Comparing Stability of Dividends and Stock Prices over Time

Here’s a look at the growth of the S&P 500 along with its dividends over the past 20 years. The S&P 500 is the black line and it follows the left scale, the dividends are the blue line and follow the right scale. The two scales are matched up at a ratio of 50-to-1, meaning the dividend yield is exactly 2% when the lines cross.

That’s actually a very lenient standard. To be a better reflection of valuation, I should have set the scales at a ratio of 30-to-1, but I’m not presenting this as an outlook on stock valuations. The point I want to get across is how stable dividends are over time compared with stock prices. The average swing in stock prices is almost exactly five times the average swing in dividends.

It's interesting to see that dividends never bought into the late 90's rally although they were more impressed by the tepid recovery of the middle of this decade (the dividend tax cut surely helped).

As an investor, sometimes it’s to your benefit to ignore stock prices and focus solely on your dividends. That’s money they can’t take back from you. The other nice thing about dividends is that you pretty much know what you’re going to get. The line doesn’t jump around too much.

Stock investing in the 19th century was really about the dividend. Sometimes I think they were a lot smarter than us. The idea of continuously rising capital gains really dates from the 1920s.

One other point about the table: It goes up to the first quarter of 2009. We’ve seen a lot of dividend cuts this year. I’ll update the chart once the latest numbers are in.

Comments

[David Van K...:]

This is a terrific chart. Thanks for creating it. I have often wondered why there is not a "dividend index" that gets widely reported the way the Dow, NASDAQ, and S&P 500 get reported. Your graph (the blue line) is basically that index. (I'm not sure what the right scale is...it's not total dividends paid out. If you see this, could you explain the scale?)

The three popular indexes are price-only indexes, so they are very relevant to investors who are investing mainly for capital gain. But there's a whole 'nother group of investors who build wealth (or vacuum up income) via dividends. The direction is almost always up. Even when it's down, it's "up": When prices fall, you actually lose money. When dividends fall, that just means they send you less...dividends are always a positive element of return.

Jul 02 09:21 AM

[Graham and ...:]

The quest for (elusive) capital gains caused overleveraging, which in turn necessitated dividend cuts.

Jul 02 09:35 AM

[prudentinve...:]

Eddy,

Having been a focused dividend investor for three decades, I am baffled by your graph, in which the blue line displays a tiny dip in dividends for 2009.

Can you please indicate its source? Either this graph is not up-to-date regarding recent dividend cuts, or I must be the worst stock picker in the world, as the dividends from the shares I own have dipped very, very much more than this graph implies.

About a month ago, I did some research on stocks which I either currently own, have owned in the past, or were considering. The results are purely anecdotal, but illustrate the scale of decimation of dividends. Here is the sample:

(a) DOW increased their dividend in Spring 2007, and now it's been slashed back to its 1988 level.

(b) GE last increased their dividend in Fall 2007. Now it is back to its 1999 level.

(c) AA last increased their dividend in early 2007. Now it is back to its 1978 level (nominal! remember what a buck bought in '78?).

(d) AEP's dividend, slashed in 2002, then steadily increased since, until now it has regained its 1970 level (nominal !!!)

(e) NWL's dividend was slashed twice in the past six months, and is now at its 1989 level.

(f) IP's dividend was just slashed to return to its 1970 level.

(g) WY's dividend was just slashed, back to its 1988 level.

And I have not even included any banks or financials, and we all know what happened to their dividends.

While I have no proof that the blue curve in your graph is inaccurate, it is certainly at odds with anecdotal evidence. It would be great if you were to provide us with some documentation on how that curve was obtained, perhaps with a breakdown by company.

Jul 02 12:52 PM

[David Van K...:]

Prudent,

I'm not sure what figures Eddy was using, but here are the total dividends paid out each quarter by S&P 500 companies since the beginning of 2006. I've added a +x% or - x% column to show how they've varied from quarter to quarter. Dollar totals are in Billions.

Q2 2009 $47.63 -8%
Q1 2009 $51.73 -17%
Q4 2008 $62.19 +1%
Q3 2008 $61.44 -1%
Q2 2008 $61.94 +0%
Q1 2008 $61.72 -8%
Q4 2007 $67.09 +10%
Q3 2007 $61.21 +2%
Q2 2007 $59.76 +2%
Q1 2007 $58.53 -5%
Q4 2006 $61.79 +12%
Q3 2006 $55.07 +1%
Q2 2006 $54.52 +2%
Q1 2006 $53.37 -3%

These numbers were obtained from the spreadsheet maintained by S&P.

Jul 02 03:02 PM

[prudentinve...:]

David,

Many thanks for the data. So, from a peak of $67 in Q4/07 to $47 in Q2/09, the dividends drop is roughly 30% from the peak of 2007, which appears consistent with my observation.

The blue line on Eddy's chart indicates a drop of only 6% from the peak, and appears suspect.

It would be appreciated if Eddy were to clarify this discrepancy between his source and yours.

It would also be interesting to know how far back in time do we have to go to find dividends of $47, like Q2/09, and how much farther to find inflation-adjusted dividends of $47.

Thanks again.



