No. of Recommendations: 12
That's one of the findings of this London Business School study on Equity Risk Premiums (ERPs) across 19 countries

'In the period 1900-2011, the average world dividend yield was 4.1%; real dividend growth was just 0.8%; and the rerating of the market added 0.4%. That comes to a real equity return of 5.4% (the calculation is geometric, not arithmetic).

The dividend yield comprised the vast bulk of the return. This was true across all the countries studied by the authors. Had investors consistently bought the highest-yielding quintile of equity markets over the past 112 years they would have earned an average nominal annual return of 13.3% compared with a return of just 5.4% for those buying the lowest-yielding quintile. High-dividend markets have also performed best so far this century.'

'As a starting point for estimating the future ERP, this is not encouraging. The current dividend yield on stockmarkets is lower (at 2.7% in the countries covered by the LBS data) than the historical average. Dividends tend to grow (at best) no faster than GDP, and usually slower because of the dilution effect. Nor is there much hope of a boost from a revaluation of the market. Since the yield is low, relative to history, it is more likely that any revaluation will subtract from returns. In another paper, Cliff Asness of AQR Capital, a hedge-fund group, uses his estimates of dividend yield and likely dividend growth to come up with a forecast for future real equity returns in America of around 4% a year.'

This 'revaluation' is already in progress, thanks to the continued buoyancy of equity markets since 2009. Which is (presumably) great news for traders.

For income investors? Not so much.
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