Four Charts on the Importance of Dividend Investing

Dividends are an important part of total returns on an equity investments. Though dividend yields and dividend growth rate may seem small in many cases, the power of compounding over the long-term tend to boost total returns significantly. In this post, let’s take a look at four charts that demonstrate the importance of dividends.

1.Total return over the long-term for the S&P 500 has been driven mostly by dividends and dividend growth and NOT due to valuation changes. In fact, from the 1926 thru 2020, valuation changes accounted for just 1.3% of the total annualized return of 10.2%.

2.Dividends have boosted total return even in down markets. When markets are volatile or down, investors can depend on dividends from well-established and solid companies to cushion the blow.

Source: Why dividend investing?, Federated Hermes

3.The compounding effect of dividend reinvestment over the long-term is shown in the chart below. After the dot-com bubble, investors were again attracted to dividend paying stocks and have been rewarded well with this strategy as well.

4.Dividend payers have higher average annual returns and less volatility than non-dividend payers.

Source: The Power of Dividends and Their Compounding Effect, Anchor Capital

Related ETFs:

  • SPDR S&P 500 ETF Trust (SPY)
  • iShares Select Dividend ETF (DVY)

Disclosure: No Positions

College Tuition in the U.S. is Too Damn High

The price to go to college has become very expensive and continues to remain high. Both public and private universities charge tuition and other fees that is adding crushing debt to the middle class. The reasons for the high price of a college education are vast that it would take a Ph.D.-level thesis or a book to cover all the details. Below are few of the factors that I can think of for the current situation:

  • Some of the executives in US colleges are paid corporate executive level salaries. In the public colleges this comes from tax-payers money and tuition paid by students. So there is no accountability or questions from any one whether it is morally right to make millions or hundreds of dollars from an educational institution.
  • Every college/university have scores of administrators whose job is just to push paper around or “administer” the college. Of course these people have nothing to do with actually educating the students. Very high salaries for totally useless work adds to sky-high budgets.
  • Many of the colleges have buildings that look like five-star hotels and the spending on lavish sports facilities is astonishing. The costs to build and maintain adds millions to the yearly budget.
  • The demand for a college exceeds or remains constant regardless of the quality of education. A third-rate company looking to hire a secretary nowadays requires a college degree to apply. For higher-level positions a degree is even more important. So naturally the wonderful guys and gals running the colleges know this and act accordingly when it comes to setting tuition and other fees.
  • Since getting a student loan is super easy for students regardless of the college or degree, administrators know that even if the tuition goes to $1 million per year it is simply fine to just add it to the student’s loan. While Congress made it easy to receive student with a noble cause, schools have hijacked it as a license to print as much money as they want.

An interesting article in the journal over the weekend notes that the University of Miami currently charges $75,230 a year for tuition and room and board. This is indeed shocking!.  The sad thing is even after paying over $300K for four years the degree earned could a liberal arts degree and a student may end working at a restaurant or a bar making $40K or so if they are lucky.

The below chart shows the average college tuition and fees from 1971 to 2020:

Click to enlarge

Source: Al Lord Profited When College Tuition Rose. He Is Paying for It, WSJ

Student Loans Outstanding:

Source: WSJ

In this country, every college or university is like a mini “kingdom”. In public colleges, every month like clock the state wires millions of dollars in tax-payer money to each school. In addition, tuition and other revenue from things like sports pour in as well. With all these funds, colleges figure out ways to spend it leading to some useless statues, art sculptures, lavish buildings, sports complexes and of course salaries and other benefits. For politicians who authorize state’s funds, the current design ensures a nice base of loyal voters from this huge higher education academic community.

By making a college degree a basic requirement for any job, companies also have made the demand of side of the college degree permanent. A degree is not needed to type a letter in a computer, schedule a meeting, make a reservation at a restaurant, book a limo to the airport, answer a phone call, receive packages from a courier, say “hi” or “hello” or “how can I help you”, etc.

With the result, the only people that are left holding the bag are the students and their families. Everyone else is just moving along like “there is nothing to see here folks”.

