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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-)? /... More
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  • Why I'm A Dividend Zealot (Jan 31, 2012) 21 comments
    Mar 26, 2012 12:57 AM

    Many investors goal is "Maximum real total returns after tax" as it was defined by Sir John Templeton many years ago. My goal is slightly different and it is "As big as possible positive real total returns after tax during intermediate (~ 3-5 years) and long time periods"

    Often financial advisers just split total stocks returns into 2 parts as shown in Credit Suisse (CS) picture below.

    From this picture it is clear that capital appreciation part dominates during 1926-2006. Therefore many investors nowadays just ignore dividend contribution. In order to capture the capital appreciation a "regular" investor (without short positions) must sell stocks and I'll show elsewhere cons and pros of such decision. But if I go 1 step beyond this picture and try to understand causes of the capital appreciation I conclude that most probably the following factors are important in the long run:
    a) growth of earnings (or another metric that investors in masse use to buy stocks, for example organic grow, revenue, etc..) due to better productivity and partially due to inflation;
    b) growth of valuation due to increase of money inflow into stock market (in average life conditions on our planet improve with time and more and more people have some extra money they can invest. BTW, USA stock market still has good reputation and it is important for money inflow into it).

    On long run earnings and divdends are correlated: both grow with time although at different spead in various time periods as shown below.

    Although for many companies payout ratio fluctuates with time (mostly because of earnings fluctuations) for a big set of companies (e,g, all 500 stocks in S&P500) during some resonable long average period these fluctuations are zero out as shown above. Prof. R. Shiller demonstrated the same for inflation-adjusted numbers in his excellent book "Irrational Exuberance":

    If we ignore fluctuations we can see that both stock prices (i.e. , capital appreciation) and dividends increase with time, so dividends might play a second role in total return.

    Therefore total capital appreciation can be splited into growth of dividends (or earnings) and change of valuation as Societe Generale researches did in the following pictures (please note change in color codes).

    In a long run (~10 years) about 94% of my goal can be achieved with Dividend Growth Investing (DGI) according to graphs below I took from a good James Montier book "Value Investing: Tools and Techniques for Intelligent Investment".

    Prof. R. Shiller, Credit Suisse (CS) and Société Générale (SG) quants used all stocks traded in USA to build these graphs. A dividend investor by definition does NOT invest in stocks without dividends. So subset of abovementioned dataset should be used. I do not have such information and look on a simple task - to figure out how dividends and stock prices are correlated for seasoned dividend growth companies. I took 125 companies which increase dividends at least 20 years from today's David Fish list ( and "verified" their dividends at (please note that David Fish information is more precise but I wanted to do quick and dirty test). I trimmed out companies that have not enought Yahoo data or which dividends increased in more than 50 times (probably because of recent huge special dividends). As the result I got list of 100 companies. I compared dividends and prices grow numbers for these 100 companies for last 20 years and got the following graph:

    Both factors are purely correlated. For most of companies dividends increase is below 20 /median ~ 4.6 /and for ALL companies price increase is below 5.5 /median ~ 1.88/. Nevertheless up trend is visible at the graph. Hence for last 20 years SG results are valid for companies with growing dividends. See also 25 March 2012 addition.

    I mentioned that payout ratio (dividends/earnings) fluctuate due to significant earning noise. Indeed the following CS picture for dividends and earnings variations confirms this observation:

    As probably any investor I dislike variations so smaller variations in dividends seems me atractive (well, as a nanotechnology researcher I do see a lot of noises and quantum fluctuations at work and even use them for banks dividend analysis in But I'd like to stress the big (in my opinion) difference: dividends can be only positive or zero while earnings can be positive, negative or zero and any "regular" investor hate negatives (behavior scientists found that a human hate losses about 3 times stronge than love gains). I calculated Geometric Average Dividend Payments Growth coefficient from R. Shiller data for 1871-2010 and it is 3.27%, so a dividend growth investor (DGI) can pressume such increase of dividends and hence real variations DGI faces even smaller than numbers calculated by CS quants. Also I calculated Geometric Average Earnings Growth coefficient from R. Shiller data for 1871-2010 and it is 3.86%. Therefore Dividend Payments Growth is equal to 84% of Earnings Growth now I know how SG quants got the number.

