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Dividend yielding stock total return greater than non dividend stock?
I learn this a couple of occasions to ensure, however I consider the writer Siegel was saying whole return even after accounting for taxes continues to be increased with dividend yielding shares than these shares that don’t present a dividend.
“…Subsequently from a tax standpoint, there may be nonetheless bias for corporations to ship capital positive aspects versus dividend earnings. That is unlucky since, as we will notice in chapter 9, dividend paying shares typically yield higher earlier than and after tax returns than non dividend paying shares.”
I’d have thought the taxes incurred with dividend yielding shares would trigger it to have a decrease whole return. Siegel didn’t specify whether or not these dividends had been reinvested or simply taken as money.
This was within the 4th version written in 2008.
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Re: Dividend yielding stock total return greater than non dividend stock?
Subsequently, from a tax standpoint, there may be nonetheless a motivation for corporations to ship capital positive aspects versus dividend earnings. That is unlucky since, as we will notice in Chapter 12, dividend-paying shares typically yield higher before- and after-tax returns than non-dividend-paying shares.
p. 179:
DIVIDEND YIELDSDividends have all the time been an essential criterion for selecting shares, as Graham and Dodd said in 1940:
Expertise would affirm the established verdict of the inventory market {that a} greenback of earnings is price extra to the stockholder if paid him in dividends than when carried to surplus. The common-stock investor ought to ordinarily require each an ample incomes energy and an ample dividend.
Graham and Dodd’s declare has been supported by subsequent analysis. In 1978, Krishna Ramaswamy and Robert Litzenberger established a big correlation between dividend yield and subsequent returns.12 And extra just lately, James O’Shaughnessy has proven that within the interval 1951 by 1994, the 50 highest-dividend-yielding large-capitalization shares had a return that was 1.7 share factors increased than the market. The historic evaluation of the S&P 500 Index helps the case for utilizing dividend yields to realize increased inventory returns. On December 31 of every yr from 1957 onward, I sorted the corporations within the S&P 500 Index into 5 teams (or quintiles) ranked from the best to the bottom dividend yields after which calculated the overall returns over the following calendar yr. The placing outcomes are proven in Determine 12-2.
The portfolios with increased dividend yields provided buyers increased whole returns than the portfolios of shares with decrease dividend yields. If an investor put $1,000 in an S&P 500 Index fund on the finish of December 1957, she would have collected $201,760 by the tip of 2012, for an annual return of 10.13 %. An similar funding within the 100 highest dividend yielders collected to over $678,000, with a return of 12.58 %….
And there is extra.
It is humorous, I by no means observed this earlier than. It actually runs counter to Boglehead orthodoxy, and counter to the Modigliani-Miller “dividend irrelevance” theorem. I am surprised to see Benjamin Graham stating explicitly that “a greenback of earnings is price extra to the stockholder if paid him in dividends than when carried to surplus.”
It is constant, although, with Siegel’s “elementary indexing” strategy, as embodied by a few of WisdomTree’s ETFs.
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Re: Dividend yielding stock total return greater than non dividend stock?
nisiprius wrote: ↑Wed Sep 04, 2024 7:16 pm
Fifth version, p. 137:Subsequently, from a tax standpoint, there may be nonetheless a motivation for corporations to ship capital positive aspects versus dividend earnings. That is unlucky since, as we will notice in Chapter 12, dividend-paying shares typically yield higher before- and after-tax returns than non-dividend-paying shares.
p. 179:
DIVIDEND YIELDSDividends have all the time been an essential criterion for selecting shares, as Graham and Dodd said in 1940:
Expertise would affirm the established verdict of the inventory market {that a} greenback of earnings is price extra to the stockholder if paid him in dividends than when carried to surplus. The common-stock investor ought to ordinarily require each an ample incomes energy and an ample dividend.
Graham and Dodd’s declare has been supported by subsequent analysis. In 1978, Krishna Ramaswamy and Robert Litzenberger established a big correlation between dividend yield and subsequent returns.12 And extra just lately, James O’Shaughnessy has proven that within the interval 1951 by 1994, the 50 highest-dividend-yielding large-capitalization shares had a return that was 1.7 share factors increased than the market. The historic evaluation of the S&P 500 Index helps the case for utilizing dividend yields to realize increased inventory returns. On December 31 of every yr from 1957 onward, I sorted the corporations within the S&P 500 Index into 5 teams (or quintiles) ranked from the best to the bottom dividend yields after which calculated the overall returns over the following calendar yr. The placing outcomes are proven in Determine 12-2.
