Category Archives: stock market

150 Years of the S&P 500

Sophie Backs: Wall Street (via Unsplash)

In 1956, Standard & Poor created a new stock market index. Composed of the top 500 (or so) individual company stocks in the U.S. stock market and weighted according to their market capitalization within the index, the index itself has become the standard gauge of the larger U.S. stock market. 2021 marks the 65th year the S&P 500 daily stock market index has been in existence.

But the index has a deeper history. In 1928, Standard Statistics Bureau, one of the pre-merger companies that later became today's Standard & Poor, created a daily composite stock market index made up of 90 individual stocks of U.S. corporations, with historical data going back to 1925 to provide some built-in history for the new index. The combination of 50 industrials, 20 railroads, and 20 utility companies provided one of the first broad measures of the U.S. stock market, expanding beyond the 30 industrial firms covered by the Dow Jones Industrial Average. Around the same time, Standard also created a weekly index to track the collective stock market performance of 500 U.S. companies, which is eventually what took over in 1956 as a daily index.

Of course, these companies didn't suddenly materialize into existence in 1928. Many of these firms have stock price data that extends back much earlier. In 1938, the Cowles Commission for Research in Economics worked out their equivalent market index performance going back to 1871, which means we really have 150 years worth of data for the U.S. stock market. Before 1871, the stock price data for publicly traded companies becomes too sparse to track, which is why the historical data only goes back this far.

We thought we'd mark the sesquicentennial for U.S. stock market data with the following charts, showing the average monthly index value, the trailing year dividends per share and trailing year earnings per share for the S&P 500 and its predecessor indices from January 1871 through December 2020. Please click the images to access full size versions of the charts.

S&P 500 Average Monthly Index Value, January 1871 - December 2020 (Linear Scale)
S&P 500 Trailing Year Dividends per Share, January 1871 - December 2020 (Linear Scale)
S&P 500 Trailing Year Earnings per Share, January 1871 - December 2020 (Linear Scale)

Thanks to exponential growth, the data on these charts look something like hockey sticks, so we generated the following charts to show the same data on a logarithmic scale.

S&P 500 Average Monthly Index Value, January 1871 - December 2020 (Logarithmic Scale)
S&P 500 Trailing Year Dividends per Share, January 1871 - December 2020 (Linear Scale)
S&P 500 Trailing Year Earnings per Share, January 1871 - December 2020 (Linear Scale)

If you'd like to get the data for any point of time shown on these charts, we have dedicated tools that can accommodate you. The links below will take you to the historical data we make freely available.

The S&P 500 at Your Fingertips

Our signature tool providing access to the whole history of the S&P 500's average monthly prices, trailing year dividends and earnings per share! As a bonus, it also calculates the rate of return that would have been realized between any two calendar months, with and without the reinvestment of dividends, and also with and without the effect of inflation.

Investing Through Time

If you invested $1,000 in the S&P 500 in June 2009, roughly how much would it have been worth ten years later? What if you invested $100 in the S&P 500 in each month from February 2006 through December 2020 - how much would that portfolio be worth today? Our Investing Through Time tool can help you answer questions like these!

Cashing Out of the S&P 500

It's one thing to build up a nest egg, it's another thing to make it last for as long as you might need it! This tool puts the history of the S&P 500 to use to see how your investment withdrawal strategy would have fared through some of the best and worst eras for the U.S. stock market.

Quarterly Data for the S&P 500, Since 1871

This is the only tool you'll find anywhere for indicating the quarterly earnings and dividends per share that would have actually been reported for the S&P 500 (and its predecessor indices and components), going all the way back to the first quarter of 1871....

Image credit: Photo by Sophie Backes on Unsplash

Dividends by the Numbers for December 2020 and 2020-Q4

If you looked just at dividend rises and cuts, December 2020 would appear to be a pretty healthy month for the U.S. stock market. But one key measure of stock market health fell far short of every other December on record during the previous 16 years: extra, or dividends.

These are the bonus dividend payments that companies sometimes make to their shareholding owners, often at the end of a calendar year when they've had exceptionally strong earnings. 2020 was not that kind of year for the bulk of publicly traded firms in the U.S.

We've tallied up December 2020's number of firms announcing dividends, including the number of increases, reductions and omissions (or suspensions), along with the month's extra dividend total for extra dividend payments, where only this figure stands apart from all the other data that suggests strong year-ending results for the stock market.

