current Research On Dividend Studies

Post by dougger5 » Wed Dec 06, 2017 10:04 pm

I find their conflating dividend return with interest payments off-putting.
"I've been ionized, but I'm okay now." -Buckaroo Banzai

dbr
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Re: Current Research On Dividend Studies

Post by dbr » Thu Dec 07, 2017 9:44 pm

Here is a little mathematical experiment that may be helpful. Consider an investment that in one year returns 4% in capital growth and pays a dividend of 4%. This results in a total annual return of 8%. Growth of $10K for five years would be $14,693, a gain of $4,693. After 30 years the growth would be to $100,626, a gain of $90,626. Now imagine the dividends are not reinvested and the growth rate falls to only 4% annually. Now the five year gain would be only $2166 and the 30 year gain $22424. So dividends accounted for 54% of the five year gain but 75% of the thirty year gain. See how the importance of dividends compounding matters? But wait, what if we do reinvest the dividends, but the capital growth doesn't happen. Now the growth rate falls to 4% annually just as before, but the absence of the capital growth costs us 54% of the five year gains and 75% of the thirty year gains. Adding those amounts back in, if we have both dividends and capital growth at five years we get total gain of 108% of the total gain, and after thirty years total gain of 150% of the total gain.

snarlyjack
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Re: Current Research On Dividend Studies

Post by snarlyjack » Thu Dec 07, 2017 10:43 pm

Here is another article that I thought you might
find interesting. It's coming at dividends from a different slant.

Enjoy...

https://www.simplysafedividends.com/div ... -investor/

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grabiner
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Re: Current Research On Dividend Studies

Post by grabiner » Sun Dec 10, 2017 9:49 am

triceratop wrote:
Wed Dec 06, 2017 9:28 pm
Sorting based on dividends produced a 9.57% return premium from 1st quintile to 5th quintile, with 5.27% less volatility as measured by standard deviation!?! Forgive me if I don't believe that. Unfortunately, I can't quite spot what is wrong, but there is simply no way that is the whole story.

Image
Since the article doesn't say anything about survivorship bias, that would be my primary concern. Corporations with high dividend yields are presumably viewed by investors as less likely to grow or sustain the yields, and thus are more likely to go bankrupt or be taken over.

This would also account for the higher returns of zero-dividend stocks over low-dividend stocks. Zero-dividend stocks are stocks which choose to invest all their profits back in the company, or which don't have any profits to distribute. This choice makes them high-risk, so those which don't last could disappear from the study.

Within the US, compare the returns of Vanguard High-DIvidend Yield Index to Vanguard 500 Index; they are about the same.
David Grabiner

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Re: Current Research On Dividend Studies

Post by Valuethinker » Sun Dec 10, 2017 10:01 am

grabiner wrote:
Sun Dec 10, 2017 9:49 am
triceratop wrote:
Wed Dec 06, 2017 9:28 pm
Sorting based on dividends produced a 9.57% return premium from 1st quintile to 5th quintile, with 5.27% less volatility as measured by standard deviation!?! Forgive me if I don't believe that. Unfortunately, I can't quite spot what is wrong, but there is simply no way that is the whole story.

Image
Since the article doesn't say anything about survivorship bias, that would be my primary concern. Corporations with high dividend yields are presumably viewed by investors as less likely to grow or sustain the yields, and thus are more likely to go bankrupt or be taken over.

This would also account for the higher returns of zero-dividend stocks over low-dividend stocks. Zero-dividend stocks are stocks which choose to invest all their profits back in the company, or which don't have any profits to distribute. This choice makes them high-risk, so those which don't last could disappear from the study.

Within the US, compare the returns of Vanguard High-DIvidend Yield Index to Vanguard 500 Index; they are about the same.

From that data it looks like high dividend is just a proxy for value? i.e. the stocks in that high dividend quintile are mostly value stocks?

Does the data include REITs and other income trust investments? The presence of REITs would significantly improve the performance of the strategy.

High dividend yielders tend to be, now:

- utilities
- financials
- integrated oil & gas companies-- of all the dividends by value in the UK FTSE All-share, something like 40% is paid by Royal Dutch Shell (about 10% of the whole index)
- companies likely to cut their dividend (low dividend cover)

garlandwhizzer
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Re: Current Research On Dividend Studies

Post by garlandwhizzer » Sun Dec 10, 2017 2:17 pm

First of all, the returns of the quintiles are nominal not real. The comparison chooses to start in 1980 when inflation was more than 13%. Dividends at that time for the S&P 500 averaged more than 4%, more than 5% in 1981, which looks pretty good on the graph, but in fact those yields were dwarfed at the time by inflation. Currently the S&P 500 dividend is greater than inflation. Starting the time period at a point of massive inflation followed by multiple decades of ever lower inflation can distort the end result when you're looking at nominal figures. High nominal dividends paid in that earlier period may be one of the drivers of apparent dividend stock outperformance, but in fact they were negligible relative to inflation at that point it time. Now yields are low and so is inflation so there is less nominal distortion. The figures may also include or exclude income producing REITS, preferred stocks, or utilities as necessary to get the desired result. That probably does not completely explain why this research is in direct contradiction to similar research by Vanguard and Larry, among others, which suggest that total return is a superior long term strategy to income based equity investing. I suspect that like some corporate quarterly profit reports there is manipulation going on with the numbers to give the desired result.

Garland Whizzer

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Re: Current Research On Dividend Studies

Post by saltycaper » Sun Dec 10, 2017 2:25 pm

What is the explanation for why only "the largest 50% of developed market stocks by market capitalization" were chosen for analysis? Certainly if there was any outperformance by small-cap, non- or low-dividend paying stocks, that would affect the results.
"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said." --Alan Greenspan

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