James Montier of GMO published a white paper entitled “A Man from Different Time” (a free registration is required). The paper treats the issue of dividend and its relevant to investment returns. Especially, he recommends European Dividend Swaps.
My notes:
Read the complete article at GMO.com
My notes:
- Nowadays, average holding period for NYSE listed stocks is 8-months.
- Short Turn, return is generated by price fluctuation; over the very long term dividends have accounted for 90% of total return.
- Stock repurchases are not the same as dividends. Dividends tends to be raised and lowered much slower than repurchases.
- Dividend swaps exists allowing investors to trade dividends independent of the stock market.
- Te European dividend swaps are traded as if dividends will have virtually zero growth between now and 2019, in another word, European dividends are priced as for the great Depression.
- James Montier’s model shows today’s contract of Eurostocxx 50 dividend swaps are 40 to 60% below intrinsic value.
- Dividend swaps have additional benefits of inflation protection and survivor bias favorability.
- James Montier concluded that:
European dividend swaps offer an intriguing opportunity to capture one of the main generators of returns, protected against the vagaries of Mr. Market’s assigned valuations, at a cheap price (thanks to oversupply from investment banks), as well as a large margin of safety and an offer of some long-term infl ation protection.
Read the complete article at GMO.com
