Lately, I have been studying periods in stock market history typically known for “poor performance” to see if it were possible to craft an intelligent dividend strategy during that time period. In particular, I was looking at the 1966 to 1981 bear market period. If you read commentary during that period in stock market history, you will often come across comments such as this: “The price of the S&P 500 components only rise 1.8% annually over that sixteen year time frame.”
The first problem with a data point like that is the fact that it does not include dividends. Because the 1966-1981 represented “the good old days” before stock buybacks rose to compete with dividends, the S&P 500 had a 4.1% average dividend yield over the 1966 to 1981 period. Right off the bat, that time period was not so bad because investors actually earned 5.9% (as opposed to 1.8%) annually once you include the dividends.