S&P 500 Returns by Components 1900-2020: Earnings Growth + Dividends + P/E Changes

In the previous post How Much of Historical Stock Returns Is Due To P/E Ratio Expansion?, we saw how the S&P 500 historical average total return could be broken down into separate components of earnings growth, dividends, P/E multiple changes, and inflation. Here’s how it broke down from the period of January 1976 to March 2021:

S&P 500 Returns by Components 1900-2020: Earnings Growth + Dividends + P/E Changes

I wondered: Is this a common breakdown? What about other periods of time? You may have seen charts showing the rolling historical 10-year total returns of the S&P 500. For example, 1980-1990, 1981-1991, 1982-1992, and so on. Here is such a chart:

S&P 500 Returns by Components 1900-2020: Earnings Growth + Dividends + P/E Changes

Crestmont Research has generously shared the same total returns, but broken down into the separate components of earnings-per-share (EPS) growth, dividends, and P/E multiple changes. As they put it:

There are only three components (excluding transaction costs and expenses) to the total return from the stock market: dividend yield, earnings growth, and change in the level of valuation (P/E ratio). To assess the potential returns from stocks for the next decade, this analysis presents the total return and its components for every ten-year period since 1900.

S&P 500 Returns by Components 1900-2020: Earnings Growth + Dividends + P/E Changes

Observations. Despite my discovery that it didn’t take 25 years to recover from the 1929 crash, notice that the Great Depression was the only period where corporate earnings consistently dropped for an extended period. We do see the dividends still being paid out, but experiencing your business make less and less earnings for years must have been very difficult.

Since approximately the time of World War II, the overall profits of the S&P 500 companies have risen in every single 10-year period. Meanwhile, the dividend yield was also positive, although it has experienced a gradual decrease over time. If you just look at those two components added together, that is quite impressive.

Finally, we see that the component with the wildest swings by far is the Price/Earnings ratio. From this visualization, it looks like huge “waves of optimism” and “waves of pessimism” that are end up causing most of the overall volatility in total return. Right now, we appear to be still riding one the waves of optimism.

“The editorial content here is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone. This email may contain links through which we are compensated when you click on or are approved for offers.”

S&P 500 Returns by Components 1900-2020: Earnings Growth + Dividends + P/E Changes from My Money Blog.


Copyright © 2004-2021 MyMoneyBlog.com. All Rights Reserved. Do not re-syndicate without permission.

©

Related Posts

S&P 500 Returns by Components 1900-2020: Earnings Growth + Dividends + P/E ChangesS&P 500 Returns by Components 1900-2020: Earnings Growth + Dividends + P/E Changes
Nestlé Offices – Ho Chi Minh City
B+H Architects was tasked with the amenity-rich design for food...
Read more
S&P 500 Returns by Components 1900-2020: Earnings Growth + Dividends + P/E ChangesS&P 500 Returns by Components 1900-2020: Earnings Growth + Dividends + P/E Changes
Transparent Game Boy with detachable projector promises...
Nintendo Game Boy is one of the bestselling consoles of...
Read more
S&P 500 Returns by Components 1900-2020: Earnings Growth + Dividends + P/E ChangesS&P 500 Returns by Components 1900-2020: Earnings Growth + Dividends + P/E Changes
How to Renovate Your House Smartly and...
House renovation sounds interesting and fun, but it takes a...
Read more
S&P 500 Returns by Components 1900-2020: Earnings Growth + Dividends + P/E ChangesS&P 500 Returns by Components 1900-2020: Earnings Growth + Dividends + P/E Changes
This 20-foot-long futuristic recreational vehicle has button-activated...
eVTOL aircrafts may be the future of personal aviation but...
Read more
BAAN O+O floating courtyard house in Khao Yai showing steel framework and elevated design by Junsekino ArchitectBAAN O+O floating courtyard house in Khao Yai showing steel framework and elevated design by Junsekino Architect
This Floating Courtyard House in Khao Yai...
Have you ever seen a house that appears to hover...
Read more
S&P 500 Returns by Components 1900-2020: Earnings Growth + Dividends + P/E ChangesS&P 500 Returns by Components 1900-2020: Earnings Growth + Dividends + P/E Changes
IDOM’s 42-Meter Steel Buoy Just Proved Wave...
Off the rugged coast of Bilbao, quietly bobbing in the...
Read more