Last month fellow blogger and financial advisor Roger Nusbaum wrote an excellent article on stock yields vs. bond yields. While doing research on stock and bond yields, I came across the following chart which shows the relationship between equity and bond yields over 131 years:
Click to Enlarge
Source: Capital Flow Analysis
“Until the 1970s, stock yields averaged between ten and twenty percent higher than the yields of investment grade bonds.
By the end of the century, dividend yields were eighty percent below bond yields – a historic low.”
In 1956 when stock yield equaled bond yield for the last time, famed value investor Benjamin Graham closed his investment management business and retired to teach at UCLA. By 1968, the era of dividends was over.
American firms have long paid high dividends and investors bought stocks for income more than price appreciation. The average annual cash returns on a portfolio of stocks owned by John Perkins Cushing, a Boston capitalist from 1836 to 1851 when there were no income taxes were:
Bank Stocks:Â 6.6%
Manufacturing Stocks: 8.1%
Railroad and Canal Stocks: 8.5%
Insurance Stocks: 12.1%
Source: Casebook in American Business History’,N.S.B. Gras and Henrietta M. Larson, F.S. Crofts & Co. 1939, New York
Four hundred years ago The East India Company, the world’s first multinational company, paid its investors dividends ranging from 95% to 234% after its first nine voyages.
