Weekly Market Recap This week saw further strengthening of the price of oil as supply was curtailed by militant attacks in Nigeria and forest fires in Canada. Oil inventories fell more than expected according to Energy Information Administration (EIA) data. The price of oil is now more than 50% above the low from earlier this year. Global economic news came in generally as expected this week, consistent with the broad picture of positive, but lackluster, growth in developed economies.
A reminder this week on how important dividends can be to investment portfolios: Researchers at London Business School have found that between 1900 and 2011 more than two thirds of the returns from the global stock market came from dividends. This may seem surprising, but over the long run, the highs and lows of stock valuation swings can broadly cancel each other out. This means that the underlying and relatively steady dividend growth becomes a key driver of stock returns. This is one reason why investment returns in coming years could be somewhat lower than they have been historically. Taking the US as an example, the average yield on stocks in the S&P 500 has been over 4% going back to 1871, but is now a little above 2%. The implication, based on historical dividend data, is that returns for stock investors in the coming years may be somewhat lower than previously observed.
Notes:
Importance of dividends to stock returns
https://www.london.edu/news-and-events/news/keeping-faith-with-stocks#.VzYKJk32bcs
Historical US dividend yield
http://www.multpl.com/s-p-500-dividend-yield/ Disclaimer:
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