In a recent paper – a man from a different time – Montier takes a look at what has driven shareholder returns over long period of times and the answer is pretty clear: dividends and dividend growth!
- “ To those with an attention span measured in longer than milliseconds […] dividends are a vital element of return
The point is well illustrated when Montier compares the sources of returns on a 1-year vs. 5-year basis for the US markets since 1871. The results are quite telling:
Over a 1 year period, ~75% of returns are driven by change in valuation
Over a 5 year period, ~50% of returns are driven by dividend growth and 25% by dividend yield!
Over the entire 140 years, 90% of the market real returns are driven by the dividend yield.
Montier also compares dividends vs. stock repurchase which he likes less : “ I don’t regard repurchases as equivalent to dividends, least of all in their permanence.”
The article then goes on to explore a particular opportunity in dividend swaps.
Overall I share Montier’s view of dividend and think they are a key feature to value investing – I do however like it if management, in addition to dividends, use excess cash for stock repurchases. Maybe an ideal stock for me would bay 2-3% dividend yield and would have another 1-2% of buybacks per years on average.
How about you? What is your view of dividends and buybacks?
Many happy returns!
Disclosure: No stocks