    Do you still remember that Sir John Templeton and I wrote "returns after tax", so what is about taxes? In short I hate them (esp. in Silicon Valley, California there at the top of federal and huge state taxes we have ~ 10% sales taxes) but pay them. But I demand from all politicians that "represent" me at least to keep low taxes on dividends and I beleive any dividend zealot must do the same. And the max I think that double taxation of dividends in US should be stopped.

    Of course there are other arguments in favour of dividend investing readers can find them in excellent books:
    "The single best investment: creating wealth with dividend growth" by Lowell Miller (actually this 2006 book changed my investment philosophy);

    "Dividends don't lie: finding value in blue-chip stocks" by Geraldine Weiss (substitutes are "The Dividend Connection: How Dividends Create Value In The Stock Market" by Geraldine Weiss & Gregory Weiss and "Dividends Still Don't Lie: The Truth About Investing in Blue Chip Stocks and Winning in the Stock Market" byKelley Wright);

    "The Strategic Dividend Investor" by Daniel Peris - see;

    TOP 40 DIVIDEND STOCKS FOR 2012: How to Create and Maintain a ividend Growth Portfolio by David Van Knapp (DVK published such book each year so previous editions can be used, he also publish good articles at SA - - I sometimes try to challenge).

    "The High Dividend Yield Return Advantage" downloadable from

    I'd recommend to read these books for any stock investor.

    Of course there are other and probably even better styles of investment but I prefer to be eclectic dividend investor.

    ADDITION 20 Feb. 2012
    Graphs like figs. 7.2 and 15.6 of SG shown above for US stocks can be constructed for any country. Indeed famous trio from London Business School / the authors of excellent book "Triumph of the Optimists" (2002)/ analyzed long-term stocks return in 19 countries.
    They wrote "Unlike fixed-income investments, equities offer the prospect of dividend growth. Historically, dividends have grown in nominal terms in every country. But what matters is real, inflation- adjusted growth. Figure 4 shows the <analyzed> countries and world index ranked by their annualized real dividend growth over 1900-2010 (the gray bars). Real dividend growth has been lower than is often assumed. Figure 4 shows that 10 out of 19 countries recorded negative real dividend growth since 1900, and only four enjoyed real dividend growth above 1% per year.

    Dividends, and probably earnings, have barely outpaced inflation. Dividend growth was lower in the turbulent first half of the last century.... But from 1950 to 2010, real dividends grew everywhere except New Zealand, and the world index enjoyed far healthier real growth of 2.3% per year. Figure 4 also shows how dividend yields have changed over the long run. The red bars show the annualized change in the price/dividend ratio (the reciprocal of the yield) from 1900 to 2010. Over the last 111 years, price/dividend ratios have risen (dividend yields have fallen) in 16 of the 19 countries. The price/dividend ratio of the world index grew by 0.48% per year. Finally, the blue bars in Figure 4 show the mean dividend yield in each country from 1900 to 2010. By definition, the real annualized equity return in each country is equal to the sum of the three bars shown for that country, i.e. the mean dividend yield plus the real growth rate in dividends plus the annualized change in the price/dividend ratio. Dividends have invariably been the largest component of real returns. "
    I'd like to compare this recent picture with similar graph published by the "Triumph of the Optimists" authors (Elroy Dimson, Paul Marsh and Mike Staunton) 10 years early:

    It seems interesting that USA moved from #4 to # position while Sweden maintained #1 position. I think this difference reflects importance of dividends in "lost decade" of US stock market.

    25 March 2012 addition:

    Research Affiliates LLC compared stock prices earnings and dividends after inflation based on the same Robert Shiller's data - see picture below

    All 3 have almost the same uptrend that again confirms SG results that about 90% of total return is due to dividends and their growth. Let me just remind that dividends come from earnings at least in the long (> 100 years) run.

    March 14, 2013

    There are few research that shows that dividend indexes outperform S&P500.

    S&P500 vs S&P Dividend Aristocrats:
    During 1994-2010 returns were 8.0$% vs 10.33% at 5-year volatility 17.82% vs 16.82%. So from standard point Dividend Aristocrats outperformed, although they had higher yield 2.82% vs 1.81%. (S&P data).

    Another example:

    (click to enlarge)

    It is well know that total return of stocks is higher than just price return (almost at any time scale due to positive dividends). In the long run the difference is about order of magniture (see graph below for US and Canadian stocks markets) mostly due to reinvesting of dividends.

