Comments on: Why The Price Dividend Ratio Is Better Than PE Ratio http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html Freshly squeezed market commentary & analysis Sun, 08 Nov 2009 05:24:49 +0000 http://wordpress.org/?v=2.0.2 by: systemBuilder http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-53689 Thu, 13 Aug 2009 02:16:03 +0000 http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-53689 A company can't lie about a Dividend. They either pay it or they don't. If they try to borrow money and pay out too many dividends, they go bankrupt and the bond investors forclose upon the company. You can say that companies have "Changes their attitudes about Dividends". Nothing could be further from the truth. In truth, Investors have become stupid and intoxicated with stocks as investments. They are being stupid when they don't demand dividends !! Remember that for 20 years after the 1929 crash, stocks ALWAYS paid a higher dividend than bonds because you could lose your principal !! Well, that day will come again, in 2010 or 2011 !! A company can’t lie about a Dividend. They either pay it or they don’t. If they try to borrow money and pay out too many dividends, they go bankrupt and the bond investors forclose upon the company.

You can say that companies have “Changes their attitudes about Dividends”. Nothing could be further from the truth. In truth, Investors have become stupid and intoxicated with stocks as investments. They are being stupid when they don’t demand dividends !!

Remember that for 20 years after the 1929 crash, stocks ALWAYS paid a higher dividend than bonds because you could lose your principal !! Well, that day will come again, in 2010 or 2011 !!

]]> by: Rob Weigand http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-36840 Sun, 01 Feb 2009 19:01:33 +0000 http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-36840 Best I can recommend is my Journal of Portfolio Management paper (summer 2007) and Journal of Investing paper (spring 2008). Bibliographies have many references on the equity premium and how market valuation ratios can be used to forecast long-term stock market performance. You can email me for copies if you like: rob.weigand@washburn.edu. Best I can recommend is my Journal of Portfolio Management paper (summer 2007) and Journal of Investing paper (spring 2008). Bibliographies have many references on the equity premium and how market valuation ratios can be used to forecast long-term stock market performance. You can email me for copies if you like: rob.weigand@washburn.edu.

]]> by: MrColonelMustard http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-36839 Sun, 01 Feb 2009 17:18:29 +0000 http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-36839 Sorry, I fell of the edge of the planet. Prof Weigand, that math seems unarguable (and equally applicable to price/dividend ratios). I'm curious what I'm missing intuitively. I don't recall reading much about this in articles or books. (Do you have any suggested books for how inflation affects such decisions?) This seems particularly relevant and missing in articles I've read about the Equity Premium and long-term real bond vs stock returns. (Nothing particular comes to mind. I need to get another copy of The Intelligent Investor. I thought Graham discussed it.) Is there a basic assumption being made that stocks are inflation resistant? (because price & earnings raise or fall with the CPI) Obviously, unanticipated inflation causes financial stress, but I could foresee an argument that strips that out. Sorry, I fell of the edge of the planet. Prof Weigand, that math seems unarguable (and equally applicable to price/dividend ratios). I’m curious what I’m missing intuitively. I don’t recall reading much about this in articles or books. (Do you have any suggested books for how inflation affects such decisions?)

This seems particularly relevant and missing in articles I’ve read about the Equity Premium and long-term real bond vs stock returns. (Nothing particular comes to mind. I need to get another copy of The Intelligent Investor. I thought Graham discussed it.)

Is there a basic assumption being made that stocks are inflation resistant? (because price & earnings raise or fall with the CPI) Obviously, unanticipated inflation causes financial stress, but I could foresee an argument that strips that out.

