Dividends Don't Lie

Geraldine Weiss and Janet Lowe

2 ideas

1. Historical dividend-yield band valuation

   Each blue-chip stock tends to trade within its own repeating range of dividend yields over decades, so a stock is judged against its own history rather than against the market. When the yield nears the high end of that band (the 'undervalued' zone), the price is low relative to the dividend and it is a buy. When the yield nears the low end (the 'overvalued' zone), it is a sell.

2. Dividends are a more honest value signal

   Earnings can be managed, restated, or dressed up with accounting choices, but a dividend requires the company to pay real cash to shareholders. Because a board rarely raises a dividend it cannot sustain, the dividend and its yield are a more reliable anchor for intrinsic value than reported earnings.

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