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Dividend yielding stock total return greater than non dividend stock?
I learn this a number of instances to verify, however I consider the writer Siegel was saying whole return even after accounting for taxes continues to be greater 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 positive factors versus dividend earnings. That is unlucky since, as we will word in chapter 9, dividend paying shares typically 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 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?
Due to this fact, from a tax standpoint, there’s nonetheless a motivation for corporations to ship capital positive factors versus dividend earnings. That is unlucky since, as we will word 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 necessary 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 value extra to the stockholder if paid him in dividends than when carried to surplus. The common-stock investor ought to ordinarily require each an satisfactory incomes energy and an satisfactory dividend.
Graham and Dodd’s declare has been supported by subsequent analysis. In 1978, Krishna Ramaswamy and Robert Litzenberger established a major 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 greater than the market. The historic evaluation of the S&P 500 Index helps the case for utilizing dividend yields to realize greater 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 very best to the bottom dividend yields after which calculated the entire returns over the following calendar yr. The placing outcomes are proven in Determine 12-2.
The portfolios with greater dividend yields provided traders greater 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 accrued $201,760 by the top of 2012, for an annual return of 10.13 p.c. An similar funding within the 100 highest dividend yielders accrued to over $678,000, with a return of 12.58 p.c….
And there is extra.
It is humorous, I by no means seen this earlier than. It definitely 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 value extra to the stockholder if paid him in dividends than when carried to surplus.”
It is constant, although, with Siegel’s “elementary indexing” method, 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:Due to this fact, from a tax standpoint, there’s nonetheless a motivation for corporations to ship capital positive factors versus dividend earnings. That is unlucky since, as we will word 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 necessary 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 value extra to the stockholder if paid him in dividends than when carried to surplus. The common-stock investor ought to ordinarily require each an satisfactory incomes energy and an satisfactory dividend.
Graham and Dodd’s declare has been supported by subsequent analysis. In 1978, Krishna Ramaswamy and Robert Litzenberger established a major 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 greater than the market. The historic evaluation of the S&P 500 Index helps the case for utilizing dividend yields to realize greater 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 very best to the bottom dividend yields after which calculated the entire returns over the following calendar yr. The placing outcomes are proven in Determine 12-2.
The portfolios with greater dividend yields provided traders greater 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 accrued $201,760 by the top of 2012, for an annual return of 10.13 p.c. An similar funding within the 100 highest dividend yielders accrued to over $678,000, with a return of 12.58 p.c….
And there is extra.
It is humorous, I by no means seen this earlier than. It definitely 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 value extra to the stockholder if paid him in dividends than when carried to surplus.”
It is constant, although, with Siegel’s “elementary indexing” method, as embodied by a few of WisdomTree’s ETFs.
Wow, thanks for locating the quotes so shortly. 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?
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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 greater 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 very best to the bottom dividend yields after which calculated the entire returns over the following calendar yr. The placing outcomes are proven in Determine 12-2.It is constant, although, with Siegel’s “elementary indexing” method, as embodied by a few of WisdomTree’s ETFs.
Based mostly on the above “sorting” would not that imply that there can be promoting (probably) yearly, wherein case would not capital positive factors (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 take a look at the gross return, we’ve got to take the online return under consideration. In fact the tax affect can be completely different for various individuals, however how can we eradicate that from the entire return? Is not the entire return NET of charges, together with turnover AND taxes?
This method of sorting jogs my memory of the canine of the dow or silly 4 wherein you merely purchase the very best yielding/lowest priced shares and easily rebalance (promote out of people who now not match the factors) to purchase the following yr’s highest yielding/lowest value shares (which can or is probably not the identical). I by no means keep 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 positive factors 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 positive factors versus dividend earnings. That is unlucky since, as we will word 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 necessary 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 value extra to the stockholder if paid him in dividends than when carried to surplus. The common-stock investor ought to ordinarily require each an satisfactory incomes energy and an satisfactory dividend.
Graham and Dodd’s declare has been supported by subsequent analysis. In 1978, Krishna Ramaswamy and Robert Litzenberger established a major 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 greater than the market. The historic evaluation of the S&P 500 Index helps the case for utilizing dividend yields to realize greater 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 very best to the bottom dividend yields after which calculated the entire returns over the following calendar yr. The placing outcomes are proven in Determine 12-2.
The portfolios with greater dividend yields provided traders greater 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 accrued $201,760 by the top of 2012, for an annual return of 10.13 p.c. An similar funding within the 100 highest dividend yielders accrued to over $678,000, with a return of 12.58 p.c….
And there is extra.
It is humorous, I by no means seen this earlier than. It definitely 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 value extra to the stockholder if paid him in dividends than when carried to surplus.”
It is constant, although, with Siegel’s “elementary indexing” method, as embodied by a few of WisdomTree’s ETFs.
Wow, thanks for locating the quotes so shortly. I needed to look by means of 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 massive charges, particularly should you weren’t promoting them in plenty of 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 may 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 typically had been much less unstable than the SP500. It had decrease highs, however misplaced much less in dangerous years. Nonetheless, taking a look at whole return over 5 and 10 years previously, VYM was a number of share factors behind the SP500 in CAGR. Possibly over a 30 or 50 yr look again it will be completely different. Progress has been favoring worth for fairly some time now.
VYM was an Edward Jones decide they prompt to make use of to reinforce the SP500 fund it additionally held. VYM was one of many canine 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 facet, and apparently agrees with Benjamin Graham that “a greenback of earnings is value 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 assume if he’ll declare superiority for dividend shares he actually ought to clarify 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.
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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
“…Due to this fact from a tax standpoint, there’s nonetheless bias for corporations to ship capital positive factors versus dividend earnings. That is unlucky since, as we will word 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 could be tracked. But when we’re speaking decrease vs greater div paying shares/funds, widespread sense, in addition to many years 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?
Nicely, 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 knowledge confirms the distinction. From 1976 by means of 2022 non-dividend paying shares have produced an annualized return of 11.7%, with an ordinary deviation of 25.7%. For all dividend paying shares the returns have been 12.4% with an ordinary deviation of solely 15.0%. Previous to 1976 the distinction in return and commonplace deviation of non-dividend vs. dividend paying shares and commonplace deviation was a lot higher.