The portfolios with increased dividend yields provided buyers increased whole returns than the portfolios of shares with decrease dividend yields. If an investor put $1,000 in an S&P 500 Index fund on the finish of December 1957, she would have collected $201,760 by the tip of 2012, for an annual return of 10.13 %. An similar funding within the 100 highest dividend yielders collected to over $678,000, with a return of 12.58 %….
And there is extra.
It is humorous, I by no means observed this earlier than. It actually runs counter to Boglehead orthodoxy, and counter to the Modigliani-Miller “dividend irrelevance” theorem. I am surprised to see Benjamin Graham stating explicitly that “a greenback of earnings is price extra to the stockholder if paid him in dividends than when carried to surplus.”
It is constant, although, with Siegel’s “elementary indexing” strategy, as embodied by a few of WisdomTree’s ETFs.
Wow, thanks for locating the quotes so rapidly. I needed to look by my kindle for my highlights.
Proper, this runs counter to what Bogleheads generally say.
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Re: Dividend yielding stock total return greater than non dividend stock?
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by arcticpineapplecorp. »
nisiprius wrote: ↑Wed Sep 04, 2024 7:16 pm
The historic evaluation of the S&P 500 Index helps the case for utilizing dividend yields to realize increased inventory returns. On December 31 of every yr from 1957 onward, I sorted the corporations within the S&P 500 Index into 5 teams (or quintiles) ranked from the best to the bottom dividend yields after which calculated the overall returns over the following calendar yr. The placing outcomes are proven in Determine 12-2.It is constant, although, with Siegel’s “elementary indexing” strategy, as embodied by a few of WisdomTree’s ETFs.
Based mostly on the above “sorting” would not that imply that there could be promoting (doubtlessly) yearly, by which case would not capital positive aspects (and subsequently TAXES) be paid in consequence, which might NOT happen if merely holding the market (S&P500 or TSM)?
we will not have a look at the gross return, now we have to take the online return under consideration. After all the tax influence might be totally different for various folks, however how can we eradicate that from the overall return? Is not the overall return NET of charges, together with turnover AND taxes?
This strategy of sorting jogs my memory of the canines of the dow or silly 4 by which you merely purchase the best yielding/lowest priced shares and easily rebalance (promote out of people who not match the factors) to purchase the following yr’s highest yielding/lowest value shares (which can or will not be the identical). I by no means bear in mind studying in regards to the influence of taxes with these methods. Maybe it is higher utilized in a tax advantaged account? Or Knowledge Tree’s ETF would not throw off capital positive aspects due to the construction of ETFs?
Re: Dividend yielding stock total return greater than non dividend stock?
Gardener wrote: ↑Wed Sep 04, 2024 7:21 pmnisiprius wrote: ↑Wed Sep 04, 2024 7:16 pm
Fifth version, p. 137:Subsequently, from a tax standpoint, there may be nonetheless a motivation for corporations to ship capital positive aspects versus dividend earnings. That is unlucky since, as we will notice in Chapter 12, dividend-paying shares typically yield higher before- and after-tax returns than non-dividend-paying shares.
p. 179:
DIVIDEND YIELDSDividends have all the time been an essential criterion for selecting shares, as Graham and Dodd said in 1940:
Expertise would affirm the established verdict of the inventory market {that a} greenback of earnings is price extra to the stockholder if paid him in dividends than when carried to surplus. The common-stock investor ought to ordinarily require each an ample incomes energy and an ample dividend.
Graham and Dodd’s declare has been supported by subsequent analysis. In 1978, Krishna Ramaswamy and Robert Litzenberger established a big correlation between dividend yield and subsequent returns.12 And extra just lately, James O’Shaughnessy has proven that within the interval 1951 by 1994, the 50 highest-dividend-yielding large-capitalization shares had a return that was 1.7 share factors increased than the market. The historic evaluation of the S&P 500 Index helps the case for utilizing dividend yields to realize increased inventory returns. On December 31 of every yr from 1957 onward, I sorted the corporations within the S&P 500 Index into 5 teams (or quintiles) ranked from the best to the bottom dividend yields after which calculated the overall returns over the following calendar yr. The placing outcomes are proven in Determine 12-2.
