Buying for dividends now seems foolish. The S&P 500 dividends from 1960 to 2009 were lower against the prior year in '70, '71, '86, '92, '00, '01, '09, — 7/49 or 1 in 7 years. In years after a down year in dividends, you have a 2/7 chance of having another down year in dividends, or double the first year's probability. The drops signal the bad years in SPX returns. The greatest drop in dividends occurred from '08 to '09, so one would expect a similar drop in SPX coming soon.

Plus, why would anybody buy oil or land related deals when expecting deflation?

I pulled the data from Aswath Damodaran's site.

P.S. I finally have a handle on the harmonic and periodicity (or current lack thereof) in markets. Thank you for the tons of tests and thought experiments you have provided. They are probably the greatest gift a person can give. Studying the markets through the lens of DailySpec has been my greatest joy.





Speak your mind

2 Comments so far

  1. Russell Sears on January 6, 2010 3:34 pm

    I believe there is a technical error in the data source that end up giving the opposite prediction for 2010.

    I believe the correct Dividend % should be calculated as:

    $ earned during year / S&P Index at Beg of year.

    Because this is what dividend you would actually earn for the year if you invested at the beginning of the year.

    Not :

    $ earned during year / S&P Index at End of year.

    I don't know how you could actually earn this dividend rate.

    If you use my formula you get 1.91% Div in 2008 and 2.47% in 2009

    Not the 3.10% in 2008 and 2.00% in 2009.

  2. Ozymandias on January 6, 2010 3:48 pm

    Whoa, Larry Fletcher?! Where the heck have you been?


Resources & Links