IDEAS home Printed from https://ideas.repec.org/a/taf/ufajxx/v73y2017i3p32-52.html
   My bibliography  Save this article

The Long-Run Drivers of Stock Returns: Total Payouts and the Real Economy

Author

Listed:
  • Philip U. Straehl
  • Roger G. Ibbotson

Abstract

We provide theoretical and empirical evidence over 1871–2014 that total payouts (dividends plus buybacks) are the key drivers of long-run stock market returns. We show that total payouts per share (adjusted for the share decrease from buybacks) grew in line with economic productivity, whereas aggregate total payouts grew in line with GDP. We also show that a dividend discount model (DDM) based on current yields and historical growth rates underestimates expected returns relative to the total payout model. Finally, we demonstrate that the cyclically adjusted total yield (CATY) predicts changes in expected returns at least as well as the cyclically adjusted price-to-earnings ratio (CAPE). Disclosure: Morningstar Investment Management LLC uses a version of the methodology outlined in this article to manage multi-asset portfolios. Editor’s Note Submitted 29 June 2016Accepted 28 December 2016 by Stephen J. Brown

Suggested Citation

  • Philip U. Straehl & Roger G. Ibbotson, 2017. "The Long-Run Drivers of Stock Returns: Total Payouts and the Real Economy," Financial Analysts Journal, Taylor & Francis Journals, vol. 73(3), pages 32-52, July.
  • Handle: RePEc:taf:ufajxx:v:73:y:2017:i:3:p:32-52
    DOI: 10.2469/faj.v73.n3.4
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.2469/faj.v73.n3.4
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.2469/faj.v73.n3.4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:ufajxx:v:73:y:2017:i:3:p:32-52. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/ufaj20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.