Category Archives: dividends

The National Dividend vs GDP

After discovering that it is now possible to calculate a consumption-based national dividend as originally proposed by Irving Fisher back in The Nature of Capital and Income back in 1906 (also available as a PDF document), we thought we'd next look at how our results for the U.S. from 1984 through 2013 compare to the Gross Domestic Product over that time.

To do that, we've taken our data for the average annual expenditures reported by the BLS and Census Bureau through the Consumer Expenditure Survey and multiplied those figures by the reported number of "consumer units" in the nation, which is roughly the equivalent of U.S. households, since such consumer units/households would represent the ultimate consumers in the nation.

Let's go straight to the charts. The first shows our results for the nominal national dividend for all U.S. consumer units/households.

Nominal U.S. National Dividend, 1984-2013

Here, we see that in the nominal aggregate, both the total and true national dividend for American consumer units has increased over time. We also see that rather than follow steady trajectories over time, there is a remarkable chasm in the data for the true national dividend that runs from 2001 through 2007, which corresponds to the evolution of the first U.S. housing bubble, which was fed by an outflow of funds from the U.S. stock market after the inflation of the Dot-Com Stock Market Bubble peaked in 2000.

Let's next adjust the data to account for the effects of inflation. Since we're dealing with a measure of the consumption of all American consumer units/households, we've done this math using the CPI-U index.

Real U.S. National Dividend, 1984-2013

Unlike what we observed in the trends for the real national dividend per consumer unit, which was characterized by a flat trend for the total national dividend per consumer unit and a falling trend for the household debt adjusted national dividend, we see that there has generally been a rising trend over time for the entire population of American consumers.

What that result suggests is that the real national dividend for the U.S. has increased over time only because its population has increased over time.

In our final chart, we'll calculate the relative percentage share of the national dividend, as measured by the aggregate total of consumer expenditures in the nation, with respect to the nation's GDP. This calculation will give us a sense of how well GDP works as an indicator of the quality of life of U.S. consumer units/households.

Aggregate Consumer Expenditures as Percent Share of GDP, 1984-2013

What we discover is that over time, GDP has become less and less indicative of the quality of life of American consumer units/households. In 1984, the national dividend in our implementation represented 49% of the nation's GDP, which has since fallen to 38%. What that outcome suggests is that the nation's GDP growth is not diffusing to the benefit of U.S. consumer units/household.

We suspect that has a lot to do with the increasing financialization of the U.S. economy, which is also reflected in the increasing degree to which American consumer units/households are maintaining their real standard of living with increasing levels of debt.

We should also recognize that the downward trajectory in the total national dividend as a percent share of GDP has not been steady over time. The decline of the national dividend has instead occurred in steps, which largely correspond to the terms of different U.S. Presidents, and which would suggest that changes in national policies applied in the Executive branch of the U.S. government are largely responsible for evolution of the trend.

This is where having more historic data would really be useful, but where we are limited because the available data only extends back to 1984. Never-the-less, we do observe that there is a distinct and steady downward trend during the terms of Democratic administrations, while the trend tends to be mostly flat during the terms of Republican administrations. There is one exception, which occurs between 1986 and 1987 during the term of President Reagan, which might perhaps be explained as an outcome of the 1986 Tax Reform Act.

This overall pattern might perhaps be explained by the unusual level of accommodation that Democratic presidential administrations provide to the nation's financial industry and big corporations after being elected with large amounts of funding from these actors, who then gain without sharing any of the benefits they receive to regular American consumer units/households.

That dynamic would then seem to explain why we've see GDP grow over time, without a corresponding improvement in the national dividend for American consumer units/households.

Data Sources

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Total Average Annual Expenditures. 1984-2013. [Online Database]. Accessed 14 March 2015.

U.S. Bureau of Labor Statistics. Consumer Price Index - All Urban Consumers (CPI-U), All Items, All Cities, Non-Seasonally Adjusted. CPI Detailed Report Tables. Table 24. [Online Database]. Accessed 14 March 2015.

U.S. Bureau of Economic Analysis. National Income and Product Accounts Tables. Table 1.1.5. Gross Domestic Product. [Online Database]. Accessed 14 March 2015.

Calculating the National Dividend

American Consumers Dining Out - Source:

Is GDP growth a good indicator of improving quality of life?

That's a question that is featured at, where at this writing, online polling indicates that 32% of respondents say yes while a wide majority of 68% of respondents say no.

We're not going to debate the topic - we're simply going to recognize that GDP really doesn't communicate how well the quality of life may be changing for a nation's people. That's because it's not really designed to address that question.

So what would be better?

