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Sorry I hide my true identity but I'm a physicist/engineer, native contrarian and idea generator. I am an eclectic dividend investor with motto "In God We Trust, All Others Pay Cash" applied to companies I invest in. I like to read /and read a lot - did you look on my SA photo 8-)? / including... More
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  • Role Of Dividends In Developed Stock Markets. 2 comments
    Jan 31, 2013 9:42 AM

    31 Jan. 2013

    Dividends and dividend growth rate plays very important role in total returns of US stock market ( ). But can we say the same about non-US equity markets. IMO the following table 1 helps answer this question.

    Table 1:

    (click to enlarge)

    It should be noted that the authors created this table without taking dividend growth rates into account, so data show only the LOWEST limit of dividend participation in equity markets returns. Nevertheless, for countries like Australia, France and Spain return from dividends overweighed total return (i.e. stock prices declined) and, hence, the ratio of "Difference due to Dividends" to "Compound Return WITH Dividends" exceeds 1. Italy presents quite terrible situation when even "Compound Return with Dividends" was negative but of cause "Return FROM Dividends" was positive.

    For other countries the ratio for relatively short period 1970-1995 (the panel A of the table 1) is in the range from ~21% for Japan to ~85% for Canada (average ratio for these countries is ~ 61%).

    For long run (the panel B of the table1 and table 2) the ratio is higher (except UK) as expected from results I presented early (

    Two periods with high and lower dividend importance (again with ignorance of dividend growth rate and hence at the lowest limit) are visible in table 2 for USA.

    Table 2:

    COUNTRY Short Period RATIO Long Period RATIO
    Japan 1970-1995 0.214203    
    Sweden 1970-1995 0.427759 1926-95 0.537167
    Switzerland 1970-1995 0.465035 1921-95 0.61939
    Norway 1970-1995 0.54063    
    Austria 1970-1995 0.576687    
    Denmark 1970-1995 0.585627 1923-95 0.868852
    Netherlands 1970-1995 0.649321    
    Belgium 1970-1995 0.687741    
    Average 1970-1995 0.716695    
    Germany 1970-1995 0.73913 1924-95 0.751553
    United Kingdom 1970-1995 0.807512 1921-95 0.633578
    Canada 1970-1995 0.85023    
    United States 1970-1995 0.673171 1921-95 0.588808
    United States 1970-1995 0.673171 1871-1920 0.950276

    These results allow me to conclude that in the long run dividends are important not only for US but also for other developed markets.

    Added 3/15/2013:

    JAVIER ESTRADA shows in article "Fundamental Indexation and International Diversification" that dividend-weighted international portfolios outperform cap-weighted world index:

    (click to enlarge)

    The DWI has higher return, lower volatility, and higher risk-adjusted return than the CWI. The EWI and DYWI have essentially the same volatility and beta as the DWI. For this reason, both the EWI and DYWI outperformed the DWI on a risk-adjusted basis.

    DYWI out-performed the DWI in every non-overlapping 5-year period, every non-overlapping 10-year period.

    The weights in the DYWI are substantially different from those in the CWI and DWI. Relative to the CWI, the DYWI gives a lower weight to Japan and the U.S. and a higher weight to all the other countries. Relative to the DWI, the DYWI gives a higher weight to 9 countries and a lower weight to the other 7 countries. Interestingly, the weights in the DYWI are even more evenly distributed than in the DWI. The standard deviation of the 16 average country weights in the DYWI is 1.8%, compared to standard deviations of 12.2% in the CWI and 3% in the DWI (in all cases around the average of 6.25%). DWI has an annual turnover of 13.3%. The EWI and DYWI have annual turnover rates of 13.7% and 24.8%, respectively.

    The substantially different performance between the DWI and the CWI follows exclusively from the substantially different weights these indices give to each country benchmark. The countries with high (low) dividend yield tend to gain (lose) weight in this index. For example, the weight of Japan, the country with the lowest average dividend yield, in the DWI is decreased by 88% with respect to the CWI. Conversely, the weight of Ireland, the country with the third highest average dividend yield, in the DWI is increased by 40 times, again with respect to the CWI.

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Comments (2)
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  • SA Eli Hoffmann
    , contributor
    Comments (990) | Send Message
    Interesting... What might a regionally diversified DG portfolio look like? Are there ETFs for regional-focused DG investors?
    1 Feb 2013, 07:10 AM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (4389) | Send Message
    Author’s reply » Eli,
    >What might a regionally diversified DG portfolio look like?
    IMO it should have several DG companies form a region. The problem is that DG culture is NOT common and exist only in few countries, although some companies in various regions have progressive dividend policy (I like this UK term). Guraaf have write a lot of SA articles about DG companies in different countries.
    > Are there ETFs for regional-focused DG investors?
    I don't know all ETFs, but it seems that even US doesn't have one real DG. Wisdom Tree has few regional dividend ETFs but I had bad experience with them - change of investment objectives, opaque practice, etc... Also they are not DG funds just dividend funds (as well as many others). As far as I know only some UK trusts are suitable for regional-focused DG investors - see
    1 Feb 2013, 09:20 AM Reply Like
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