“When the facts change, I change my mind – what do you do, sir?” – J.M. Keynes
I relish the freedom in being able to change my mind (some would say to a fault). One huge problem in any profession is vested interests. WisdomTree, for example, has built their entire business around dividends. When confronted with a paper such as “On the Importance of Payout Yield“, Siegel/Steinhart are faced with two options.
(Note: The authors of the paper find that “the widely documented decline in the predictive power of dividends for excess stock returns is due largely to the omission of alternative channels by which firms distribute and receive cash from shareholders.” Additionally, while dividend yield has lost its predictive ability over time, the payout yield has remained a robust indicator for excess stock return.)
First, adjust to current market conditions that are the result of structural change (SEC rule 10b-18). Or, two, do nothing. So far, I have seen no evidence of change. There seems to be almost the same reverence for dividends as there is in certain trend following circles. . .Ohmmmmm….Ohhmmmmmm….
Some background posts on payout yield can be found here and here. I am going to start running a strategy based on payout yield for the DOW stocks for a personal account. I completed a quick and dirty calculation from trailing 12-month data from Yahoo. Below are the top 10 payout yield stocks and linked on Stockpickr. I used net payout yield:
Net Payout Yield = $ spent on dividends + $ spent on share repurchases – $ spent on share issuances
The average dividend yield for the group is 2.3%.
The average net buyback yield for the group is 3.21%.
The average net payout yield for the group is 5.51%.
HON
DIS
HD
MSFT
PFE
XOM
MMM
HPQ
JPM
PG
PS – It seems someone else has found utility in Payout Yield – does anyone know the ghost behind the site (sponsored by the WSJ)?