]]> by: Començament d’any. « Trenta-i-deu Weblog http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-36295 Sun, 04 Jan 2009 18:56:10 +0000 http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-36295 [...] Aquest rati ens indica que per obtenir 1$ via dividents hauriem d’invertir la xifra de 28.81$ al Dow. Cal dir que la dada del yield està obtinguda a data del 3r trimestre. Sota aquesta valoració, la borsa per fonamentals no està barata. En el seu llibre,  comenta que per a que estigui barata la borsa, aquest ratio hauria d’estar entre 14 i 17. Com que el llibre és de finals dels  80 i ha plogut molt, no sé si aquest nivell de 17 continua estant vigent. Potser dic alguna tonteria, ja que d’AF no en tinc ni idea. He estat buscant per la xarxa, i en el Trader’s Narrative veig que hi ha diversos posts sobre aquest tema. Jo no m’atreveixo massa a dir-hi la meva, però no deixo de mirar aquesta dada. Per cert, en un comentari a trader’s narrative hi ha aquest enllaç on pots obtenir les dades actualitzades mes a mes del S&P sobre el PER, earnings, dividends, etc. [...] […] Aquest rati ens indica que per obtenir 1$ via dividents hauriem d’invertir la xifra de 28.81$ al Dow. Cal dir que la dada del yield està obtinguda a data del 3r trimestre. Sota aquesta valoració, la borsa per fonamentals no està barata. En el seu llibre,  comenta que per a que estigui barata la borsa, aquest ratio hauria d’estar entre 14 i 17. Com que el llibre és de finals dels  80 i ha plogut molt, no sé si aquest nivell de 17 continua estant vigent. Potser dic alguna tonteria, ja que d’AF no en tinc ni idea. He estat buscant per la xarxa, i en el Trader’s Narrative veig que hi ha diversos posts sobre aquest tema. Jo no m’atreveixo massa a dir-hi la meva, però no deixo de mirar aquesta dada. Per cert, en un comentari a trader’s narrative hi ha aquest enllaç on pots obtenir les dades actualitzades mes a mes del S&P sobre el PER, earnings, dividends, etc. […]

]]> by: Babak http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-35879 Tue, 09 Dec 2008 01:14:02 +0000 http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-35879 Thanks Prof. Weigand, can't believe I overlooked that. Thanks Prof. Weigand, can’t believe I overlooked that.

]]> by: Rob Weigand http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-35875 Mon, 08 Dec 2008 12:39:09 +0000 http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-35875 Notice that P/E ratios are already expressed in real terms. When nominal stock prices (P) are divided by nominal earnings (E) the effect of inflation in the ratio's numerator and denominator cancels out: P(1+r)/E(1+r)=P/E. Therefore, an E/P "earnings yield" is already a real number. Same for nominal dividends (D) divided by nominal prices (P). This is an often-overlooked oversimplification with the so-called "Fed Model," which compares the stock market's average earnings yield (E/P) to the 10-year T-note yield (Y) to determine whether equities are relatively cheap or expensive. The E/P ratio is a real number being compared to a nominal number (Y). Also: the data you're interested in obtaining is available from Shiller; see the URL provided in my October 16 reply above. Notice that P/E ratios are already expressed in real terms. When nominal stock prices (P) are divided by nominal earnings (E) the effect of inflation in the ratio’s numerator and denominator cancels out: P(1+r)/E(1+r)=P/E. Therefore, an E/P “earnings yield” is already a real number. Same for nominal dividends (D) divided by nominal prices (P). This is an often-overlooked oversimplification with the so-called “Fed Model,” which compares the stock market’s average earnings yield (E/P) to the 10-year T-note yield (Y) to determine whether equities are relatively cheap or expensive. The E/P ratio is a real number being compared to a nominal number (Y). Also: the data you’re interested in obtaining is available from Shiller; see the URL provided in my October 16 reply above.

