When to Buy Stocks - S&P 500 Dividend Yield Curve
Before start reading on; this chart is inverted. More on that later
Interpretation
According to Mike Maloney, the S&P 500 dividend yield curve is the second best way to measure a stocks value (after the Shiller S&P500 PE Ratio -made a post on this, go check it out). The ratio indicates how much a company pays out in dividends each year relative to its share price. In other words, it measures how much "bang for your buck" you are getting from dividends. In the absence of any capital gains, the dividend yield is effectively the return on investment for a stock. The lower the dividend yield, the less you get for your investment and hence the more overvalued a stock. The historic S&P 500 Dividend Yields were deducted by Robert Shiller and published in his book Irrational Exuberance.
Why is the chart inverted?
Two reasons
1. This allows you to see, bubbles are up instead of down, and undervalued is down instead of up
2. The higher the yield the more undervalued the stock is, the lower the yield the more overvalued the stock is
Areas of S&P 500 Dividend Yield Curve
Stocks are undervalued: 1% - 4%
Stocks are undervalued: 4% - 5%
Stocks are fair value: 4% - 6%
Stocks are undervalued: 6% +
Keeping an eye on...
The alarming thing when looking at this chart is it has only once ever been this high and that was at the beginning of the millennia and this chart goes all the way back to 1872. As of the time of this writing it is at 1.94. The highest it’s ever been is 1.11. This goes to show the size of the bubble we are currently is.
Note: This "indicator" is used to find the best time to purchase stocks, not to pick or find the market top/bottom
How to “rebalance the dividend yield curve”
Going back to Mike Maloney and his analysis...to bring down this dividend yield he sees two ways the market can seek equilibrium.
1. The market goes sideways for a decade while we have raging inflation that will balance this out and then bring dividend yields and PE’s ratios back into line
2. It crashes, the markets go down
The currency supply collapses, therefore this has to be a deflationary collapse, this cant be an inflation in what they call an invisible crash.
Note that the source of the material here is from 2011
Source: youtube.com/watch?v=tj2s6vzErqY (58:22)
Interpretation
According to Mike Maloney, the S&P 500 dividend yield curve is the second best way to measure a stocks value (after the Shiller S&P500 PE Ratio -made a post on this, go check it out). The ratio indicates how much a company pays out in dividends each year relative to its share price. In other words, it measures how much "bang for your buck" you are getting from dividends. In the absence of any capital gains, the dividend yield is effectively the return on investment for a stock. The lower the dividend yield, the less you get for your investment and hence the more overvalued a stock. The historic S&P 500 Dividend Yields were deducted by Robert Shiller and published in his book Irrational Exuberance.
Why is the chart inverted?
Two reasons
1. This allows you to see, bubbles are up instead of down, and undervalued is down instead of up
2. The higher the yield the more undervalued the stock is, the lower the yield the more overvalued the stock is
Areas of S&P 500 Dividend Yield Curve
Stocks are undervalued: 1% - 4%
Stocks are undervalued: 4% - 5%
Stocks are fair value: 4% - 6%
Stocks are undervalued: 6% +
Keeping an eye on...
The alarming thing when looking at this chart is it has only once ever been this high and that was at the beginning of the millennia and this chart goes all the way back to 1872. As of the time of this writing it is at 1.94. The highest it’s ever been is 1.11. This goes to show the size of the bubble we are currently is.
Note: This "indicator" is used to find the best time to purchase stocks, not to pick or find the market top/bottom
How to “rebalance the dividend yield curve”
Going back to Mike Maloney and his analysis...to bring down this dividend yield he sees two ways the market can seek equilibrium.
1. The market goes sideways for a decade while we have raging inflation that will balance this out and then bring dividend yields and PE’s ratios back into line
2. It crashes, the markets go down
The currency supply collapses, therefore this has to be a deflationary collapse, this cant be an inflation in what they call an invisible crash.
Note that the source of the material here is from 2011
Source: youtube.com/watch?v=tj2s6vzErqY (58:22)
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