In researching the topic, we dug deep into the history of how Gross Domestic Product became the defining measure of a nation's economic performance. Here, the godfathers of GDP were Alfred Marshall and A.C. Pigou, who originally developed the concept of a "National Dividend" or interchangeably, a "National Income" early in the 20th century. Their work was built upon by Simon Kuznets, who actually developed the prototype accounting calculations for GDP as we know it today.

But almost lost in that early history was a very different concept developed by Irving Fisher, who instead of focusing on production as Marshall, Pigou and Kuznets did, defined his concept of the National Dividend around what people consumed. And while Fisher's concept put the focus on the end consumers in a nations, people living in households, where their consumption of goods and services would provide a measure of their quality of life, it was never fully developed because of the challenges that lay in quantifying it.

Fisher's definition

This definition is entirely different from that of Marshall or of Pigou. Marshall and Pigou have approached national income from the production end, Fisher approaches it from the consumption end.

His definition is as follows:

"The national dividend or income consists solely of services as received by ultimate consumers, whether from their material or from their human environment. Thus, a Piano or an overcoat made for me this year is not a part of this year's income, but an addition to capital. Only the services rendered to me during this year by these things are income".

Thus, according to Fisher, the national income of a country is determined by annual consumption. Suppose, a piano of the value of $20,000 was manufactgured in the year 2009, then according to Marshall and Pigou, the entire sum of $20,000 will be included in the national income of 2009. According to Fisher, only the money value of the actual consumption of the piano in 2009 will be $1,000. Therefore, according to Fisher, $1,000 only should be added to the national income of 2009, and not $20,000 as would be suggested by Marshall and Pigou.

Fisher's definition appears to be better and more scientific than that of either Marshall or of Pigou, because he includes in the national income of the country only the money value of the actual consuption of goods and services during the year.

But Fisher's definition has little practical value. The reasons are as follows:

Firstly, since there are so many commodities and so many varieties that is is exceedingly difficult to estimate the money value of total consumption in the hands of millions of consumers in the country.

Secondly, it will be very difficult to allot a definite life to each and every good in order to find out the money value of its consumption in a particular year.

Thirdly, it will be a difficult task of calculating the money value of the consumption of durable consumer goods which will pass thorugh the hands of many persons.

We see that historically, the main obstacle to making practical use of Fisher's consumption-based definition of the national dividend results from the lack of adequate data to describe the consumption of millions of consumers in the country. But that hasn't been true since 1984, when the U.S. Bureau of Labor Statistics and the U.S. Census Bureau teamed up to conduct the Consumer Expenditure Survey. We actually now have three decades worth of solid data to estimate the money value of total consumption in the hands of millions of consumers in the country. That's something that wasn't possible in the early 20th century when these concepts of National Dividends or National Income were being fleshed out.

On reflection, we think that the second and third arguments listed above turn out to be immaterial, in that it is not necessary to allot a definite life to each and every good in order to find out the money value of consumption in a particular year.

Here's why. Taken in the aggregate, all consumer goods and services purchased in a given year are, in effect, fractionally consumed among all consumers, or as the BLS and Census Bureau affectionally refers to them, "consumer units", which are roughly the equivalent of households.

Piano - Source:

For example, in 2007, the CEX reports there were 121,700,000 consumer units counted in the U.S. economy, who purchased some 62,536 new pianos, to use Irving Fisher's example. The number of purchases in that year automatically incorporates the durability factor of pianos, because those who purchased new pianos in previous years are still in the process of consuming them. Except perhaps for the fraction of those whose pianos have reached the end of their lifespan, who will stop consuming their old pianos.

If you were then to add up the fractional consumption of pianos across all piano consumers in the nation, we should reasonably expect their total number to work out to be well within the ballpark of the number of new pianos purchased annually. And while supply and demand factors will most certainly apply, changes in the number of new pianos consumed annually could also be considered to be varying with respect to the desired consumption rate of pianos across the nation, where their expected effective duration of consumption from year to year is a driving variable.

In practice, we would potentially see that dynamic play out with piano consumers holding off on making new purchases and extending the life of their old pianos during periods of recession, and perhaps more often retiring and replacing their pianos at a much faster pace during periods of economic expansion, where they would increase their consumption of new pianos.

There is also the challenge of how to cope with changes in the value of durable goods like pianos whenever they are exchanged among the population of consumers.

But we think that's also immaterial, because it's really a matter of how the consumers choose to pay for the exchange. As a general rule, piano consumers have two ways in which they can obtain a piano in a transaction. First, they can transform assets they already hold, and which are not counted as part of the National Dividend under Fisher's definition, such as tapping the cash they may have in a savings account, to pay what they believe is an equivalent value for the piano they would rather have. In this case, there is no net change in the measurable quality of life for those participating in this kind of transaction because they have only exchanged assets of equal value between themselves.