]]> by: MrColonelMustard http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-35868 Mon, 08 Dec 2008 04:35:03 +0000 http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-35868 A couple of thoughts for a first-timer to this blog (and blogging): Have you considered inflation-adjusted the P/E Ratios and D/P Ratios? At my glance, the effect seems intuitive: the Look-Through Earnings (average 7.7%, let's say) are higher than the Dividend Yields (4.1?) If the average inflation rate was 3.0% and we subtracted that from the Look-Through Earnings and Dividend Yields, then the standard deviations would decrease for each (right?), more so for the Dividend Yields. Wouldn't that imply easier predictability? Also, I am wondering what percentage of lower P/Es and/or higher dividends are caused by inflation expectations. Since such a number (inflation expectation) isn't available, simply charting it historically might be the best one can do. I'd like to get my hands on some historical DJIA or S&P dividend yield data, nominal and inflation-adjusted. As I gain information, I'm happy to share. I have plenty of 10-year data, but I'd like 1950 to 2000 at least or 1900 to 2000. I try to dig through all the links here and associated files and articles. Good stuff! MrColonelMustard A couple of thoughts for a first-timer to this blog (and blogging):

Have you considered inflation-adjusted the P/E Ratios and D/P Ratios? At my glance, the effect seems intuitive: the Look-Through Earnings (average 7.7%, let’s say) are higher than the Dividend Yields (4.1?) If the average inflation rate was 3.0% and we subtracted that from the Look-Through Earnings and Dividend Yields, then the standard deviations would decrease for each (right?), more so for the Dividend Yields. Wouldn’t that imply easier predictability?

Also, I am wondering what percentage of lower P/Es and/or higher dividends are caused by inflation expectations. Since such a number (inflation expectation) isn’t available, simply charting it historically might be the best one can do. I’d like to get my hands on some historical DJIA or S&P dividend yield data, nominal and inflation-adjusted. As I gain information, I’m happy to share. I have plenty of 10-year data, but I’d like 1950 to 2000 at least or 1900 to 2000. I try to dig through all the links here and associated files and articles.

Good stuff!

MrColonelMustard

]]> by: Rob Weigand http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-35118 Thu, 16 Oct 2008 14:39:24 +0000 http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-35118 Robert Shiller of Yale makes the data available for free on his website: http://www.econ.yale.edu/~shiller/data.htm. You can download everything you need in one Excel file (monthly values). Robert Shiller of Yale makes the data available for free on his website: http://www.econ.yale.edu/~shiller/data.htm. You can download everything you need in one Excel file (monthly values).

]]> by: Mike http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-35117 Thu, 16 Oct 2008 14:21:52 +0000 http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-35117 Ok guys this is great information. I think what Rob is saying is lets factor growth into this since growth = future increased dividends or an increase in stock price (typically). So where can we get this data integrated with growth graph it and look at the dow and maybe any stock (and do it fast). Great work! Ok guys this is great information. I think what Rob is saying is lets factor growth into this since growth = future increased dividends or an increase in stock price (typically).

So where can we get this data integrated with growth graph it and look at the dow and maybe any stock (and do it fast).

Great work!

]]> by: Rob Weigand http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-35116 Thu, 16 Oct 2008 10:51:31 +0000 http://www.tradersnarrative.com/why-the-price-dividend-ratio-is-better-than-pe-ratio-1947.html#comment-35116 I have no doubt that if an executive from 50-60 years ago saw how the earnings management game is played today they would be appalled. Nonetheless, I still maintain that the profound shift in companies' willingness to pay dividends accounts for much of the decline in the market D/P ratio. Notice the disconnect between the market D/P and P/E even today. After Tuesday's 9% decline in the S&P 500, the market P/E indicates that stocks are priced to deliver average long-term returns again (meaning that if you bought in at today's levels, 20 years from now you probably will have earned close to 10% per year). But the current market D/P suggests stocks are still profoundly overvalued, which -- at least to me -- does not make sense. Thanks for your reply. I have no doubt that if an executive from 50-60 years ago saw how the earnings management game is played today they would be appalled. Nonetheless, I still maintain that the profound shift in companies’ willingness to pay dividends accounts for much of the decline in the market D/P ratio. Notice the disconnect between the market D/P and P/E even today. After Tuesday’s 9% decline in the S&P 500, the market P/E indicates that stocks are priced to deliver average long-term returns again (meaning that if you bought in at today’s levels, 20 years from now you probably will have earned close to 10% per year). But the current market D/P suggests stocks are still profoundly overvalued, which — at least to me — does not make sense. Thanks for your reply.

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