Saturday, September 08, 2007

Dividend Yield versus Payout Yield - Part II

Weighing payout behaviours ...

In an posting made last month, I commented on the rising importance of payout yield versus dividend yield ... I just ran across an article in CFO magazine that perhaps explains part of the reason why dividend yield is declining as a predictor of future outperformance.

To quote ...

In 1980, for example, the value of stock buybacks exercised by S&P 500 companies equaled just 10 percent of the value of the dividends issued, according to Scott Weisbenner, a finance professor at the University of Illinois who studied the issue while serving as an economist at the Federal Reserve Board from 1999 to 2000. By the late 1990s, however, companies were spending more on repurchases than on dividends.

And the boom continues: in the second quarter of this year, buybacks outpaced the same period a year ago by 43 percent, while dividends accounted for just 32 percent of cash paid out to shareholders, down from 51 percent as recently as the second quarter of 2001. Weisbenner also found that between 1994 and 1998, the use of stock-options programs by S&P 500 companies grew by more than 40 percent.

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The rest of the article - which is primarily about the morality of company insiders selling into share buyback plans - can be accessed here.


The Confused Capitalist

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