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Dividend yielding stock total return greater than non dividend stock?
I learn this a couple of occasions to verify, however I imagine the writer Siegel was saying complete return even after accounting for taxes continues to be larger with dividend yielding shares than these shares that don’t present a dividend.
“…Due to this fact from a tax standpoint, there’s nonetheless bias for corporations to ship capital beneficial properties versus dividend revenue. That is unlucky since, as we will notice in chapter 9, dividend paying shares usually yield higher earlier than and after tax returns than non dividend paying shares.”
I might have thought the taxes incurred with dividend yielding shares would trigger it to have a decrease complete 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?
Due to this fact, from a tax standpoint, there’s nonetheless a motivation for corporations to ship capital beneficial properties versus dividend revenue. That is unlucky since, as we will notice in Chapter 12, dividend-paying shares usually yield higher before- and after-tax returns than non-dividend-paying shares.
p. 179:
DIVIDEND YIELDSDividends have all the time been an vital criterion for selecting shares, as Graham and Dodd acknowledged 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 means of 1994, the 50 highest-dividend-yielding large-capitalization shares had a return that was 1.7 share factors larger than the market. The historic evaluation of the S&P 500 Index helps the case for utilizing dividend yields to attain larger inventory returns. On December 31 of every 12 months 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 whole returns over the subsequent calendar 12 months. The putting outcomes are proven in Determine 12-2.
The portfolios with larger dividend yields provided traders larger complete 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 equivalent 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 shocked 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.
Annual revenue twenty kilos, annual expenditure nineteen nineteen and 6, outcome happiness; Annual revenue twenty kilos, annual expenditure twenty kilos ought and 6, outcome distress.
Re: Dividend yielding stock total return greater than non dividend stock?
nisiprius wrote: ↑Wed Sep 04, 2024 7:16 pm
Fifth version, p. 137:Due to this fact, from a tax standpoint, there’s nonetheless a motivation for corporations to ship capital beneficial properties versus dividend revenue. That is unlucky since, as we will notice in Chapter 12, dividend-paying shares usually yield higher before- and after-tax returns than non-dividend-paying shares.
p. 179:
DIVIDEND YIELDSDividends have all the time been an vital criterion for selecting shares, as Graham and Dodd acknowledged 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 means of 1994, the 50 highest-dividend-yielding large-capitalization shares had a return that was 1.7 share factors larger than the market. The historic evaluation of the S&P 500 Index helps the case for utilizing dividend yields to attain larger inventory returns. On December 31 of every 12 months 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 whole returns over the subsequent calendar 12 months. The putting outcomes are proven in Determine 12-2.
The portfolios with larger dividend yields provided traders larger complete 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 equivalent 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 shocked 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 means of 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?
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 attain larger inventory returns. On December 31 of every 12 months 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 whole returns over the subsequent calendar 12 months. The putting 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, during which case would not capital beneficial properties (and due to this fact TAXES) be paid in consequence, which might NOT happen if merely holding the market (S&P500 or TSM)?
we won’t have a look at the gross return, we now have to take the web return into consideration. After all the tax affect might be totally different for various individuals, however how can we remove that from the whole return? Is not the whole 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 during 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 subsequent 12 months’s highest yielding/lowest worth shares (which can or will not be the identical). I by no means bear in mind studying in regards to the affect 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 beneficial properties 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:Due to this fact, from a tax standpoint, there’s nonetheless a motivation for corporations to ship capital beneficial properties versus dividend revenue. That is unlucky since, as we will notice in Chapter 12, dividend-paying shares usually yield higher before- and after-tax returns than non-dividend-paying shares.
p. 179:
DIVIDEND YIELDSDividends have all the time been an vital criterion for selecting shares, as Graham and Dodd acknowledged 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 means of 1994, the 50 highest-dividend-yielding large-capitalization shares had a return that was 1.7 share factors larger than the market. The historic evaluation of the S&P 500 Index helps the case for utilizing dividend yields to attain larger inventory returns. On December 31 of every 12 months 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 whole returns over the subsequent calendar 12 months. The putting outcomes are proven in Determine 12-2.
The portfolios with larger dividend yields provided traders larger complete 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 equivalent 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 shocked 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 means of my kindle for my highlights.
Proper, this runs counter to what Bogleheads generally say.
You want to bear in mind, although, that shares have paid progressively decrease dividends. Even into the 90s, promoting shares to get cash incurred massive charges, particularly when you weren’t promoting them in a number of 100. You 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 trouble 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 usually had been much less unstable than the SP500. It had decrease highs, however misplaced much less in unhealthy years. Nevertheless, taking a look at complete 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 12 months look again it could be totally different. Progress has been favoring worth for fairly some time now.
VYM was an Edward Jones decide they urged to make use of to reinforce 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 centered 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 would not apply.
*A seek for “modigliani” provides no outcomes. A seek for “miller” provides three outcomes for Invoice Miller, however none for Merton Miller.
Annual revenue twenty kilos, annual expenditure nineteen nineteen and 6, outcome happiness; Annual revenue twenty kilos, annual expenditure twenty kilos ought and 6, outcome distress.
