"The wisest are the most annoyed at the loss of time." ― Dante Alighieri
Aging: The first among the baby-boomer generation to reach the retirement age of 65 years old was in 2011. Since then, there have been about 10,000 people each day reaching that same age. This is expected to continue happening until 2029.
Growth: Today there are almost 40 million people aged 65 or older in the United States. That is almost 13% of the population. By 2030, there will be more than 72 million people aged 65 or older making up about 19% of the population. By 2050 that figure is expected to grow to 21%.
Anticipated: While much of the 65+ population is located in sunny Florida, Phoenix, AZ, and New Mexico, the bulk of this demographic is located in the middle of the country from the northern tip of North Dakota to Texas.
Yield Growth: Now, if the trend is tilting toward retirees, wouldn't the stock markets be leaning to yield-stocks?
S&P 1874: Judging from 1874 to today, the S&P 500 dividend yield (the annualized yield divided by the stock price) is below the S&P 500 earnings yield (reciprocated P/E ratio [P/E ratio of 12 to 1 equals an equity yield of 8.3]). An interesting note is that the dividend yield was below the equity yield before World War I and the Great Depression.
Yield Declining: However since 1981, the distribution yields per share have deteriorated because of the internet bubble, also known as the "Tech Wreck". Dividend yields in 1999 reached a low of 1.1% because investors were making "enough money" in "tech" capital gains.
However, the Jobs and Growth Tax Relief Reconciliation Act of 2003 lowered the tax rate on qualified dividends to the same rate as long-term capital gains, which is 15% for most individual taxpayers (20% for those in the capital gains higher taxes brackets (39.6%)). The S&P 500 dividend yields rose 158.6% from 2003 to 2008. However, dividends where cut short by banks' yields falling in 2009 from the Great Recession.
Bond May Collapse: Bonds are not necessarily a good investment for those who don't own the bonds outright and can't collect the principal at maturity. For those in mutual funds and CEFs, there is danger on the "high seas".
Taxes Collapse: If tax rates change, all bets are off! However, I'm predicting that the distribution yields on equity's will most likely rise for the S&P 500 during the next 5 to 10 years.
For the S&P 500, dividend yields divided by the earning yields are 32.4% for 2012. For 1942 to 2013 the average was 47.8%.
See Stock Selection in next installment.
Additional disclosure: See the website equityincome.net