The growing audience for dividends
- October 13th, 2011
Dividends are the hot new go-to investment theme these days. James Bianco writing at the Big Picture wonders whether the hype has gotten ahead of itself.
However, any case for a new era of dividend investing may be a bit overstated. Dividend stocks should simply be viewed as a slightly less risky form of stock investing. As such, we should expect dividend-paying stocks to outperform during bear markets and underperform during bull markets.
The bigger question is whether there is a sea change going on in how investors view dividends. According to academic research there already appears to be a built in audience for dividends. Companies that pay a regularly scheduled dividend outperform in the month of their payment.
As we mentioned yesterday it behooves investors to recalibrate their return expectations given the low rates found on Treasuries and an expectation for a lower equity risk premium going forward. Part of this equation is the yield that various asset classes generate.
One big shift coming for the markets is a wave of Baby Boomers reaching retirement age. It has been hypothesized that this cohort of retirees will push market valuations down over the next decade. If that is the case then the dividends will become ever more important part of investor returns.
That does not necessarily mean that companies that currently pay dividends will be bid up. With dividend payout ratios hovering around 30% there is plenty of room for companies to either hike or initiate a dividend. If there is a ready cohort of investors interested in dividends then you can be pretty sure that corporate American will eventually take note.
Items mentioned above:
Dividend investing. (Big Picture)
[repeat] Setting return expectations. (Abnormal Returns)
Are baby boomers going to represent a headwind for US equity markets? (FRBSF)
3Q 2011 S&P dividend report. (S&P)
[repeat] Dividends matter. (Abnormal Returns)
Abnormal Returns is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small commission, yet you don't pay any extra. Thank you for your support.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Abnormal Returns has over its seven-year life become a fixture in the financial blogosphere. Over thousands of posts we have striven to bring the best of the financial blogosphere to readers. In that time the idea of a “forecast-free investment blog” remains as useful as it did six years ago. More »
- Tuesday links: self-awareness and self-control
- Monday links: CEO time horizons
- Sunday links: a healthy media diet
- Top clicks this week on Abnormal Returns
- Saturday links: financial coaches
- Friday links: flexible asset allocations
- Podcast Friday: pitching a billionaire
- Thursday links: good algorithms
- Wednesday links: unique life experiences
- Hedge fund picking is hard