Long-Term Earnings Growth and Economic Growth (2)

Long-Term Earnings Growth and Economic Growth (2)


Long-Term Growth of GDP, Earnings and Dividends, 1871 -2001
Real GDP Growth 3.91%
Real Per-Share Earnings Growth 1.25%
Real Per-Share Dividend Growth 1.09%
Dividend Yield (median) 4.54%
Payout Ratio (median) 58.75%

The above shows the summary statistics for dividends per share, earnings per share (EPS), and stock returns from 1871 through September 2001. The data show that real per-share earnings growth over the entire 130 years has been a paltry 1.25%, considerably below the nearly 4% growth rate of real GDP. Because of the funding requirement, EPS growth does not match aggregate economic growth over the long run.


Long-Term Growth of GDP, Earnings and Dividends, 1871-1945
Real GDP Growth 4.51%
Real Per-Share Earnings Growth 0.66%
Real Per-Share Dividend Growth 0.74%
Dividend Yield (median) 5.07%
Payout Ratio (median) 66.76%

Long-Term Growth of GDP, Earnings and Dividends, 1946-2001
Real GDP Growth 3.11%
Real Per-Share Earnings Growth 2.05%
Real Per-Share Dividend Growth 1.56%
Dividend Yield (median) 3.53%
Payout Ratio (median) 51.91%


The data before and after World War II also show that the acceleration of earnings growth since World War II is associated with the drop in the dividend yield. Greater retained earnings allow firms to buy back shares and reinvest for growth. John Williams' contention that dividends withheld today spur earnings growth in the future is strongly supported by the data.


Also read:
Long-Term Earnings Growth and Economic Growth (1)
Long-Term Earnings Growth and Economic Growth (2)