Wednesday, March 28, 2012

The Lost Decade: Opportunity of a Lifetime for Dividend Investors

The “Lost Decade” in stocks is the period since 2000, when stocks in general have been mostly flat. The reason behind the so called lost decade, is the fact that stocks were overvalued during the last leg of the 1999 – 2000 bull market run. Investors typically have a short term memory of financial market events. Over a decade ago, demand for speculative internet stocks with no earnings or revenues were high, and the good times were expected to keep on going forever. Now, after two severe stock market declines due to the tech and financial sector implosions, investors are again projecting the past onto the future. This time however, investors are forecasting doom and gloom. In a previous article I discussed the fact that stocks are cheap. In fact, stock valuations are at their lowest levels in years.

One of the biggest arguments against purchasing quality dividend stocks is that they have been “dead money” over the past decade. Some investors who read my site have mentioned that companies like Intel (INTC), Medtronic (MDT), Coca Cola (KO), Wal-Mart (WMT) and Abbott (ABT) come to mind due to the fact that they delivered very little in total returns over the past decade. Once again, investors are comparing apples to oranges. In general, these four stocks were much overvalued in the year 2000. Today, they are attractively priced.

Intel Corporation (INTC) engages in the design, manufacture, and sale of integrated circuits for computing and communications industries worldwide. While the company earned $1.51/share in 2000, when the stock price ended the year at $30.06/share, for a P/E of 20, this EPS figure did not take into account the implosion of the tech sector. In fact, one of the reasons why I haven’t ventured in to the stock was that Intel did not exceed its year 2000 EPS until 2010. In 2001, EPS collapsed to just $0.19/share. Sometimes measures like P/E ratios should be taken with a grain of salt when dealing with cyclical companies in the technology, automotive and materials sectors for example. The stock has a P/E of 11.70, and yields 3% today however, which makes it a buy when it reaches a dividend achiever status. (analysis)

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverages worldwide. In 2000, the company earned $0.88/share, while the stock closed the year at $60.94. The P/E ratio was rich at 69 times earnings, while the annual dividend of 68 cent/share delivered a yield of 1.10%. Today Coca Cola trades at 19.30 times earnings and yields 2.90%. (analysis)

Medtronic, Inc. (MDT) manufactures and sells device-based medical therapies worldwide. In 2000, the company earned $0.91/share, while the stock closed the year at $60.38. The P/E ratio was rich at 66 times earnings, while the annual dividend of 20 cents/share delivered a yield of 0.30%. Today, Medtronic sells at 12.20 times earnings and yields 2.50% (analysis)

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. In 2000, the company earned $1.25/share, while the stock closed the year at $53.13. The P/E ratio was rich at 42 times earnings, while the annual dividend of 24 cent/share delivered a yield of 0.50%. These days, the world’s largest retailer trades at 13.40 times earnings and yields 2.60% (analysis)

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. In 2000, the company earned $1.78/share, while the stock closed the year at $48.44. The P/E ratio was rich at 27 times earnings, while the annual dividend of 76 cent/share delivered a yield of 1.60%. Currently, he company trades at 15.10 times earnings and yields 3.40%. (analysis)

Full Disclosure: Long KO, WMT, MDT, ABT

Relevant Articles:


  1. Yes, lost decade until Obama came to power.

    Perhaps, you've noticed DJIA up about 63% since March 2009.

    Stocks often lost when pubs in the White House.

    If you care about your money and your children, better hope Obama reelected this november.

  2. Why are you willing to buy a stock whose dividend yield is lower than the rate of inflation? Doesn't that just guarantee a loss of purchasing power?

  3. The growth rate of the dividend should exceed inflation, not the yield.

    In terms of income, a higher yielding lower dividend growth stock will for a while pay more than a lower yielding stock higher dividend growth stock. But eventually the low yield high growth stock should provide more income.

  4. What dividend growth stocks in 2000 were fairly valued? Was that a year to just collect the dividends as cash and just wait it out instead of reinvesting?


Questions or comments? You can reach out to me at my website address name at gmail dot com.

Popular Posts