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I am interested in researching issues relating to dividend stocks, sharing my findings with the community, and learning from the interaction.
  • What Historical Dividend Data Say About The Dividend Bubble? 0 comments
    Aug 30, 2014 5:02 PM

    Stocks with high dividend yields have gotten more difficult to find over the past few years. One narrative hypothesizes that the low interest rates in bonds and investors needs for stable fixed income have increased dividend stock purchases to irrational levels.

    Rather than debating the merit of the dividend stock bubble hypothesis, I focus instead on the data. Plotting the average annual dividend yield for dividend paying stocks up to 2013, Figure 1 shows that the average yield for 2013 is 3.97%.[1,2] In contrast, the 5-year average from 2001 to 2005 is 3.50% and the average from 1990 to 2005 is 3.58%.

    Figure 1. (click to enlarge)(click to enlarge)

    For investors that thought the current annual dividend yields are already low, this is bad news. Dividend yields spiked in 2009 due to the financial crisis. If one were to use the yields then as the baseline for what dividend stock yield should be, then one certainly would suspect a dividend stock bubble now. Thus, the combination of short-term memory and the falling yields since 2009 (as stock prices recover) might have contribute to the belief of a dividend stock bubble. Given the current average annual dividend yield, I would expect dividend stock prices to increase further (and dividend stock yields to fall further).

    The dividend data I have are for companies that still exist as of August 2014 -- thus the historical data excludes companies that are no longer listed. This is manifested in the fewer and fewer observations further back in history. (The thickness of the lines in the figures represents the number of companies).

    I do not have the data to solve the survivor bias problem. However, what I can do is to look only at the average annual dividend yield for companies with 15 years of consecutive equal or increasing annual dividend as of 2013.[3] The resulting data is an estimate of average annual dividend yield for companies that committed (successfully) to paying dividends. Figure 2 shows that the annual dividend yield pattern for this group of companies is similar to Figure 1.

    Figure 2. (click to enlarge)(click to enlarge)

    In Figure 3, I plot the data in Figure 2 by industry. The figure shows similar trends for most of the industries.[4] One noteworthy divergence is public utilities. While public utilities dividend paying stocks also yields higher over the post-2009 period, the price has increased sufficiently in the sector such that the annual average yields is now the lowest it has ever been since 1997.

    Figure 3. (click to enlarge)(click to enlarge)


    [1] Annual yield for a stock is calculated as the sum of the dividend payments for the year divided by the average price over the ex-dividend dates.

    [2] Yahoo's dividend data do not distinguish between normal dividend, special dividend (such as Microsoft (NASDAQ:MSFT)'s 2004 dividend), or dividend from splits or mergers. The average excludes the annual dividend yield of any company-year observation that is outside the 0.01% to 15% range.

    [3] The annual dividend is calculated by summing all the dividend paid for the year. After restricting the data to include only companies with 15 years of equal or increasing dividend paying history, the restriction noted in [2] is not needed.

    [4] Based on categories at

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