Dan, I actually think that if we continue with balanced budgets, the tax code will move toward reducing the double taxation that taxing dividends creates. If that happens in a "large" way, then we may see abatement of the huge buy backs, and we will see more "special" dividends" like in the "old" days. I have not seen a "special" year end dividend in a large cap now since the mid 80's, but then, I ma not following all of these (G).
By the way, taking the simple "dividend yield" as a measure of over or under valuation, may be erroneous, at least from the point of view of money flows in the market. There are a number of sources of "new cash" that fuel a bull market, including new savings, movement from debt to equity, international funds seeking "safer Havens" (for how long) and dividends. When you have a yield of 3% or more this source of cash becomes an important engine of a nascent bull, when the yield declines under 1.5% it is almost non existent. However, one should take the cash disbursed in buy backs as part of the dividends money flow, and thus the theory which I am trying to promulgate, is that the assumption of excess valuation based on low dividends should be modified with the cash thrown in as buy backs. I think this source is a double whamo for the bulls, it increases liquidity and reduces supply of shares. The old story of more money chasing fewer goods (shares in this case).
Zeev |
