08/31/10 Baltimore, Maryland – By now, everyone and their mother knows the US stock market is a losing bet. The big indexes went nowhere over the last decade, absolutely plummeted in the last few years and now even the 2009 snap-back rally is officially kaput.
Thus, a logical question: Is it time to start buying stocks again?
Dividends in the S&P 500 now yield 2.11%, a mere 50 basis points from the 10-year Treasury note’s dismal 2.6% coupon. In other words, the S&P’s yield is 78% of the 10-year’s.
The historic average, says research out his week form brokerage firm Brockhouse Cooper, is 42%. There have been just 50 occasions since 1973 when this ratio was greater than one standard deviation from that average, as it is now. After each of those instances, the S&P 500 returned an average 12% over the next year.
And that’s not including dividends.
“In today’s stock market, dividend payers offer the closest thing to security,” Agora Financial’s income analyst Jim Nelson declares, “but not every dividend is created equally.
“If you had bought one share in every dividend-paying company in the S&P in January 2009, you’d have expected to receive about $28.39 in total dividend payments, because that’s what you’d have received just one year earlier. But by Dec. 31, 2009, you would have actually received only $22.41. The drop comes from 78 different dividend cuts or suspensions in the S&P 500 during 2009. To put that in perspective, there were only 12 total cuts in 2007.
“You can see that during 2009, the rate of dividend decreases skyrocketed. By the end of the year, most of the companies that planned on cutting already did. So the number of decreases subsided. This chart shows the percent change, not the actual number. To be fair, there were only a few months when the number of dividend cuts outweighed the number of dividend hikes.
“So if we are headed for further crashes, which some think is inevitable, dividend payers in general aren’t too much safer than nondividend payers. The right ones, however, are.”
Addison Wiggin
for The Daily Reckoning
Addison Wiggin
Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He’s the creator and editorial director of Agora Financial’s daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar… and Why it’s Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.
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By now, everyone and their mother knows the US stock market is a losing bet.
Ummm. NO! No, they don’t. What they know is it WAS a losing bet over certain specific time speriods such as since the year 2000 until now.
If everyone knows the market is a losing bet then why is anyone holding stock? Obviously, those holding think it is a winning bet.
Back around 1999 everyone and their Mother knew stocks were a winning bet. How’d that work out?
You can’t beat the crowd by betting with the crowd…
no it is not time to start buying stocks…they are overpriced….i predicted independently of dr that stocks needed to go to 5000 to clear or go sideways for years and years at 10k to clear…we aren’t there yet…
Stocks in general will not be a buy until the Gold/Dow ratio gets back around 1 or 2 range. Then I’ll be cashing out my gold and buying diversified stocks.
There is no logic whatsoever in expecting Dow index to equal Gold price periodically.
In fact this theory suggests that all the retained earnings of the Dow compamies over the years add zero value in real terms.
This Dow = Gold theory suggests that the only real long-term return from the Dow is from the Dividends. This is complete nonsense and anyhow the Gold = DOW crowd has no logic for such a prediction.