no bubble

Tom Lehman uswa12 at
Tue Apr 11 04:54:41 PDT 2000

Josh--I believe your talking about dividend yield. The only problem here is that you have stocks that have never paid a dividend.

The number of dividend payers as a percent of the total listed equities might be an interesting stat over time.


JW Mason wrote:

> Hi all.
> Inspired by discussion on these lists and by a talk Dean Baker gave here
> on the stock market the other day, I decided to take a look at total
> payouts to shareholders, defined as dividends minus net new equity
> issues. (The latter being negative in recent years.) The price-payout
> ratio, then, is the market value of equity divided by the total payout.
> This is for nonfinancial, nonfarm corporate businesses, from the Flow of
> Funds.
> The results were interesting.
> 1999's price-payout ratio, 36.8, was almost exactly equal to the postwar
> average of 35.3. Even though the price earnings ratio is over twice its
> historic average, the proportion of profits being paid out to
> shareholders, 74.4%, is also over twice its historic average of 35.1%.
> If you consider the period of irrational exuberance to date from 1996,
> as Doug suggested at his Socialist Scholars talk, the results are even
> more striking: the price-payout ratio for those four years is only 29.2,
> well below its long-term average. (The proportion of profits paid out to
> shareholders over this period is 76.1%; in 1998 it exceeded 100%.)
> By this measure, there is no bubble. There is no reason to believe that
> share prices are being bid up simply in the expectation of future price
> increases. Investors seem to be valuing the claim on profit income
> represented by shareownership at about the same level they always have.
> If investors aren't behaving irrationally, aren't corporations? Surely
> they can't increase the proportion of their profits paid out to
> shareholders indefinitely, at least not except at the cost of diminished
> profit growth? Maybe not. But the hit to profits seems to be a long time
> coming. Between 1946 and 1983, the proportion of profits paid out ot
> shareholders averaged 20%, and never rose so high as 30%. Between 1984
> and 1999, the proportion of profits paid out to shareholders averaged
> 71.6%, and never fell so low as 40%. This seems to be a secular shift.
> Interestingly, the highest price-payout ratios come in the late '60s,
> and especially from 1971 to 1973. (Maybe that bull market was a real
> bubble.) The lowest come in the late '80s. So at least superficially,
> this measure seems to have some predictive value for stock market
> returns.
> Of course, it makes a difference how the increased payouts to
> shareholders are being financed. In the '80s, when the ratio of payouts
> to profits was even higher than it is today, firms reduced their
> investment. Today, they borrow. I can see reasons why this may be
> unsustainable, but I still wouldn't call it a bubble.
> Other people must have done these calculations. (Dean hadn't, so they
> can't be too common; he did confirm that I'm not completely confused
> here.) Robert Shiller's book, which I liked when I read it, mentions the
> increase in net corporate stock purchases I think twice, once in a
> footnote. But if this anaysis is correct, his book, with its focus on
> investor psychology, misses the whole story. If we're seeing irrational
> exuberance, it's in the boardrooms, not in the chatrooms.
> Josh

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