  • 3,557 U.S. firms declared dividends in December 2020, an increase of 432 over the 3,125 recorded in November 2020. That figure is also 1,549 lower than what was recorded a year ago in December 2019.
  • Only 13 U.S. firms announced they would pay a special (or extra) dividend to their shareholders in December 2020, a decrease of 65 from the number recorded in November 2020 and 122 lower than what was recorded a year ago in December 2019. This figure is extremely low compared to all other Decembers on record from 2004 through 2019, where the second smallest total is 2019's 135. By contrast, the best December on record for extra dividends was 2012, when 483 firms paid a special dividend as part of the Great Dividend Raid event.
  • 147 U.S. firms announced they would boost cash dividend payments to shareholders in December 2020, an increase of 22 over the number recorded in November 2020, and an increase of 21 over the total recorded in December 2019.
  • A total of 24 publicly traded companies cut their dividends in December 2020, an increase of 9 over the number recorded in November 2020 and also a decrease of 2 from the 26 recorded in December 2019.
  • Three U.S. firms omitted paying their dividends in December 2020, an increase of 2 over the number recorded in November 2020. That figure is also an increase of 2 over the total recorded in December 2019.

Focusing on ordinary dividends, the following chart shows the number of increases and decreases announced each month from January 2004 through December 2020.

Monthly Number of Publicly Traded U.S. Firms Either Increasing or Decreasing Their Dividends, January 2004 - December 2020

December marked the end of 2020-Q4, so let's tally up the totals for the U.S. stock market's dividend metadata, covering increases, decreases, and extra dividends:

  • 457 firms announced they would increase their dividends during 2020-Q4, up 245 from 2020-Q3, but only up 29 from 2019-Q4.
  • Some 52 companies announced they would reduce their dividends, down 10 from 2020-Q3's total of 62, and down 15 from 2019-Q4's total of 67.
  • There were 124 extra dividends announced during 2020-Q4. That total is double the 62 announced in the preceding quarter, but is down by more than half of the 253 announced a year earlier in the fourth quarter of 2019.

Since we're at the end of the calendar year, let's also run through the annual numbers:

  • 2020 saw the declaration of 1,483 dividend rises, which is down 325 from 2019's 1,808.
  • There were 526 dividend cuts announced in 2020, up 217 from the 309 recorded in 2019. This number is also just one shy of the record 527 dividend cuts recorded in the recession year of 2009.
  • 334 U.S. firms announced they would pay extra, or special dividends to their shareholders in 2020. This figure is down 213 from 2019's total of 547 extra dividends.

We make a point of focusing on dividend cuts, because this data tells us which industries are experiencing the greatest level of distress in the U.S. economy. We sample this data from Seeking Alpha's dividend news and the Wall Street Journal's dividend declarations database.

There were just nine firms in our sample during December 2020. Three hail from the oil and gas industry, three are Real Estate Investment Trusts (REITs), and there are one each from the banking, consumer goods, and chemical industries. Here is the short list for the month, where we're not distinguishing between firms that pay variable dividends and firms that set their dividends independently of their earnings and cash flow:

Previously on Political Calculations

We've been listing the firms that have announced dividend cuts or suspensions from our near real-time sampling of these declarations in our previous editions. Please follow these links to see all the dividend cuts and suspensions we've tracked during the coronavirus recession.

References

Standard and Poor. S&P Market Attributes Web File. [Excel Spreadsheet]. 30 November 2020.

Seeking Alpha Market Currents. Filtered for Dividends. [Online Database].

Wall Street Journal. Dividend Declarations. [Online Database when searched on the Internet Archive].

Dividends by the Numbers in November 2020

Like the month that preceded it, November 2020 was a strong month for dividend paying stocks in the U.S. stock market.

In the year of the coronavirus recession however, that strength is a relative measure. Compared to previous months, the market appears strong. Compared to a year ago, the market looks like its been whacked, which in truth, it has.

Both observations for November 2020 can be seen in a chart tracking the number of dividend increases and reductions announced in each month since January 2004.