Second, since a durable good like a piano can also represent a relatively high dollar purchase for most households, costing anywhere from $3,000 to $100,000, piano consumers could also finance some or all of their acquisition with debt. In this case, we can consider the term of their loans to be reasonably proportionate to the expected life of their new asset, where their debt payments will be spread out over the life of the instrument, reflecting its expected consumption.

That means that we can directly calculate a true national dividend representing by taking the aggregate total of all consumer expenditures among all consumer units/households by subtracting the net change in their total liabilities from one year to the next. The result of that math would be a good indication of degree to which such consumers in the aggregate have sought to attain a particular level of quality of life today at the expense of impairing their quality of life tomorrow, as the bills for their desired consumption come due.

Let's do that math now with the data available from the Consumer Expenditure Survey. Our first chart shows the National Dividend for the average American consumer unit/household in nominal (current year dollar) terms for the thirty year period from 1984 through 2013:

Nominal U.S. National Dividend per Consumer Unit, 1984-2013

Let's next adjust these numbers to account for the effect of inflation over time, with respect to the Consumer Price Index for All Urban Consumers, in All Cities, for All Items, so that the values are expressed in terms of constant 2013 U.S. dollars.

Nominal U.S. National Dividend per Consumer Unit, 1984-2013

Examining this second chart, we find that over time, an increasing level of debt is being used to sustain the quality of life of American consumer units (households) at a relatively constant level. After accounting for the accumulation of debt via the true national dividend however, we confirm that the typical American consumer unit household would appear to becoming worse off over time.

There are a lot of questions that need to be addressed in this kind of analysis that we haven't yet touched upon. For example, how much could the shifting age demographics of the U.S. population of consumers be contributing to this pattern? Likewise, could generally falling levels of prices for major consumption items like food over time be responsible, which would actually represent an improvement in quality of life as measured by our application of Irving Fisher's national dividend concept?

For a concept that's been around since 1906, we're only just now at the beginning of understanding what the calculation of the national dividend is telling us.


U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Total Average Annual Expenditures. 1984-2013. [Online Database]. Accessed 14 March 2015.

U.S. Bureau of Labor Statistics. Consumer Price Index - All Urban Consumers (CPI-U), All Items, All Cities, Non-Seasonally Adjusted. CPI Detailed Report Tables. Table 24. [Online Database]. Accessed 14 March 2015.

U.S. Bureau of Economic Analysis. National Income and Product Accounts Tables. Table 1.1.5. Gross Domestic Product. [Online Database]. Accessed 14 March 2015.

Kennedy, M. Maria John. Macroeconomic Theory. [Online Text]. 2011. Accessed 15 March 2015.

Chand, Smriti. National Income: Definition, Concepts and Methods of Measuring National Income. [Online Article]. Accessed 14 March 2015.

Dividends: U.S. Continues Economic Contraction in February 2015

Following its apparent contraction in January 2015, it appears that the U.S. economy continued to contract in February 2015.

We're basing that assertion on the number of publicly-traded U.S. companies that announced they would be reducing their cash dividend payments to their shareholders during the month of February 2015. With 38 companies taking that action, the number is lower than the 57 firms that took similar actions in January 2015, but is still well elevated above the number that would appear to correspond to a shrinking economy.

Monthly Number of Public U.S. Companies Announcing Dividend Cuts, 
January 2004 through Present (February 2015)

We believe that the number of companies cutting their dividends in February 2015 is a better indicator of the current level of distress within the U.S. economy than the higher January 2015 figure, because we suspect that earlier figure was elevated by those companies whose deteriorating business outlook was such that they should have acted to cut their dividends in 2014, but delayed until the new year.

Speaking of which, we think we've identified most of the entities whose stocks trade on the NYSE or NASDAQ stock market exchanges, using data from Seeking Alpha's Market Currents reports (filtered for Dividends) and the Wall Street Journal's daily listing of Dividends Declarations. The table below presents the full list that we were able to assemble from these sources:

