Category Archives: relative yield

Stock Market Dividend Yield: 1871-2020

Posted on July 7, 2020 by | Leave a comment

This from Barron’s on the U.S. stock market dividend yield from 1871-1996:

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The Dow Jones Industrial Average dividend yield profile from 1920-2020: Continue reading →

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Posted in dividends, high yield, Low Yield, relative yield, Yield Profile

Google: As If It Paid a Dividend

Posted on May 1, 2020 by | Leave a comment

It should not go unnoticed that since the 2009 low, Alphabet (GOOG) and Microsoft (MSFT) have had essentially the same change in their stock price.  However, unlike GOOG, Microsoft has paid a dividend the whole time that GOOG has been publicly traded.  This means that Microsoft has been crushing it in the department of total returns.

Percentage change without dividends since March 9, 2009:

  • MSFT: +1,056%
  • GOOG: +808%

Percentage change with dividends since March 9, 2009:

  • MSFT: +1,397%
  • GOOG: +808%

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Though they don’t directly compete on all levels, GOOG appears to be the superior more formidable upstart, by comparison.  Which begs the question, what would the valuation levels for GOOG have been if they paid the same dividend as Microsoft since going public?

Below we explore the levels that GOOG would be considered undervalued or overvalued if it paid exactly the same dividend as Microsoft from 2004 to 2020.

Altimeter

The Altimeter is a calculation of price relative to dividends.  It is very consistent over time although less so with high tech companies.  For this reason, a tech stock can and does exceed the overvalued targets but is reined in with dramatic declines in short periods of time.

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Undervalued and overvalued levels based on Altimeter since 2004 are reflected in the chart below.

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According to the Altimeter, as devised by Edson Gould, GOOG is at or near the overvalued range and should not be acquired at the current prices.

Dividend Yield Profile

All dividend paying companies traded in a historical range from undervalued to overvalued and then back to undervalued.

If GOOG paid a dividend that was based on what MSFT had paid since 2004, then GOOG would have an overvalued dividend yield of 0.14% and an undervalued yield of 0.29%.

So far, GOOG is trading near the higher end of the presumed yield range.  That doesn’t mean that GOOG is a sell, it just means that the stock isn’t a buy at the current price.

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The question is, if GOOG isn’t undervalued, at what price would Alphabet be at if it were yielding a presumed 0.29%?  Below we have the expected price targets for Google over the next ten years based on the Altimeter.  We’ve chosen the Altimeter because it is so closely aligned with the dividend yield profile.

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Conclusions

Alphabet has passed the phase of being the scrappy upstart ready to topple the Microsoft empire.  Instead, it is a shared world of domination for both companies.

Eventually, GOOG is going to start paying a dividend.  Initially, the dividend will be low on a yield basis but the rate of increases will be exceptional on a year-over-year basis. GOOG will be paying a dividend that is in line with the dividend that is currently paid by Microsoft.

For this reason, we don’t believe that the use of Microsoft’s dividend history applied to Google is such a far out concept.  Especially when GOOG has had difficulty in beating the price performance of MSFT since the 2009 low.

see also:

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Posted in Altimeter, GOOG, MSFT, relative yield, Yield Profile

Chart of the Day: Inverted Yields from 1800 to 1965

Posted on May 2, 2019 by | Leave a comment

Below is a chart of inverted yields of American bonds as published in Richard Russell’s Dow Theory Letters on May 25, 1965.  What is most conspicuous about this chart?  The overall trend of lower highs (yields) and lower lows (yields).

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Posted in high yield, Interest Rate Monitor, interest rates, Low Yield, relative yield, yield

Payout Ratio Studies: Procter & Gamble

Posted on January 26, 2018 by | Leave a comment

It has been our observation that a company with a history of dividend increases over a full economic cycle (ideally more) will exhibit a characteristic of being especially undervalued when the stock has a high dividend payout ratio.  In this posting, we’ll show how a well established company like Procter & Gamble (PG) can generate a high dividend payout ratio and exceptional total returns compared to low dividend payout ratios and mediocre investment returns.

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Posted in PG, relative, relative yield, values

Dividend Yield is a Matter of Perspective

Posted on February 28, 2010 by | Comments Off on Dividend Yield is a Matter of Perspective
A reader asks:

How is it that you can characterize stocks that yield less than 2% as "dividend" stocks?

Touc's reply:

The purpose of tracking the stocks in our Dividend Achiever Watch List is because the companies have a history of increasing their dividend every year for at least 10 years in a row. The choice of selecting a Dividend Achiever based on the yield becomes up to the investor.

However, as a matter of observation, selecting stocks based solely on the "high" yield has seldom resulted in long-term financial security. In addition, my "research" has shown that stocks with a low dividend yield but a higher average annual compound growth of the dividend tend to outperform stocks with a "high" dividend yield but a low compounded annual growth rate of the dividend. For this reason, I'm willing to look more closely at the compounded annual growth rate of the dividend for lower yielding stocks. Again, this is among the many factors that go into selecting any one of the stocks on our New Low Watch List.

Another factor that we consider when selecting Dividend Achievers is the relative yield of the stock. If a stock has a history of dividend payment increases over an extended period of time then we can determine the relative buy and sell points. Buying and selling stocks based on the relative yield is explained in the books Relative Dividend Yield by Anthony Spare, Dividends Don't Lie by Geraldine Weiss and Dividends Still Don't Lie by Kelley Wright. An excellent February 20, 2010 interview of Kelley Wright's most recent book can be found on the Financial Sense website here.

One example of a low yielding stock is Helmerich & Payne (HP). We recommended the stock on Sept. 2006 because, on a relative basis, the stock was under-priced. Subsequently, we gave a sell recommendation after the stock had gained 141% in August 2008. We later recommend HP when, on a relative basis, it was attractively priced in March 2009. Since March 2009, the stock has increased over 80% to the current price of $40.52. The point is that, on an absolute basis, the yield on HP never reached 1.50% when the stock was at its lowest price (high price = low yield/low price = high yield.) However, on a relative basis, the yield was very high for the stock.

It is far more important to focus on the history of dividend increases rather than the yield. Once you’ve narrowed down the quality stocks based on dividend increases then it is suggested that you compare the current dividend yield to the historical range for the stock in question. At least, this is the way the New Low Observer team likes to look at dividend paying stocks, regardless of the yield.

-Touc

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Posted in Anthony Spare, book, dividends, Geraldine Weiss, Kelley Wright, relative yield