Number of Publicly-Traded U.S. Companies Either Increasing or Decreasing Their Dividends Each Month, January 2004 - November 2020

Here's our tally of the U.S. stock market's dividend metadata for November 2020:

  • A total of 3,125 U.S. firms declared dividends in November 2020, an increase of 93 over the 3,032 recorded in October 2020. That figure is 248 lower than what was recorded a year ago in November 2019.
  • 78 U.S. firms announced they would pay a special (or extra) dividend to their shareholders in November 2020, an increase of 45 over the number recorded in October 2020 and an increase of one over the number recorded a year ago in November 2019. This figure typically peaks in December each year, but that peak is often conditional on investor expectations for the U.S. government's future tax policy.
  • 125 U.S. firms announced they would boost cash dividend payments to shareholders in November 2020, a decrease of 60 from the 185 recorded in October 2020, and a decrease of 25 from the 150 dividend rises declared back in November 2019.
  • A total of 15 publicly traded companies cut their dividends in November 2020, an increase of 2 over the number recorded in October 2020 and also a decrease of 9 from the 24 recorded in November 2019.
  • Just one U.S. firm omitted paying their dividends in November 2020, the same as the number recorded in October 2020. That figure is also a decrease of three from the total of four firms that omitted paying dividends back in November 2019.

Our near real time sampling of dividends, taken from Seeking Alpha's Market News (filtered for Dividends) and the Wall Street Journal's Dividend Declarations database, identified 14 of the 15 reductions during November 2020. Here is the list of firms that announced dividend cuts during the month:

Six of these firms are from the oil & gas sector, three are retail-oriented REITs, which shows the ongoing influence of the coronavirus pandemic on retail-oriented firms in 2020. The remaining firms in our sampling are made up of one firm each from the materials, utility, financial services, insurance and consumer products industries.

Overall, the pace of dividend cuts during the fourth quarter of 2020 to date appears more healthy than the same quarter in 2017, 2018, and 2019, which can be seen in our chart showing the cumulative dividend cuts announced by day of quarter for the current and three previous years.

Cumulative Dividend Cuts and Suspensions Announced by Day of Quarter, 2017-Q4 vs 2018-Q4 vs 2019-Q4 vs 2020-Q4 to Date, Snapshot on 30 November 2020

Previously on Political Calculations

We've been listing the firms that have announced dividend cuts or suspensions from our near real-time sampling of these declarations in our previous editions. Please follow these links to see all the dividend cuts and suspensions we've tracked during the coronavirus recession.

References

Standard and Poor. S&P Market Attributes Web File. [Excel Spreadsheet]. 30 November 2020.

Seeking Alpha Market Currents. Filtered for Dividends. [Online Database].

Wall Street Journal. Dividend Declarations. [Online Database when searched on the Internet Archive].

Iron Mountain’s Stock Becomes a COVID-19 Economic Recovery Bet

Adam Nowakowski's Day Trading Investor via Unsplash: https://unsplash.com/photos/MFms-wkv3Ow

Three weeks ago, we began following Iron Mountain (NYSE: IRM), a Real Estate Investment Trust (REIT) whose core business is documents management. While the company is best known today for archiving the paper records of large corporations, it has been increasing its investments into electronic records management technology to expand its business in the digital age.

The reason we chose this particular company to follow is because it appeared to be on the cusp of pursuing one of two potential paths with respect to its dividend policy. IRM's stock price had been crushed with the coronavirus pandemic in 2020, where the company's market cap with respect to its aggregate dividends had fallen below its historic range.

So much so that, one week before its 2020-Q3 earnings call with investors, the level of its market capitalization suggested it had a strong chance of either cutting its dividends per share by a third or holding its dividend steady with a slim possibility of a small increase. The latter scenario assumes the firm had been successful in restructuring its debt during the previous three months, which would free up funds to sustain its generous dividend.

Iron Mountain's 2020-Q3 earnings call then came and went on 5 November 2020. The company's management chose the second path, which allows us to update the visual assessment of the relative value of the company's market cap with respect to its aggregate dividends against the historic backdrop of the relationship between these two financial measures during the past ten years.

Iron Mountain (NYSE: IRM): Market Capitalization vs Forward Year Aggregate Dividends per Share at Dividend Declaration Dates, 2010-2020, Snapshot on 5 November 2020

IRM has taken advantage of falling interest rates prompted by the pandemic to restructure much of its short term debt, which has taken the prospect of a significant dividend cut off the table at this time. Here's a relevant excerpt of CEO William Meaney's comments on the topic from the transcript of IRM's 2020-Q3 earnings call:

Turning to cash flow and the balance sheet, we are operating from a position of significant balance sheet strength. In the third quarter, our team did a nice job delivering further cash cycle improvement with solid performance in both payables days and days sales outstanding. On a sequential basis, cash cycle improved by a full day as a result of continued DSO improvement. In August, the team executed another successful bond refinancing, issuing $1.1 billion to redeem our most restrictive outstanding debt and pay down a portion of the outstanding balance under our revolving credit facility.

