Historical S&P 500 Yields: Sales Yield, Earnings Yield, Dividend Yield, Book Value Yield

Dividend yield has been the topic du jour for a few years now, but there are other yields for stocks to consider. We continue to believe that owning high quality above average yield dividend growth stocks with global footprints and dominant brands is a prudent investment, but other forms of yield should be considered at the same time.

The popular way to express valuation metrics is to divide the price by something, such as sales, or earnings or cash flow or book value; yet flipping that to divide dividends by price.  We think that is a confusing approach.

Comparing a P/E to a D/P (dividend yield) creates unnecessary mental computation challenges. We think it is better to either divide P by all dimensions (which would convert dividend yield to P/D), or to divide all dimensions by price, so everything is a yield (what you get for what you pay).

We show historical yields for sales, earnings, dividends, and book value in this article.

Sales Per Share and Sales Yield:

Sales are substantially recovered from the 2008 stock market crash, but are slightly turned down.  Sales yield (sales divided by price) is not recovered from the 2008 crash and are currently in a decline.  The decline in the sales yield is mostly the result of rising share prices.

Earnings Per Share & Earnings Yield:

Earnings are at record highs and earnings yield is well above the historical average.  The minor current earnings yield decline is the result of rising prices.

Dividends Per Share and Dividend Yield:

The quarterly dividends per share are not yet fully recovered from the 2008 crash.  They are slowly recovering.  Given that a substantial portion of the high dividend companies (the banks) stopped paying dividends during the crash and have not fully restored dividends, the overall dividend picture speaks of good health outside of finance.

The dividend yield is down substantially (by about half) from the pre-crash level, but the fact that the yield has been rising during a period of strong post-crash stock price rise is a good sign of corporate financial health.

Dividend Yield and Earnings Payout Ratio:

The dividend amount are up (charts above), the yield is up, but the payout ratio on operating earnings is about where is was pre-crash (about 30%).  That is a well covered level.  The dividend yield is greater than Treasury yields, which was previously  not seen for an extended period after 1958.

Book Value Per Share and Book Value Yield:

Book value yield is how much book value you get for each dollar you pay for a share.  Book value is well above pre-crash levels.  Book value yield is in a short-term decline in a sideways zig-zag pattern that is well above pre-crash levels.

Book value yield shot up when prices crashed in 2008, but have managed to remain flat within a zig-zag pattern since the crash, as total book value has risen rapidly.

Interpretation (assuming a muddling through economy):

  • Sales and Sales Yield: Neutral to somewhat overvalued
  • Earnings and Earnings Yield: Undervalued
  • Dividends and Dividend Yield: Neutral to undervalued
  • Book Value and Book Value Yield: Undervalued.

If the US goes into recession, or political events or non-events frighten investors, prices may adjust downward significantly, raising all of these yields. If my some miracle, the many uncertainties\ and concerns vanish, prices may adjust significantly upward, lowering all of these yields.

 S&P 500 ETFs (with links to ETF fact sheet webpages):

  • SPY (by SPDRs)
  • IVV (by iShares)
  • VOO (by Vanguard)

Traditional Valuation Metrics:

The separate fact sheet pages do not report consistent valuation metrics data.  We report the traditional format data from the SPY fact sheet here  It is the oldest and highest net asset S&P 500 ETF.

  • Price/Book: 2.14
  • Price/Earnings 1 yr forward: 13.60 (based on operating earnings)
  • 3-5 Year Earnings Growth Rate (EGR): 10.63
  • Price/Cash Flow: 14.91
  • PEG (our calculation P/E divided by EGR): 1.28
  • Dividend Yield: 1.91%

 Reasons For Doubt:

The narrative over uncertainties about global GDP growth slowing due to concerns about Europe, the US and China are well discussed.  Those concerns show themselves in the continuing reduction in earnings forecasts.  While the difference between the forecast by Standard and Poor’s for the S&P 500 earnings for 2013 versus 2012 is about 10.5% (similar to the 3-5 year growth rate published by SPDRs for SPY), that growth is on a set of reduced expectations.  These charts visually present the issue:

With earnings estimates being revised down, but companies holding or raising dividends, we continue to think long-term investors should discriminate among otherwise attractive companies by giving extra consideration to those with higher yield and long periods of consistent and rising dividend payment.

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