    (click to enlarge)

    (click to enlarge)

    The difference is due to 2 aspects: a) high yield - HY (i.e. opportunity to reinvest dividends more efficiently), and b) positive dividend growth -DG (i.e. opportunity to receive more dividends in a given period of time, and hence reinvest more money). On the level of individual stocks it means that total return is busted due to HY & DG combination. Therefore, I'm HY & DG investor. Many DGis (including me) tilt to value investing - they wait good yield of a high DG stock to purchase a company.

    9 Jan 2014

    Many stock investors rely on price appreciation. IMO this "next fool" approach is quite risky. Robert Arnott data ( shown in the pictures (his figures 2 and 3) below

    (click to enlarge)

    (click to enlarge)

    confirms this opinion. Who can wait 17-44 years in red ink /except communists 8-)/ with non-dividend stocks? Well, most of such "delay" occurs in 1801-1961 when most of companies paid dividends. Such zero real price appreciations periods can be ahead because inflation is more suitable for any goverment issued bonds (like Threasuries) than deflation. During such periods bonds (goverment and corporate) are not a panacea because "In the bond market the borrower issues the bonds and therefore writes the rules. Consequently, bonds are designed to make money for the borrower, not for the lender." (Ronald H. Muhlenkamp). Corporates include redeemable provisions in the bond, goverments print money at speed to keep inflation at about level of interest...

    Decomposition of real (after inflation) stocks returns is shown below.

    (click to enlarge)

    As you can see the result is robust for several developed countries.

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Comments (21)
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  • I think the dividend contribution and the price appreciation can always be traced back to earnings, so companies that consistently earn profits will pay off one way or the other...but it's nice to receive the cash without having to sell shares.
    1 Feb 2012, 01:24 AM Reply Like
  • Author’s reply » David,
    I agree but please note that
    a) SG quants just counted proportions between 3 parts (dividend yield, growth of dividends and change in valuation) in order to make these graphs. They did not run any analysis, just used market data.
    b) SDS did use just 4 numbers: prices at market close 1/31/2011 and most recent dividends paid, as well as market close prices of the same companies 20 years ago and dividends at ex-dividend days close to 1/31/1991 (both adjusted for splits) from


    Company Board defines dividend/earnings for a "standard" company somewhere between 0% and 100% but investors define price/earning in a wild range. SG quants show that prices (well change in valuation more precisely) almost doesn't matter in a really long run (1871-2008) - see fig 7.2 left and contribute less than 20% for 5 years - see fig. 15.6 right.


    2 Feb 2012, 12:45 AM Reply Like
  • I wonder if it's really meaningful to use the figures from the complete universe to draw a conclusion.
    2 Feb 2012, 03:14 AM Reply Like
  • Author’s reply » I don't know. I tried to reduce universe to dividend growing stocks from your list but data for dividend growth rate (DGR) vs. price change (P) are quite scatter I guess because my sampling period /20 years/ is too small.


    I think I saw similar figure for 10 years holding and it was between fig 7.2 left and fig. 15.6 right.
    Effectively, figures show that in AVERAGE equity return can be split into contributions from three sources: the purchase price in terms of valuation (dividends =Y), the growth of the underlying business (DGR), and any change in valuation multiples (P). If you take random 5 or 10 year period proportions Y:DRG:P fluctuates I guess as median P/E for market, but in a long run (estimated as 50+ years) Y+DGR>P.
    2 Feb 2012, 09:12 AM Reply Like
  • I guess it just goes back to the argument about wanting the dividend stream, so the price appreciation might be considered less important.
    2 Feb 2012, 04:53 PM Reply Like
  • Author’s reply » I think graphs like SG for stocks from David Fish CCC list will be helpful. Does anybody want to crunch the numbers?
    10 Feb 2012, 06:09 PM Reply Like
  • Perhaps another major factor in stock price is market sentiment.
    I've read that the broad market behaves like a schizophrenic who only periodically takes their lithium. Such bi-polar behavior can have periods where all boats rise, champaign corks pop, shoe-shine boys dispense stock buying tips and we're all smart. This is punctuated with periods of withdrawal and a lethargic malaise.....all separated by periods of seeming normalcy.


    I don't pretend to know what the future markets will do....I gave that up long ago. Predictability of a company's ability to make their distributions is still an unknown, but much more predictable than the stock's price...hence I live on what they distribute rather than on what I think their stock price will be.