Earlier:

All Latin American Bank Stocks Are In The Red

Among the foreign bank stocks trading on the US exchanges, all the Latin American bank stocks are down year-to-date as of last Friday (July 16, 2021) in addition to Credit Sussie (CS) of Switzerland. Credit Sussie is down about 24% due to multiple corruption and other charges currently ongoing against the bank. Chilean banks plunged dramatically a few months ago due to political issues there. South America’s economic powerhouse with a strong democratic political system has been rocked by protests last year and continues to struggle despite a powerful rally in copper prices this year. Chile is the world’s largest copper exporter.

Similarly Colombia has also suffered its share of protests in the past few months and the country is struggling with the onslaught of the raging Covid-19. Brazil continues to prove that it is “the country of the future” and always remain so. Argentina is unable to shake-off its economic and structural issues for many years now and will remain the basket case of mismanagement. Ironically the country has the largest concentration of Italians that immigrated there many decades ago. Italy used to a poster child for economic problems just a few years ago during the many European sovereign debt crisis. Italy was part of the “PIIGS” countries which included Portugal, Ireland, Greece and Spain.

Overall political risk is a major in emerging market investing and Latin American proves that point so clearly.

The year-to-date returns of Latin American bank stocks trading on the US exchanges are shown below:

S.No.Bank NameTickerLast Friday Close PriceYear-to-Date Change(%)
1Itau CorpbancaITCB$3.65-26.26%
2BancolombiaCIB$30.14-24.99%
3Credicorp LtdBAP$118.80-24.62%
4Banco de ChileBCH$17.66-13.35%
5Banco BradescoBBD$4.73-10.08%
6Banco Santander BrasilBSBR$7.79-9.84%
7Banco MacroBMA$14.10-9.44%
8Itau UnibancoITUB$5.64-7.39%
9Grupo Financiero GaliciaGGAL$8.18-6.41%
10Banco Santander ChileBSAC$17.83-6.11%
11Banco BBVA Argentina S.A.BBAR$3.14-2.18%
12Foreign Trade Bank of Latin America IncBLX$15.23-2.06%

Source: BNY Mellon

Disclosure: Long CIB, ITCB, BBD, ITUB and BCH

Quick Check on the Performance of U.S. Airline Stocks so far This Year

US airline stocks soared last year towards the end of the year when a vaccine for Covid-19 was discovered. When Covid-19 started raging in the country in early last year the airline sector was one of the worst affected in addition to other sectors like hospitality and restaurants. This year though the story is different. Despite millions of Americans flying both domestically and some internationally, airline stocks have not great returns relative the overall market. It remains to be seen if airline stocks can outperform the market this year.

For instance, the S&P 500 is up nearly 17% year-to-date. But among the major four carriers, only American Airlines ( AAL) has shot up by over 25%. Rest of them have average returns with Delta(DAL) turning negative as shown in the chart below:

Click to enlarge

Source: Yahoo Finance

The year-to-date return chart of all listed US airlines are displayed in the following chart:

Click to enlarge

Source: Yahoo Finance

Among the risks that airline stocks face this year is the spread of the Delta variant in the US. Unvaccinated people primarily from Southern and Mid-western states traveling freely via airports and flying in planes are a potential risk factor not only to airline stocks but more importantly to fellow passengers and others.

Referenced Tickers:

  • Alaska Air Group, Inc. (ALK)
  • Delta Air Lines, Inc.(DAL)
  • Southwest Airlines Company (LUV)
  • Spirit Airlines, Inc. (SAVE)
  • Allegiant Travel Company (ALGT)
  • American Airlines Group, Inc. (AAL)
  • Frontier Group Holdings Inc (ULCC)
  • Hawaiian Holdings, Inc. (HA)
  • JetBlue Airways Corporation (JBLU)
  • Mesa Air Group, Inc. (MESA)
  • SkyWest, Inc. (SKYW)
  • United Airlines Holdings, Inc. (UAL)

Disclosure: No Positions