It’s a red flag for everybody
S&P 500 dividend yield hits 1.08%. The lowest payout rate since the 1800s is a retirement red flag.
The headline makes it sound as if companies are being stingy with their dividend payments. And they are. Many have persuaded investors to just fork over their hard earned money – just trust us, we’ll make it grow – and often they do. But when a company is already one of the biggest in the world, the runway for growth is limited. It’s time to show them the money.
Paying dividends isn’t the only way to do this though. Companies can also buy back shares. But this benefits insiders with stock options compensation more than the average investor. This helps explain the media’s enthusiasm for it.
It also requires the investor to sell in order to realize any return whatsoever. But at the same time, investors are being urged to hold.
Imagine if other forms of investment worked this way. Investor owns an apartment. Prospective tentant comes along and says “How about you let me live here rent free? You’ll sell the apartment for more then you paid for it.” If you bite, you may as well have “CHUMP” stamped on your forehead. Investors have lost their skepticism, allowing Wall Street to sell them stocks based on earnings claims alone.
Earnings are when the company sends you a note telling you how much money you made.
Dividends are when it sends you the money.
But the record low dividend yield isn’t just an indication of corporate greed. It’s an indication of extreme stock valuations. Dividend yield isn’t determined by the payer. The dividend payer merely sets the dollar amount of the dividend it pays. The market price determines the yield.
It’s just like it is with bonds. The yield is the dollar payout divided by dollar price. If a company pays $5 annually, the yield is 5% … if the market price is $100. If the market price is $200, the yield is only 2.5%. If the market price is $400, the yield is just 1.25%.
If the yield is a pathetic 1.08%, that’s a very expensive stock.
That the S&P is priced in such rarified air is corroborated by multiple other valuation measures, include price to book, price to estimated forward earnings. price to sales, market cap to GDP, Shiller’s CAPE, Tobin’s Q, etcetera. No matter how you slice it, this is one of the most richly valued markets since the South Sea bubble.
Not since 1720 have investors paid so much for so little.
This is a pathological situation. Before the advent of the Fed and chronic inflation, stocks typically yielded more than bonds. That was your compensation for the higher risk. If your stock “went up”, that was gravy. But as it slowly dawned on investors that inflation was here to stay, stock prices rose and yields fell. By the late 1950s, they were lower than bond yields. Now that situation has reached new extremes. Incredible wealth is concentrated in a few hands controlling super corporations, and instead of recirculating it throughout the economy, the relative lack of dividends helps keep it bottled up within them. We already have oligarchy. One can only wonder what the end game is.
“Before the advent of the Fed and chronic inflation, stocks typically yielded more than bonds.”
Spot on, and I think the keyword is chronic. Your earlier post on inflation and the follow-on comments showed that pre-Fed, inflation happened due to disruptions in supply or special situations like war-linked demand and when conditions changed, prices returned to what the market can afford. With the Fed (and other central banks), it’s been a case of inflation by design, with the arbitrary 2% ceiling, that has been exceeded so many times.
Haha don’t get me started on that;-) The inflation measurement story is flawed on multiple levels. First, that inflation is defined by consumer prices alone. That asset prices are irrelevant. Yet that’s one of its most pernicious effects. It acts as a wealth transfer mechanism, transferring wealth from non-asset owners to asset owners, enriching the rich at the expense of everyone else. That’s a road to socialism, as the exploding wealth gap gets blamed on the free market, instead of on big government and big money playing reverse Robin Hood.
Then there’s the level of not even measuring consumer price inflation honestly. The Boskin Commission was convened to act as an enabler for inflation by massaging the statistics to show less of it. And they’ve been grinding away at it since.
Then the Fed’s invention out of whole cloth its redefinition of price stability to be 2%. And it hasn’t even managed to get it down that far this decade.
That’s three levels of dissembling. Why aren’t they honest about it? We don’t have inflation by accident. We have inflation because powerful interests profit from it.
The Federal Reserve is Why the People are Unhappy
“One problem with this defense of the economy is that government statistics are manipulated to understate the true rates of inflation and unemployment.”
Kevin Warsh Is About to Make a Major Change to the Fed. Donald Trump Will Cheer It On.
“Warsh isn’t hiding his philosophy. “Unlike many of my colleagues past and present, I don’t believe in forward guidance. I don’t believe that I should be previewing for you what a future decision might be,” he told senators at his May confirmation hearing.”
At least one positive change looks likely. My comments in many previous Fed threads explain why. It’s gratifying to see leadership at the Fed join me.
Example: FOMC 2026 0128
Elsewhere it’s been reported that Warsh wants to do away with the 2% target. He’s said that the right level of inflation is when “no one’s talking about it“. Definitely another step in the right direction.
The torrent of propaganda continues.
Fed Chair Kevin Warsh Faces Trump Throwdown as Inflation Soars
Where is the news? What event is being reported here? This toxic trash does nothing more than tell the Fed to cut interest rates. As even dumbed down inflation stats move ever higher above the Fed’s own inflated target, markets are beginning to anticipate rate hikes. Fed officials have spoken openly about the possibility of hikes. This article pretends the only question is how soon and how fast to cut.
The only other thing it manages to do is try to whip up political drama. The last words from Trump about Warsh explicitly supported independence. You gave to go back quite a ways to dig for drama. Where is the news?
No news, it’s all opinion and conjecture! The article is conveniently anchored to Trump’s criticisms of Powell and ignores his support for independence to Warsh.
Warsh’s positions on inflation targets and rate cutting would be very welcome if he’s allowed to follow through by vested interests.
Whew stuff like that just makes me want to vent. As a beginning investor 32 years ago I used to assume financial media genuinely wanted to inform their audience. It might have been true. Maybe 90% infotainment and 10% agenda driven. Now it seems like the other way around.
Take this CNBC spot from 1994:
CNBC Your Portfolio 1994 0624
Quite a contrast to today! OTOH if the mainstream media were still straight shooters alternative media like Financology would have no reason to exist …
Can’t agree more. Such a contrast to today’s offerings. Staying outside the mainstream offers a clearer and detached perspective that’s valuable.