The 100 Year Historic Decline of Dividend Payout Ratios Amongst S&P 500 Companies

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Welcome back internet friends!

This is actually a cross-post of a comment I posted recently to Hacker News. Unsurprisingly, the comment received negative 1 upvotes. However, I think this is an import piece of information that has gone missing from the World Wide Web, so I wanted to bring it back: The 100 Year Historic Decline of Dividend Payout Ratios for S&P 500 Companies

The hacker news thread on which I commented was regarding a recent headline on increasing S&P 500 Buybacks, but what I think is more troubling is the decline in dividend payout ratios, not the increase in buybacks. But the two are closely related, so let’s take a look:

100 years ago, companies on average dispersed 90% of their earnings back to shareholders as dividends. But by the 1970’s however that number fell to below 50%. Fast forward to the 2000’s and the payout ratio is down to around ~30%.

What happened? Companies used to distribute their profits back to their owners, the shareholders. But that isn’t what’s happening anymore. In my amateur historical analysis, I believe there are two causes for this disastrous trend:

1) Tax dodging
2) The Casino/Gambling Mentality of Stock Market Investing

My theory is that the trend started with investors 50 to 100 years ago looking to dodge taxes, and gain a little free compounding. Makes sense! Right?

But it’s just gone too far. Now investors receive almost nothing for owning a stock. Take Apple Inc. for example. In 2019 Apple made a profit of $55 billion. How much of that did they pay back to their shareholders? $14 billion.

And Apple isn’t even the most egregious case. They at least pay a dividend. Google, Amazon, and Facebook combined paid $0 back to their shareholders this year!

So how has this insanity continued to go on for so long? The answer is simple: Adults don’t know what stocks are. They think that a stock is a thing that you buy, its price goes up and down, and the game is to try and sell the stock when the price goes up, and hope that the price doesn’t go down. And the machine that keeps the whole thing moving along is the Stock Buyback.

REFERENCE: The Dividend Story