Saturday, May 26, 2012

Dividend Yield Drives Equity Returns Since 1970 Globally

This graph show real yields, (corrected for inflation) on equities in several nations since 1970.  The message is simple.  Invest in stocks that have a record of paying dividends.  Yields on stocks that don't pay dividends are not worth the risk.  Retail investors in the US have been chasing after stocks that they expect to appreciate in value.  For every Apple Computer, there are 100 disappointments.  Most retail investors are irrational.  They chase appreciation and they pay money managers too much for advice.  The best strategy for most investors would be a low cost index of dividend paying stocks.  There are reasons of course why investors are irrational. They are poorly informed and gambling is fun.  They also like to pay their taxes by purchasing lottery tickets.

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