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I am a private investor building a value focused portfolio. While I do not work directly in investing, I do have a financial background and hold the CFA designation. The goal of Margin of Safety Investing is to share my investing journey as I review and analyze investing opportunities using a... More
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  • Weekend Reading: Dividends Matters! 0 comments
    Nov 26, 2010 11:42 AM

    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
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