The continued strong support received from the fixed income community provided us the opportunity to upsize our transaction while printing the lowest coupon for 10-year notes in the company’s history. Taken together with our bond offerings in June, we issued $3.5 billion of new debt on a leverage-neutral basis, increased our weighted average maturity by over two years to nearly eight years, while only modestly increasing our weighted average cost of debt.

Additionally, these new bonds are more in line with our REIT peers as they include a fixed charge coverage ratio as opposed to a debt to EBITDA covenant. Also, I think it is worth noting that we have eliminated all of our 6.5 times leverage covenant bonds, meaning our most restrictive bond covenant is now 7 times debt to EBITDA.

At quarter end, we had $1.7 billion of liquidity. As a reminder, at the end of the second quarter, we had elevated levels of cash on our balance sheet due to the timing of the payoff of one of our notes from the June bond offering. We paid off the notes in early July, leaving us with a cash balance at September 30 of $152 million.

We ended the quarter with net lease adjusted leverage of 5.3 times, which takes into account adjustments as described in our credit facility. Looking ahead, we expect to end the year with leverage of approximately 5.5 times, which would represent an improvement year-on-year as we make progress towards our long term leverage range.

That's important because companies generally need at least one of two things to be positive to sustain their dividends over time: their earnings and their cash flow. IRM priortized restructuring its debt to reduce the pressure it presented on its cash flow, which allows it to preserve its dividend, which it left unchanged. Here are Meaney's comments on that subject, which immediately followed his comments on IRM's debt restructuring:

With our strong financial position, our board of directors declared our quarterly dividend of $0.62 per share to be paid in early January.

Turning to capital expenditures, our full year expectation is now approximately $450 million, or a decrease of $75 million, reflecting development capital for our Frankfurt data center that will now be a part of our venture with AGC.

Meaney continues describing how IRM's plan to sustain its dividend can be maintained while the company continues to expand its electronics records management business line:

Now let me share a few thoughts as to our capital allocation strategy. First, we are committed to our dividend at this sustainable level and over time, we expect to glide into our targeted AFFO payout ratio of mid-60%. Second, we are committed to our target long term leverage range of 4.5 to 5.5 times on a net lease adjusted basis. This year, the team has made good progress toward our target.

As investors know, we have been allocating significant capital to our data center business for several years, and as our pipeline continues to build with high return investment opportunities, our strategic intent is to increase the amount of capital we dedicate to the business. With that, we have considered options to generate incremental funds for investment.

We view capital recycling as a good means to monetize certain assets, particularly industrial real estate to increasingly invest in our development pipeline. Industrial cap rate are at historically low levels, and we have the opportunity to structure long term leases on favorable terms that effectively allow us to have control of the facilities, whether we lease or own. With that, in the third quarter our team accessed the market and monetized two facilities for proceeds of approximately $110 million. This brings our year-to-date proceeds to nearly $120 million, ahead of our full year target of $100 million.

With the highly favorable market backdrop together with our development pipeline, we are planning to recycle relatively more going forward, albeit what will amount to a small portion of our total industrial assets. Similarly, we view selling stabilized data center assets into a joint venture as analogous to monetizing industrial real estate assets - it represents another source of capital to redeploy into development projects. The joint venture we just announced in Frankfurt is a good example of this strategy. The JV provides us with an opportunity to boost returns on stabilized assets and provides incremental capital to allocate to projects in the development phase.

We think Iron Mountain's plan minimizes the risk of a dividend cut but doesn't eliminate its exposure to other factors that might ultimately lead to that outcome. While the company's stock saw a boost to $27.48 per share on the day of the earnings call, in the two weeks since, it has fallen by 5.7% to $25.90 per share.

That fall largely coincides with the introduction of new lockdown measures in Europe to try to bring the spread of new coronavirus infections down to levels where its national health systems are capable of managing it. It has also occurred despite the major announcements of two COVID-19 vaccines with greater than 90% effectiveness in their Phase 3 trials, which will start being distributed before the end of 2020 and have hundreds of millions of doses distributed worldwide in 2021.

That makes IRM's stock more interesting than what we realized when we first selected it to follow. Following its recent stock price history, we find it has risen and fallen with the waves of coronavirus infections in the regions Iron Mountain does business, which makes it something of an indicator of how investors anticipate the coronavirus pandemic will affect business activities upon the company's large, established customer base, and by extension, the firm's revenues.

