In this speculative set of markets, it's nice to see a reasoned discussion of dividends as in the linked Business Week article. In the early stages of the Great Depression, dividends were high single digits. Now the S&P 500 yields about 2% (exact rate depends on how you measure the yield of 500 stocks weighted by float.)
My basic take is that if we are years away from surpassing the total dividend payout set at peak, it is anyone's wild guess as to what competing interest rates will be, what P/E's will be, etc.
People such as David Kotok of Cumberland Advisors who have been quite right this year to be long continue to be long, citing liquidity and absence of labor cost pressures. So, sales should rise and margins should be strong.
The novel problem is the eerieness of 0% interest rates, which are occurring allegedly because there is still a financial crisis going on. Meanwhile, the rest of the financial community is partying. What is this liquidity then other than leverage similar to that which ultimately imploded the system a year ago? Will stocks double so that the dividend yield on the SPY is only 1%, but that still is as good as cash? Will the trick for the next bear market be that stocks peak well before the Fed truly tightens?
Stay tuned. Whether it's a Ginnie Mae, a 10-year Treasury, or even Teva yielding 1.1% or ownership of GLD or SLV with covered call selling, investors should focus on income precisely because most of the media are not doing so.
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