With Share Prices Depressed, Dividend Yields Highest Since 1994

During the last couple of decades dividends have not really been a core focus for investors. That has been partly due to the fact that companies have been paying them out at historically low rates. Did you know that over the very long term dividends have represented about 40% of an investor’s total return in the equity market? With the average large cap dividend rate below 2% for much of the last decade or two, many investors probably were not aware of that.

With stock prices down so much in the last year, dividend yields are creeping back up. The indicated rate on the S&P 500 today is about 2.8%, the highest since 1994 when the index was paying out 2.9%. We are still below the historical average for payouts (about 4%) but the trend is in the right direction.

I bring this up because as contrarian value investors add fresh funds to their portfolios and hunt for bargains in this market, dividends could very well play a bigger role than they have in recent years. Getting paid to wait for stock prices and the economy to recover (by collecting meaningful dividend payments along the way) is another way for investors to capitalize on the value in this market.

During the most recent bull markets, a yield of 3% was considered pretty darn good, but now investors can find much better payouts and do not always have to sacrifice the quality of company they invest in to secure above-average dividend yields. As you search for value during this bear market, keep in mind that dividends can significantly boost total equity market returns and such yields are getting easier to find nowadays.

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2 Thoughts on “With Share Prices Depressed, Dividend Yields Highest Since 1994

  1. shepherd on November 7, 2008 at 2:03 PM said:


    Do you have any ground rules you advise for determining if a dividend is safe or not?

  2. Chad Brand on November 10, 2008 at 8:35 AM said:

    investors simply need to analyze a company’s finances to determine if a company can cover its dividend. i guess the one thing to avoid would be companies that don’t “earn their dividend” (i.e. they borrow money to pay out the cash because they can’t cash flow them), but that should be pretty intuitive.

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