On Jul 02 03:02 PM David Van Knapp wrote:

> Prudent,
>
> I'm not sure what figures Eddy was using, but here are the total
> dividends paid out each quarter by S&P 500 companies since the
> beginning of 2006. I've added a +x% or - x% column to show how they've
> varied from quarter to quarter. Dollar totals are in Billions.<br/>
>
> Q2 2009 $47.63 -8%
> Q1 2009 $51.73 -17%
> Q4 2008 $62.19 +1%
> Q3 2008 $61.44 -1%
> Q2 2008 $61.94 +0%
> Q1 2008 $61.72 -8%
> Q4 2007 $67.09 +10%
> Q3 2007 $61.21 +2%
> Q2 2007 $59.76 +2%
> Q1 2007 $58.53 -5%
> Q4 2006 $61.79 +12%
> Q3 2006 $55.07 +1%
> Q2 2006 $54.52 +2%
> Q1 2006 $53.37 -3%
>
> These numbers were obtained from the spreadsheet maintained by S&amp;P.

Jul 02 06:37 PM

[David Van K...:]

Prudent, the S&P 500's quarterly dividends were in the $48-49 B range from Q4 2004 through Q4 2005. In Q3 2004, they were at $43.43. That's the most recent quarter they were at or below Q2 2009.

As I've mentioned in other comments, I'm always a little leery about drawing generalizations from S&P 500 statistics. In my e-book, "The Top 40 Dividend Stocks for 2009," among the 40 stocks featured, only two have cut their dividends this year, while 32 have raised them. I think you've been unlucky with some clunkers. Another reason for treating the overall statistics with skepticism is that S&P, as you know, is constantly changing stocks in the 500. (On their web site, you can find a document that shows stocks swapped out...sorry, I don't have a cite handy.) So historical stats like dividends, earnings, and the like, get "frozen" when that quarter is completed and may be quite different from the currrent makeup of the index.

As you can guess, I believe in stock-by-stock analysis to find dividend stocks that are unlikely to cut their dividends and in fact are likely to raise them. For that reason, I don't buy "dividend' or "income" mutual funds or ETFs. They inevitably get caught holding stocks (like the financials in the past year) that slash their dividends. Dividend growth investing is a long-term strategy that must be executed carefully, and for this I trust my own research.

Jul 02 07:07 PM

[Eddy Elfenbein:]

David & Prudent,

Thanks for the comments! Actual both numbers are right but slightly different series. Mine is the trailing four-quarter per-share total. The numbers David lists are the quarterly dollar totals. That's why the drop off on my blue line isn't as severe.

Incidentally, S&P just updated the numbers so the Q2 numbers are my chart are 919.32 for the black line, and 25.59 for the blue line. I should add that the blue line will most likely continue to fall for a few more quarters.

Thanks for your thoughtful feedback. This is how Seeking Alpha helps clarify issues for investors. - Eddy

Jul 02 09:28 PM

[Dividend Gr...:]

David,

Check this post on SeekingAlpha for an S&P 500 dividend index:

seekingalpha.com/artic...

And here's some dividend information on the SPY ( the ETF that tracks the S&P 500 index). The amounts below show the ex-dividend dates ( source Yahoo finance). Looks like the dividends overall are down, but not that much.

19-Jun-09 $ 0.518 Dividend
20-Mar-09 $ 0.561 Dividend
19-Dec-08 $ 0.719 Dividend
19-Sep-08 $ 0.691 Dividend
20-Jun-08 $ 0.669 Dividend
20-Mar-08 $ 0.642 Dividend
21-Dec-07 $ 0.775 Dividend
21-Sep-07 $ 0.719 Dividend
15-Jun-07 $ 0.656 Dividend
16-Mar-07 $ 0.551 Dividend
15-Sep-06 $ 0.579 Dividend
16-Jun-06 $ 0.555 Dividend
17-Mar-06 $ 0.519 Dividend
16-Dec-05 $ 0.672 Dividend
16-Sep-05 $ 0.522 Dividend
17-Jun-05 $ 0.488 Dividend
18-Mar-05 $ 0.467 Dividend
17-Dec-04 $ 0.568 Dividend
15-Nov-04 $ 0.351 Dividend
17-Sep-04 $ 0.469 Dividend
18-Jun-04 $ 0.414 Dividend
19-Mar-04 $ 0.395 Dividend
19-Dec-03 $ 0.516 Dividend
19-Sep-03 $ 0.40 Dividend
20-Jun-03 $ 0.36 Dividend
21-Mar-03 $ 0.354 Dividend
20-Dec-02 $ 0.436 Dividend
20-Sep-02 $ 0.378 Dividend
21-Jun-02 $ 0.353 Dividend
15-Mar-02 $ 0.331 Dividend
21-Sep-01 $ 0.37 Dividend
15-Jun-01 $ 0.346 Dividend
16-Mar-01 $ 0.316 Dividend
15-Dec-00 $ 0.36 Dividend
15-Sep-00 $ 0.375 Dividend
16-Jun-00 $ 0.348 Dividend
17-Mar-00 $ 0.371 Dividend

Jul 04 12:19 PM