Historical dividend yields for SP500

Figure 1 shows the historical dividends yield for SP500. The dividend yield has been in a slow decline as the stock prices have been rising faster than the dividends. For a dividend investor, current times are historically unattractive; stocks are overvalued in comparison to the dividend yields. For a reference, the average dividend yield over the past hundred years is about ­4.2%.

Figure 1: Historical dividend yields and the trend line for SP500. 

If the current trend continues, the dividend yield will reach zero around 2055 after which investors will start to pay the companies for owning their stocks! Alternatively, some of the following will happen:

1. The stock prices will rise more slowly than in the past. For a reference, the long term dividend growth rate has been about 5.3% and the earnings growth has been about 5.8%. Both of these are below the historical price appreciation rate of 6.5%.

2. The companies will start to pay more dividends in comparison to their earnings. This would be a welcome development as it would support the stock prices!

3. The stock prices will decline by up to 50% which would bring the yield in line with the historical averages.­

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