Bogle's commets on future stock returns

[bb]

Have read/listened to John Bogle's comments regarding future expected stock returns:

http://www.google.com/url?sa=t&rct=j&q= ... _H_SQVBR_A

States return of stocks is (dividend yield + earnings yield +/- change in p/e ration)

I understand the logic but my question is what factors are causing the expected return of stocks
to be less than their historical average? Are companies expected to be less profitable in the
future or are shareholders just getting a smaller portion of the return? If dividends used to be
4 1/2 percent and they are 2 percent today where is the other 2 1/2 percent going?

Brian

[pkcrafter]

Your link apparently requires registration, but to address your question, the economy, current yields, the outlook on company earnings (or GDP), and the present P/E ratio are what generate future expectations. John Bogle explains how he derived his estimated future stock returns in this interview. You can watch the video or simply read the text. The missing 2% has been missing for a long time now. It is not being returned to share holders, instead, companies are supposedly reinvesting it for the good of the shareholders, but coincidentally, CEO pay has risen from about 40X average employee salary to about 500X employee salary over the past 20 years.

Bogle:

And using that analysis, I'd say the 2%-plus dividend yield, let’s say a 5% or 6% earnings growth, let’s call it a 7% return, and maybe a loss of a point in a lower P/E, or maybe not. So putting it all together, you get around a 7% forecast outlook for stocks,

http://www.morningstar.com/cover/videoc ... 707#page=0


Paul

[bob90245]

The missing 2% has been missing for a long time now.

Agreed. These charts show changes in dividend yields over time.



Source: http://www.marketoracle.co.uk/Article7124.html

Also need to consider that dividends dropped to 2% in the late 1990's. This was about the time that tech and related companies became dominant. And these companies are not known for paying much of a dividend if any. Only need to look at the largest tech company, Apple, to see how the market has shifted.

[Clive]

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[bb]

Fixed link. Sorry about that. Sometimes a google search allows you to see
content but when you copy the url after you are at the content you can't use
that url to see the content anymore.

[pkcrafter]

Thanks for providing a new link, it worth the read.

Paul