Once again, Mike brings up a good point.Mike wrote:$14.78 in 1967, $14.98 in 2003. Hmm.
I have collected data on nominal and real earnings amounts to supplement the data on dividend amounts. I have attached tables.
I have included payout ratios calculated in three different ways. The standard payout ratio is the dividend amount for one year divided by the earnings amount of the same year. The 5-year real payout ratio takes five years of real (i.e., inflation adjusted) dividend amounts and divides it by the same five years of real earnings amounts. The 10-year real payout ratio takes ten years of real (i.e., inflation adjusted) dividend amounts and divides it by the same ten years of real earnings amounts.
The standard (single year) payout ratio jumps around because earnings fluctuate a lot. The 5-year and 10-year payout ratios add more and more smoothing, to dividends as well as earnings.
Payout ratios were very high before 1900. The 10-year payout ratio generally remained above 70%. The 10-year payout ratios were around 60% until 1930. Real earnings dropped abruptly in 1931 and continued to fall until 1933. [Single year] Payouts in 1931-1933 exceeded 100%. The payout ratio in 1934 was 99%. The 10-year payout ratio fell below 60% in 1949. It has remained below 60% ever since then.
The trend has been downward since 1949 with brief interruptions. There have been recent earnings shortfalls in 1991-1994 and 2002-2003. The strength of the 2004 earnings rebound may be exaggerated. Companies may have accelerated their recognition of losses when reporting for the previous two years.
If we compare 1967 to 2003, the real dividend amounts were $14.78 versus $14.98 based on single year earnings of $28.30 and $26.48, respectively. However, 1967 corresponded to an earnings peak and 2003 was close to an earnings valley.
Looking at the 5-year and 10-year payout ratios, we see the real story. In 1967, the 5-year payout ratio was 54.5%. The 10-year payout ratio was 56.1%. In 2003, the 5-year and 10-year payout ratios were 42.7% and 42.5%, respectively.
The real single year (January) earnings from 1964 to 1968 were $22.25, $24.85, $27.81, $28.30 and $26.57. The real single year (January) earnings from 2000 to 2004 were $49.09, $46.74, $23.54, $26.48 and $45.42.
Today's earnings support is much stronger than that of 1967. Today's dividend amounts are much more secure. There is room on the upside for dividend increases.
Have fun.
John R.