    Guess that makes me a Dividend Zealot, too.


    12 Feb 2012, 02:52 PM Reply Like
  • Author’s reply » BruceCM
    I think that market sentiment is included in "change in valuation" part of SG graphs.
    12 Feb 2012, 05:11 PM Reply Like
  • I have to admit that it's difficult to draw a conclusion based on the overwhelming amount of data that you are presenting.
    12 Feb 2012, 10:29 PM Reply Like
  • Author’s reply » David,
    Hmmmmm..... Let me just navigate through my probably imperfect writings using figures as steps.


    Fig. 1 is a common (and in my opinion incorrect) presentation where total return is about 50:50 between dividends and capital appreciation (i.e. stock price change).
    In next step I ask a simple question - what causes capital appreciation? Common and almost correct answer is earnings (objective) and market sentiment (subjective).
    Figures 2 & 3 show that earnings and dividends as well as US stock market price and dividends have the same up trend during long run.
    So it is possible to give more detail picture for capital appreciation component as SG quants did in next Figure 4 (it consists of 2 parts for different time frames).
    Hence 1st conclusion: total returns are mostly dividend driven (yield + growth rate).
    Then I'd like to see if trend shown in Figs. 2& 3 for ALL (or index like SP500) stocks in the long run is correct for dividend growth stocks in last 20 years. Data in Fig, 5 are quite scattered but up trend is visible. So the 1st conclusion is probably applicable to dividend growth stocks only.
    Then I switch the gears and use Fig. 6 to analyze stability of dividends and earnings. Although Fig. 6 itself confirms that earnings variation is strongly than dividends one, I run numbers to show that a big component of dividends variation is dividend growth.
    Hence 2nd conclusion: a dividend investor can expect quite stable and predictable income steam from stocks he or she own.


    These 2 facts of previous history of equities in US stocks market and my hope that similar behavior will occur during my lifetime define my decision to be a dividend investor.


    What is left on the table for the "Maximum real total returns after tax" goal?
    I think 2 main questions:
    a) How to capture remaining ~ 10% of "change in valuation" (see SG pictures) for maximum total return?
    b) How to handle taxes?
    I shortly answered 2nd question in this blogpost and hope to answer 1st question later on.
    13 Feb 2012, 01:47 AM Reply Like
  • What I am saying about the overwhelming amount of data is simply that you are presenting a macro picture...sort of like "Here's ALL data for ALL time," whereas I am used to analyzing micro situations, that is individual company data in recent years/decades.
    So all I am saying is that such a macro presentation is overwhelming because I simply can't devote the time to understanding it or relating it to my micro (company-level) viewpoint.
    13 Feb 2012, 08:12 AM Reply Like
  • Author’s reply » OK, David - I get it. Hopefully top-down & bottom-up approaches can meet somewhere even for DGI.
    This blogpost indeed outlines a big picture why I prefer dividend stocks. Then I go to details (not listed here but mentioned in books I refer to) and construct my stock portfolio (see mostly from companies including your CCC list (I sometimes call it CCCD list because Deletions from your list are also important for me because sometimes I invest in companies that frooze or reduced their dividends). I even posted some my microviews, e.g. or although most of my blogpost are above "individual company data", e.g. the analysis of dividends in ~ 200 banks - see
    13 Feb 2012, 09:14 AM Reply Like
  • I have to admit, I have read this article twice and do not know what to make of it. The reliance on analyses of huge universes of stocks to draw anything other than broad "trend" conclusions about how a well-selected protfolio of a particular kind of stocks--such as dividend growth stocks--will perform is fraught with danger. There were enough undefined data points that I could not interpret the meaning of a couple of the graphs. Time periods overlap in a couple of the graphs, although I saw no time gaps. Bottom line for me is that I don't see this as very helpful in drawing conclusions that help investing decisions.


