Published Thu, 11 Jul 2019 09:12:46 -0400 on Seeking Alpha
Many academics subscribe to the Dividend Irrelevance theorem that states that in a world with no taxes or costs of financial distress, dividend policy is irrelevant. After all, an investor could simply sell a portion of their portfolio to create a liquidity stream and would not need to rely on dividends from their portfolio holdings. Given the double taxation of both corporate profits and shareholder dividends, some muse that dividends are inefficient altogether.
This article will demonstrate that the Dividend Aristocrats (NOBL), constituents of the S&P 500 (SPY) that have paid increasing dividends for more than 25 years, have generated higher total returns than the broader market. The graph below shows that the Dividend Aristocrats (white) have outperformed the broad index from which they are drawn, the S&P 500 (orange) by 2.17% per year over nearly 30 years.
Dividend policy is far from irrelevant. If you simply divided the U.S. stock market into dividend-payers and non-dividend payers, you would see that dividend payers have produced higher returns (roughly 2% more per year) with roughly 1/3 less volatility over the modern history of the U.S. stock market.
The conceptual framework that suggests that dividend policy is irrelevant ignores the behavior of company management. Poor managers can not only risk a company's ability to pay dividends but also expose a company to financial ruin. In "The Bright Side of Paying Dividends: Evidence From Stock Price Crash... Read more
|Stock name||Last trade||P/E||Earnings/Share||Dividend/Share||Dividend yield|
|SPDR S&P 500 ETF||301.29||0.0||0.00||5.42||1.82|
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