Itsallaguess wrote:OhNoNotimAgain wrote:
In the end there are only five ways to measure a company:
Price
Revenue
Profits
Book value
Cash distributed
Each measure has its own flaws but if you can get the data then you can use it to calculate a total for the market and then use each company's contribution to the total to determine the weight for each individual company.
And you seem to prefer looking at the '
Cash distributed' aspect, and weighting accordingly.
But then, in the other thread linked to earlier, you've said -
the BEG, Dimson and Siegel have consistently demonstrated that. Dividends, growth in dividends and reinvested dividends are the main source of equity returns over the long run.https://www.lemonfool.co.uk/viewtopic.php?f=55&t=36639&start=60#p545804In this thread we've been discussing a single Dimson and Siegel study that shows that *yield* could be used as an indicator of long-term out-performance, when aligned with a strict re-balancing strategy, but that is not the same as them using '
dividend amounts' as an indicator, as clearly one aspect is in direct relation to valuations and share-prices, whereas the other is simply a weighing-scale based on distribution-levels, and is likely to be highly influenced by the size of a given company.
You seem to prefer a tilt towards '
dividend amounts', but then also seem to wish to highlight data from Dimson and Siegel as a justification to that approach, and I'm struggling to reconcile those two positions with the information we've currently got.
Given that it's clear the Dimson and Siegel data represented in this thread does not give any weight to an argument purely looking at '
dividend distributions', are you please able to point to where they do?
Cheers,
Itsallaguess
Yes, the Barclays Equity Gilt Study consistently, i.e. over several decades, emphasises the importance of reinvested income in both the equity and fixed income markets. It does not refer to yield. I don't recall ever referencing yield as a factor.
The problem with yield is that it is a derived figure, a function of dividend and share price. A low share price boosts the yield but it may only be temporary as the drop in price may presage problems ahead and a possible dividend cut.
Dividends are a primary number, taken straight from the company accounts and totally ignores share price so is not subject to any emotional or popularity effects. Of course it is flawed because dividends can be cut. But the fundamental point remains that:
a) it is reflective of the underlying strength of the company to generate free cash flow
b) those dividends can be reinvested across the asset class to generate additional cash flow.
Dealing with yield, or any valuation measure, means you are trying to assess two factors, one is the factor and the other is sentiment. That leaves the investor struggling to second guess how the market will value that factor. Buffet describes it as trying to judge the judges at a beauty contest. Its not who you think is the prettiest that is important, it is assessing who you think the judges will think the prettiest. That level of complication is irrelevant if you have decided you are going to vote for all the contestants, i.e. hold all the stocks in the asset class. You just need to decide how much to hold.
The attraction of using primary data is that all that subjectivity is removed and you are only dealing with hard, well hardish, information. Once you have decided how to construct your portfolio you then populate it That is when price becomes a factor. If your model says allocate 5% to stock A but the market hates stock A and it only represents 4% of the mkt weight your portfolio will be 1% overweight. And you have a reason for that, not just a feeling in your water.
If the market subsequently decides it now likes Stock A and accords it a 6% weight then your fundamentally weighted portfolio will be 1% underweight. But it will have benefitted from the intervening price appreciation as the market reprices a stock it didn't like to one it does.