The portfolios with increased dividend yields provided buyers increased whole returns than the portfolios of shares with decrease dividend yields. If an investor put $1,000 in an S&P 500 Index fund on the finish of December 1957, she would have collected $201,760 by the tip of 2012, for an annual return of 10.13 %. An similar funding within the 100 highest dividend yielders collected to over $678,000, with a return of 12.58 %….
And there is extra.
It is humorous, I by no means observed this earlier than. It actually runs counter to Boglehead orthodoxy, and counter to the Modigliani-Miller “dividend irrelevance” theorem. I am surprised to see Benjamin Graham stating explicitly that “a greenback of earnings is price extra to the stockholder if paid him in dividends than when carried to surplus.”
It is constant, although, with Siegel’s “elementary indexing” strategy, as embodied by a few of WisdomTree’s ETFs.
Wow, thanks for locating the quotes so rapidly. I needed to look by my kindle for my highlights.
Proper, this runs counter to what Bogleheads generally say.
You want to remember, although, that shares have paid progressively decrease dividends. Even into the 90s, promoting shares to get cash incurred giant charges, particularly for those who weren’t promoting them in numerous 100. You possibly can incur the equal of $100s in charges to get entry to $1000.
Dividends (and DRIP) helped compensate for that since you might get a 5-10% payout with out having to incur the effort and expense of promoting.
Re: Dividend yielding stock total return greater than non dividend stock?
For me, I used VYM for some time (Vanguard excessive dividend yield fund). It is returns typically had been much less risky than the SP500. It had decrease highs, however misplaced much less in unhealthy years. Nonetheless, whole return over 5 and 10 years up to now, VYM was a couple of share factors behind the SP500 in CAGR. Possibly over a 30 or 50 yr look again it could be totally different. Development has been favoring worth for fairly some time now.
VYM was an Edward Jones decide they prompt to make use of to enhance the SP500 fund it additionally held. VYM was one of many canines that prompted me to lastly transfer that account from EJ to Constancy. I do not maintain dividend targeted funds anymore.
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Re: Dividend yielding stock total return greater than non dividend stock?
However, sure, to my shock Siegel is clearly on the opposite aspect, and apparently agrees with Benjamin Graham that “a greenback of earnings is price extra to the stockholder if paid him in dividends.”
In Shares for the Lengthy Run 5/E even a point out of the Modigliani-Miller theorem is conspicuously absent.* I actually suppose if he will declare superiority for dividend shares he actually ought to elucidate why the concept does not apply.
*A seek for “modigliani” offers no outcomes. A seek for “miller” offers three outcomes for Invoice Miller, however none for Merton Miller.
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Re: Dividend yielding stock total return greater than non dividend stock?
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by TipsQuestions »
Gardener wrote: ↑Wed Sep 04, 2024 7:01 pm
“…Subsequently from a tax standpoint, there may be nonetheless bias for corporations to ship capital positive aspects versus dividend earnings. That is unlucky since, as we will notice in chapter 9, dividend paying shares typically yield higher earlier than and after tax returns than non dividend paying shares.”
I could not say a lot about “non dividend paying shares”, since these are comparatively uncommon and in concentrated industries, and thus there aren’t any zero div mutual funds the place audited actual world efficiency might be tracked. But when we’re speaking decrease vs increased div paying shares/funds, widespread sense, in addition to a long time of precise fund returns, affirm markets have not left us a trillion greenback free lunch in excessive div payers. Sorry, Chapter 9.
Re: Dividend yielding stock total return greater than non dividend stock?
Effectively, if it is as apparent as you counsel, why would not everybody purchase solely an index that excluded the equities held by these “excessive dividend” ETFs?
Re: Dividend yielding stock total return greater than non dividend stock?
Kenneth French’s information confirms the distinction. From 1976 by 2022 non-dividend paying shares have produced an annualized return of 11.7%, with a regular deviation of 25.7%. For all dividend paying shares the returns have been 12.4% with a regular deviation of solely 15.0%. Previous to 1976 the distinction in return and commonplace deviation of non-dividend vs. dividend paying shares was a lot larger.
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Re: Dividend yielding stock total return greater than non dividend stock?
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by arcticpineapplecorp. »
however some may also say that if the dividends are returned as a result of administration has no new good concepts (to broaden the enterprise) why would you need to spend money on an organization that has no new good concepts and will not broaden their enterprise?
we spend money on shares for progress, not for earnings. If you would like constant earnings (from dividends) you should purchase bonds for his or her constant earnings (dividend/coupon) funds.