    The very first graph is useful as an answer to those who have said they "doubt" that dividends have contributed as much as 40% to total returns over long time frames.
    13 Feb 2012, 09:18 AM Reply Like
  • Author’s reply » David Van Knapp,
    Thank you for comment. I think I answered early to David Fish's similar concerns in my replies to this blogpost.
    Probably the transition between 2 points A) "huge universes of stocks" badly selected (well hopefully not so badly in S&P500 case) performs good mostly due to dividends and B) "well-selected protfolio of" dividend stocks from the same "huge universes of stocks" also performs good should be illustrated better. I skipped this part because of well-known results of several studies that in long run dividend stocks outperform non-dividend stocks.
    I hope you agree with the main conclusion: Sir John Templeton target can be reached with dividend stocks. If not I did a bad job....
    13 Feb 2012, 09:49 AM Reply Like
  • Author’s reply » I think it is worth to reproduce here my answer to Larry Swedroe
    from another discussion (


    I (and some other DGI) do NOT want higher returns if they are unstable at intermediate ( below ~5 years) time scale. I rather satisfy with modest more consistent positive income (that I can re-invest and retires can take for living) without record spikes in both positive and especially negative directions. (Remember - human reaction to loss is ~ 3X stronger than to gain).
    I use famous in almost any engineering discipline rule of thumb "It takes 20% of effort to achieve 80% of result and it takes 80% of effort to achieve 20% of result". Based on long-term data I initially found in James Montier book "Value Investing: Tools and Techniques for Intelligent Investment" I can get more than 80% of long-term (in my classification above 10 years) returns via dividend components such as yield and growth even without value-type screen for high initial yield stocks.


    IMO, the cornerstone concept of assets allocation is transfer of previous covariance into future, and again IMO this transfer might be not as straightforward as we like to see it with any financial data.
    The old Wall Street sayings goes as "the only thing that goes up in a bear market is correlation". I'd add from 2008-2011 experience and numbers presented in the tables above another thing that goes up in a bear market is the number of dividend cuts and omissions.
    One more fact against dividend investment I aware of - dividends (in $$$) of several respectful quasi-index mutual funds (I analyzed about dozen from Vanguard, Fidelity, etc) DECREASE slowly but steady with time between ~ 1985 and 2010. In order to protect myself from this trend I invest in DG stocks but not exclusively and tend to buy small-cap dividend stocks at good historical value. So I mimic small value fund with restriction for non-zero dividends and this choice came from prior studies which forced FF wrote 1992 paper (although I'm not sure that these 2 factors will be important in future because now everybody /and I consider myself as a person at the end of informational chain/ knows).


    18 Feb 2012, 07:48 PM Reply Like
  • Author’s reply » I added international graph on 02/20/2012.
    I'd like to point that in this figure that only Sweden has higher dividend growth rate (DGR) than USA. I checked main holdings components of iShares MSCI Sweden Index Fund (EWD) and did not find impressive dividend growth stocks there. On another hand, most DGI from USA dream about 10% YOC in 10 years while a Swedish dividend investor dreams about 40% YOC in 20 years ( which is only possible at really high DGR. Do EWD and I miss something in Sweden stock market? Does anybody know dividend fund from Swedish stocks available in USA? Is high Swedish DGR an old story or it is robust and we should expect that it will be high in future?
    21 Feb 2012, 03:48 PM Reply Like
  • Interesting article. Will have to review it more, but generally agree that dividend growth investing has much to offer LT investors.
    26 Mar 2012, 02:20 AM Reply Like
  • Author’s reply » Just added info about Canadian stock market from
    12 Jan, 07:48 AM Reply Like
  • Old article, but good.


    I would add this. Own so little of any one stock that their survival is irrelevant.


    Buy them and forget them.


    Why? Because you have to ride the waves, dude. And there is no telling when the wave will bottom out in the sand. So just ride the waves and never put any more than 2.5% into any one position.


    And never, ever do what I suggest.
    18 Mar, 02:18 PM Reply Like
  • Author’s reply » I try to keep expenses low and any companies should be monitored (i.e. invested my time during stock purchase and holding) - hence there is self-imposed low limit to invest in a company. On 2nd point - should I do monitoring if firms pays me below hourly rate? My answer is NO. I violated this low limit 2 times (well I receive ~ 30$/year from each and monitoring doesn't take much time, nevertheless probably I will sell these 2 positions at hopefully good capital gain).


    My typical position is about 1% because DG/HY investor needs 100+ stocks for proper diversification IMO.


    "And never, ever do what I suggest. "
    18 Mar, 03:42 PM Reply Like
  • Well, that shows you size does matter.


    At 1% per position i'd have $11.43 in each stock.


    18 Mar, 03:53 PM Reply Like
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