Living off dividends?

Thrugelmir

adindas said:

Thrugelmir said:

MK62 said:

The US is probably not the best market to compare growth v dividends tbh.....share buybacks seem to be becoming the preferred method of returning cash to investors on that side of the pond

When making comparisons , domestic taxation rules need to be factored into why companies opt for certain policies.  Whether income or capital is better for shareholders and management remuneration. Dividend tax in Europe is high,  Denmark (27%), Germany (25%), France (27.5%) as examples. 

If you buy European stock such as DE, DK, FR stocks from the UK platform, do you pay the dividend tax on stocks bough on foreign stock exchange ??.

Tax is deducted at source, i.e. not paid gross. 

tebbins

masonic said:

tebbins said:

Haven't read the whole thing, just a few points as I've seen some generic narratives in here around growth.
1. "Growth" stocks tend to have high buybacks, on aggregate S&P 500 buybacks exceed dividends, and combined exceed profits. So the idea that low dividends = more retained earnings = higher growth is an unsubstantiated myth. There is a degree of retention that is necessary, beyond which the marginal return on retained earnings necessarily tends to 0 as economically viable opportunities for returns on capital exceeding the companies cost of equity become more scarce.
2. Higher yielding, and higher dividend payout stocks have been shown, in very long-tern aggregate data to outperform lower yielders, so the assumption that high dividends = lower capital appreciation may also be unsubstantiated. Low dividends indicate higher capital intensiveness and a high cash burn rate (due competition, R&D, repairs & maintenance etc.), high dividends are the strongest indication from management of confidence in earnings and (if consistent and sustained) a sustainable business model that can consistently generate excess cash for distribution (think big tobacco vs just another social media marketing company).

High dividend yield indices have been around for >15 years, so they provide a means of comparing returns without any active management component. The historic data from these suggest a lower beta than the market, with underperformance in rising markets and outperformance in falling markets, overall resulting in underperformance due to long periods of rising markets over this time period. If I'm understanding you correctly, this isn't backed up by the longer-term data and could be the result of a secular shift in P/E for the growth part of the market, captured in the whole market index but not the high dividend yield index? If so, it wouldn't be sustainable and runs the risk of a reversion to the mean.

Those indices have arisen the same time as quality and momentum (i.e. growth) indices that have faired particularly well, 10-15 years
However I'm more of a pure indexer and I'm sceptical if the value/yield premium can continue, that said it relies on the market's inefficiency in allocating capital away from those opportunities, anyone who says or believes Mr Market is anywhere near perfectly efficient hasn't seen periods when inefficiency is on show!
The very long term data can be found in places such as:
Barclays Equity Gilts Study 
Credit Suisse Global Wealth Reports (particularly the 2011 edition)

THE DESIGN, APPLICATION AND FUTURE 

DEVELOPMENT OF THE F.T.-ACTUARIES 

INDEX (journal of the faculty of actuaries, 1963, searching the title should bring up the article, para. 32 is an early indication of the points made in the two sources below)

https://www.tandfonline.com/doi/abs/10.2469/faj.v59.n1.2504?src=recsys

https://www.tandfonline.com/doi/abs/10.2469/faj.v62.n3.4157?src=recsys

Also see pp. 122-124 in Jack Bogle's Battle for the Soul of Capitalism (which quotes the 2003 source.

masonic

tebbins said:

masonic said:

tebbins said:

Haven't read the whole thing, just a few points as I've seen some generic narratives in here around growth.
1. "Growth" stocks tend to have high buybacks, on aggregate S&P 500 buybacks exceed dividends, and combined exceed profits. So the idea that low dividends = more retained earnings = higher growth is an unsubstantiated myth. There is a degree of retention that is necessary, beyond which the marginal return on retained earnings necessarily tends to 0 as economically viable opportunities for returns on capital exceeding the companies cost of equity become more scarce.
2. Higher yielding, and higher dividend payout stocks have been shown, in very long-tern aggregate data to outperform lower yielders, so the assumption that high dividends = lower capital appreciation may also be unsubstantiated. Low dividends indicate higher capital intensiveness and a high cash burn rate (due competition, R&D, repairs & maintenance etc.), high dividends are the strongest indication from management of confidence in earnings and (if consistent and sustained) a sustainable business model that can consistently generate excess cash for distribution (think big tobacco vs just another social media marketing company).

High dividend yield indices have been around for >15 years, so they provide a means of comparing returns without any active management component. The historic data from these suggest a lower beta than the market, with underperformance in rising markets and outperformance in falling markets, overall resulting in underperformance due to long periods of rising markets over this time period. If I'm understanding you correctly, this isn't backed up by the longer-term data and could be the result of a secular shift in P/E for the growth part of the market, captured in the whole market index but not the high dividend yield index? If so, it wouldn't be sustainable and runs the risk of a reversion to the mean.

Those indices have arisen the same time as quality and momentum (i.e. growth) indices that have faired particularly well, 10-15 years
However I'm more of a pure indexer and I'm sceptical if the value/yield premium can continue, that said it relies on the market's inefficiency in allocating capital away from those opportunities, anyone who says or believes Mr Market is anywhere near perfectly efficient hasn't seen periods when inefficiency is on show!
The very long term data can be found in places such as:
Barclays Equity Gilts Study 
Credit Suisse Global Wealth Reports (particularly the 2011 edition)

THE DESIGN, APPLICATION AND FUTURE 

DEVELOPMENT OF THE F.T.-ACTUARIES 

INDEX (journal of the faculty of actuaries, 1963, searching the title should bring up the article, para. 32 is an early indication of the points made in the two sources below)

https://www.tandfonline.com/doi/abs/10.2469/faj.v59.n1.2504?src=recsys

https://www.tandfonline.com/doi/abs/10.2469/faj.v62.n3.4157?src=recsys

Also see pp. 122-124 in Jack Bogle's Battle for the Soul of Capitalism (which quotes the 2003 source.

Thanks, looks like some nice bedtime reading there!