Dividends and Inflation – Let’s Get Real

In a nutshell

• Dividends are a critical component of total returns for equity investors. Over the last 20 years, they have accounted for around a quarter of the average monthly total return to the MSCI World index, while contributing practically no risk.
• There is no discernible relationship between the two components of total returns – price returns and dividend returns. Dividends are stable over time, and operate independently of price returns.
• The distribution of dividends is approximately normal, but the yield has always been positive (as one would expect), and shows some evidence of skewing to the right. Surprisingly, this skew does not appear to coincide with lower price returns.
• Finally, although inflation is uncorrelated to both dividend returns, and price returns in the short run, longer run evidence suggests that the Value equity style outperforms the Growth equity style in moderate to higher inflationary periods.  
   

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