Asset Allocation | Economics & Growth | Equities
Get the Best Dividend Yields in the World
- By Bilal Hafeez
- 1 min read
The S&P500 reached 2,000, 3,000, and 4,000 – will it now break 5,000? There is such a focus on the headline equity price indices that we can easily forget investing in equities means earning not just the price gains, but also the dividends. So even if an equity index goes sideways, we still earn something every year through dividends.
Over time, this makes a big difference. Take the S&P500. At the start of 1980, it traded at 108, and today it is around 4,500. That is roughly a 4,000% gain or 9% compounded annually. But what is the gain if we include dividends? It would be a whopping 11,700% or 12% compounded annually (Chart 1).
Even Japanese equity markets, which are yet to reach their 1980s peak in price terms, have made substantial dividend gains. Without dividends, the Japanese market is up 400% since 1980. With dividends, it is up 800%. On a total return basis (price gain plus dividends), Japanese stocks are 20% above their 1980s peak (Chart 2).
With most equity markets worldwide going sideways since March, investing in those which give you high dividend yields could be even more attractive. And many do. The highest are the Russian and Turkish equity markets, which currently give 8% (Chart 3). So, if their stock markets go sideways over the next 12 months, you will still earn 8%. The lowest dividend yields are in India and the US, which give a paltry 1.5%.
But we can go further and compare the dividend yield of a country’s equity market to its bond yield. Here, the high Russian dividend yield is comparable to the bond yield, while in Turkey the bond yields are much higher. This makes their equity markets less attractive than at first sight.
Europe has a much larger gap. The dividend yield in Spanish equity markets is almost 4% higher than domestic bond yields, while in the UK they are 3.5% higher. And with European growth prospects positive in 2022, European equity markets could offer both attractive growth and dividend returns.
