Categories
Income Investing

This Morning’s Dividend Declarations

Cincinnati Financial (NASDAQ:CINF) declares $0.63/share quarterly dividend, in line with previous: Forward yield 2.09%

bebe stores (OTC:BEBE) declares $0.06/share quarterly dividend, in line with previous: Forward yield 4.69%

Global Ship Lease (NYSE:GSL) declares $0.25/share quarterly dividend, more than double the $0.12 per Class A common share announced on January 12, 2021, as a result of subsequent fleet growth and success in rechartering: Forward yield 6.71%

WhiteHorse Finance (NASDAQ:WHF) declares $0.355/share quarterly dividend, in line with previous: Forward yield 9.13%

Viatris (NASDAQ:VTRS) declares $0.11/share quarterly dividend: Forward yield 3.13%

Categories
Income Investing Wealth

Dividend Growth vs Median Wage Growth

In case you haven’t been paying attention, most people are broke as fuck. The days of middle class growth and prosperity ended a generation ago.

Need proof? Look at real (real = adjusted for inflation) median household income in the United States. For years it was declining. Median real household incomes were flat from 1999 to 2016.

This seemingly simple measure is a driving force behind many of the recent societal shifts across America and much of the developed world. This is because while the economy has grown, the average Joe has been left behind. The wealth created by the overall economy didn’t simply evaporate – instead it went to a select few.

The 1%.

The owners of capital.

Labor has been shortchanged for a generation and people are looking for answers. This is precisely why far-left and far-right views are growing in popularity. Both wings of competing political parties offer radical solutions (and scapegoats) to their constituents who – driven by desperation – eat it up. The same situation has occured many times throughout history, often with tragic results.

Luckily, real median household incomes have started to improve. Still, the experience over the past 20 years has been horrible.

On average, despite a couple good recent years, real household incomes in America have grown by 0.53% each year this millennium! Compare that to average real GDP growth over the past 20 years of roughly 2% (which is already on the low side, historically).

Now compare real median household incomes and real GDP to real dividends paid by the S&P 500. The chart below shows real dividends per share for the S&P 500.

On its own this line doesn’t provide much information to evaluate against real household incomes or real GDP. The chart below, however, shows year-by-year growth in S&P 500 real dividends.

The average annual growth in real dividends this millennium: 5.14%.

5.14% vs 0.53% growth in real income growth (dividends vs. wages) is a massive difference. Especially if you compound this over 20 years as you can see below.

At 5.14% annual growth, $100 of annual dividend income grows to $272.

At 0.53% annual growth, $100 of annual wage income grows to $111.

That’s 145% more income for the person who derives their income from dividends. This clearly shows that the owners of capital (shareholders) have far outperformed the providers of labour (workers) over the past 20 years. And this doesn’t even count the capital gains on shares during the same period.

So who would you rather be?

This is the reason why many people have chosen to transition from providers of labour to owner of capital by saving and investing heavily. The aim is to accumulate enough capital to replace labour income with dividend income + capital growth. It’s the path many use escape the rat race.

Categories
Income Investing Investing

Stock Market Performance During the Great Depression

Many people point to the US stock market performance after the 1929 crash as evidence that stocks can go nowhere for decades.

The argument usually points to the chart below, which shows the Dow Jones Industrial Average failing to retake its August 1929 peak until November 1954. In other words, people make the argument that someone investing in US stocks at the 1929 peak would have had to wait until November 1954 just to break even.

This is false.

The above chart shows the commonly used Dow Jones Industrial Average – an index based on price-returns.

What people completely miss is that investors would have received dividend payments during this entire period. Below, I adjust market returns to include dividends.

According to the calculation below, when including reinvested dividends, an investment at the 1929 peak would have returned on average 5.58% per year ending November 1954. That’s equivalent to a cumulative total return of just under 300%.

While it’s true that the buy-and-hold investor would have ridden a financial rollercoaster along the way, even the worst market timer would have done OK if they simply invested a lump sum and did nothing.

Source: DQYDJ

Of course, it took time for dividends to compensate for price declines. It wasn’t until 1945 that investors started to experience a positive total return. That’s still a long time to wait – and still implicit evidence that stock markets can take a long time to recover.

However, the stagnation narrative is significantly undermined, as this shows it took far less than a quarter-century for the worst market timer to break even.

The above examples show a worst case scenario – someone who’s only decision was to invest at the peak of a stock market bubble and then sit on their hands. This isn’t a realistic scenario for most of us.

Most people invest periodically (i.e. not all at once) as they stash away savings over time. So the more realistic illustration would show how someone performed if they started investing in 1929 and added to their investment over time.

The following chart shows the portfolio value for someone who spread their investment over a 40 month period, starting at the end of 1929. In this example, the person invests a total of $20,000. As you can see, their account is positive (i.e. above $20,000) from the end of 1933 onward.

This more realistic scenario again shows the myth of secular stock market stagnation narrative is largely misleading.

Data from Robert Shiller