Earlier this morning we highlighted the historical p/e ratio of the S&P 500. Below we provide the historical dividend yield of the index as well. From the first part of the 20th century through about 1980, the yield was in the 3% to 6% range. The technological revolution of the 80s and 90s brought about a change in the makeup of the index, causing its yield to decline. Currently, the yield on the index is about 1.9%, still low by historical standards, but well above the historical low of 1.07% set in August 2000.
A big factor in any historical analysis of dividend yield is the changing emphasis on stock buybacks. Some investors prefer this approach for tax reasons. This impact has been mitigated somewhat by the reduced tax on dividends -- a reduction that might expire.
Corporate finance officers also find the buyback to be more flexible, permitting a more generous total package. Since companies hate to cut dividends, prudence requires them to maintain a safe cushion in payment levels. A combination of buybacks and dividends works well.
Posted by: oldprof | September 26, 2007 at 12:02 PM
Ditto to the above comment. For more info check out the paper Payout Yield by Boudoukh, Michaely, Richardson, and Roberts here:
http://www.faculty.idc.ac.il/kobi/repurchase.pdf
And a post on my blog here:
http://worldbeta.blogspot.com/2007/02/better-dog.html
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