In maintaining its current dividend level, Iron Mountain stands to gain substantially if its stock price and market cap recovers to levels consistent with how investors have historically valued the company's dividends. But unlike stocks whose prices have risen on speculation from recent vaccine development news, we think Iron Mountain's stock price is reflecting what they anticipate for its actual business conditions in the year ahead.

That makes investing in IRM a COVID-19 play, or rather, a bet on the future for the coronavirus pandemic's real world impact on business activities. Knowing where the company stands today, how would you place your bets on its future?

Previously on Political Calculations

Image Source: Photo by Adam Nowakowski on Unsplash

Goldilocks, Market Cap, and Aggregate Dividends

We're experimenting with using the relationship between a company's market capitalization and its aggregate dividends as a tool for assessing the Goldilocks quality of its stock price. By Goldilocks quality, we mean whether the value of a company's stock price is too low, too high, or just right, which would correspond to an investing decision to buy, sell or hold.

Stock Market Chaos!

Why use market cap and aggregate dividends for assessing the value of a stock? We've already established that there's a useful relationship between price per share and dividends per share when dealing with stock indices, but the increase of stock buybacks over time makes that direct approach a dicier method for evaluating individual stocks. Using market cap and aggregate dividends can eliminate the potential for a company's management to artificially dress up its "per share" financial metrics with buybacks, letting us use the next closest thing to share prices and dividends per share in determining whether it makes sense to buy, sell or hold its shares.

We've developed the basic method for evaluating an individual firm's stock valuation using General Electric (NYSE: GE) as our experimental guinea pig, but we have been seeking another publicly traded company to evaluate.

We've found a candidate: Iron Mountain (NYSE: IRM). IRM is a documents management company that is set up as a Real Estate Investment Trust (REIT), which is perhaps best known for archiving the paper records of hundreds of large corporations, but which has been expanding into digital records management.

That's a boring, but lucrative business, where the company is currently paying an annual dividend of $2.47 per share. With a closing share price of $26.33 on 29 October 2020, that's a dividend yield of nearly 9.4%.

By contrast, the dividend yield of the S&P 500 was 1.75% back on 30 September 2020.

That large difference makes IRM an interesting stock to consider. An relatively outsized dividend yield can be both an attractive stock for investors seeking dividend income and a potential harbinger of future dividend cuts, which is the kind of stock investors would generally seek to either sell or avoid.

Which is IRM? Here's a chart showing the relationship between IRM's market cap and aggregate dividends from 2010 up to 29 October 2020, where we've focused on the periods approximately coinciding with Iron Mountain's dividend declaration dates.

Iron Mountain (NYSE: IRM): Market Capitalization vs Forward Year Aggregate Dividends per Share at Dividend Declaration Dates, 2010-2020

Overall, we find there's a moderately strong relationship between IRM's market capitalization and its aggregate annual dividend payout, which currently sits at $0.71 billion with a market cap of roughly $7.59 billion.

In considering how investors have historical valued the stock at dividend declaration dates from 25 February 2010 through 5 August 2020, we find the current valuation is below the typical range we would expect given its history, which means one of two things: it's either a serious candidate for a dividend cut, or its shares are currently on sale for investors looking to pick up relatively easy money.

In August 2020, Action Biased made the case that the stock is due for a dividend cut, which our method suggests could be on the order of a 33% reduction from its current $2.74 annual dividend per share. The argument supporting a significant dividend cut recognizes the dividends the REIT paid in 2019 exceeded its Funds From Operations (FFO) by a significant margin, which is a consequence of the company having loaded up on debt to expand its digital records management operations. Cutting its dividend to cope with its debt could be advisable if it remains elevated.

Since then, presentations the company has made to investors have focused on the steps it has taken to restructure its debt at today's lower interest rates, which would make its current dividend level more sustainable. Analyst Mark Roussin picked up on that strategy in his argument that the company's stock is currently undervalued, which our analytical method suggests could provide up to a 20% gain given its current dividend payout and how investors have historically valued the firm.

So which is it? If you're looking for ideas of where to invest, you'll ultimately have to make that call for yourself, but you won't have long to wait to find out which potential view of the future will prevail. Iron Mountain will announce its 2020-Q3 financial results early on 5 November 2020 and will host a conference call for investors later that day.

According to analyst Rida Morwa, Iron Mountain may also announce a change in its dividend at that time. He's betting on it being a dividend increase, which for our method, would suggest the potential for a greater than 20% gain.

See? Interesting! Who knew a company in the record storage business could present so many possibilities for investors to weigh?