Publicly Traded U.S. Companies Cutting Dividends in February 2015
Date Company Symbol Old Dividends per Share New Dividends per Share Percent Change
2-Feb-2015 North Eur Oil Royalty Tr NRT $0.39000 $0.35000 -10.3%
2-Feb-2015 EV Energy Partners EVEP $0.77400 $0.50000 -35.4%
4-Feb-2015 EV Energy Partners LP EVEP $0.77400 $0.50000 -35.4%
4-Feb-2015 Nuveen Lgn/Sh Cmdty TR Fd CTF $0.13500 $0.11900 -11.9%
5-Feb-2015 Sabine Royalty Tr UBI SBR $0.28281 $0.27708 -2.0%
5-Feb-2015 Magic Software MGIC $0.09500 $0.08100 -14.7%
6-Feb-2015 Alon USA Partners L.P. ALDW $1.02000 $0.70000 -31.4%
6-Feb-2015 Chesapeake Granite Wash CHKR $0.50790 $0.44960 -11.5%
6-Feb-2015 ECA Marcellus Trust I ECT $0.20300 $0.18000 -11.3%
6-Feb-2015 Evolution Petroleum EPM $0.10000 $0.05000 -50.0%
6-Feb-2015 STRATS Sers 2006-1 P&G . Ser 2006-1 GJR $0.01570 $0.01535 -2.2%
6-Feb-2015 STRATS Tr Allstate 2006-3 GJT $0.01752 $0.01708 -2.5%
9-Feb-2015 Northern Tier Energy LP NTI $1.00000 $0.49000 -51.0%
9-Feb-2015 Whiting USA Trust I WHX $0.50934 $0.28308 -44.4%
9-Feb-2015 Whiting USA Trust II WHZ $0.64201 $0.32726 -49.0%
10-Feb-2015 Medley Capital MCC $0.37000 $0.30000 -18.9%
10-Feb-2015 Oaktree Capital Group OAK $0.62000 $0.56000 -9.7%
10-Feb-2015 PPLUS FR Call Ser GSC-2 PYT $0.19583 $0.19167 -2.1%
11-Feb-2015 Fifth St Finance FSC $0.09170 $0.06000 -34.6%
11-Feb-2015 KKR KKR $0.45000 $0.35000 -22.2%
12-Feb-2015 Ellington Financial EFC $0.25278 $0.25000 -1.1%
12-Feb-2015 SunTr Banks Dep. Shs STIA $0.77000 $0.65000 -15.6%
12-Feb-2015 Pengrowth Energy PGH $0.04000 $0.02000 -50.0%
13-Feb-2015 Deswell Industries DSWL $0.05000 $0.03500 -30.0%
18-Feb-2015 Cross Timbers Royalty Tr CRT $0.16025 $0.15170 -5.3%
18-Feb-2015 Hugoton Royalty Tr Un HGT $0.03968 $0.03609 -9.0%
18-Feb-2015 Permian Basin PBT $0.03673 $0.03146 -14.3%
19-Feb-2015 MetLife Floating Ser A META $0.25278 $0.25000 -1.1%
20-Feb-2015 CVR Energy CVI $0.75000 $0.50000 -33.3%
20-Feb-2015 CVR Refining L.P. CVRR $0.54000 $0.37000 -31.5%
20-Feb-2015 Dom Res Black Warrior Tr DOM $0.18065 $0.17455 -3.4%
20-Feb-2015 Vanguard Natural Rscs VNR $0.21000 $0.11750 -44.0%
26-Feb-2015 Mesa Royalty Tr MTR $0.16336 $0.07262 -55.5%
26-Feb-2015 Pacific Coast Oil Trust ROYT $0.03212 $0.00614 -80.9%
26-Feb-2015 Safe Bulkers SB $0.04000 $0.02000 -50.0%
28-Feb-2015 Full Circle Capital FULL $0.06700 $0.03500 -47.8%
28-Feb-2015 Lamar Advertising Co LAMR $0.84000 $0.68000 -19.0%
28-Feb-2015 TICC Capital Corp TICC $0.29000 $0.27000 -6.9%

The list predominantly consists of small, oil industry or other natural resource extraction-related firms, which is connected to the large and so-far sustained decline in global oil prices that began in July 2014 that has negatively affected their revenues. There are also a number of financial firms on the list that have also declined with these industries, along with a sprinkling of firms in other industries, such as software and advertising.

That these firms are small is a key reason why stock market indices have not followed suit. The dividend cuts represented by these firms simply are not big enough to even move the needle for market capitalization weighted indices like the S&P 500.

That is perhaps surprising considering how dramatically the index' expected future earnings per share through 2015 has changed over the past three months. However, that can be easily explained as most larger companies operate with greater margins of safety that allow them to absorb volatility in their expected earnings without cutting promised dividends, at least in the short term, which is why their stock prices haven't collapsed along with their projected earnings. Which is just what we should expect to happen since expectations for dividends per share, and not earnings, are the fundamental driver of stock prices.

So far, those cuts in expected future earnings haven't really transformed into cuts in expected future dividends. What they do represent however is a much more difficult business environment for the U.S. oil industry, where the distress is forcing dramatic cuts to extraction and to exploration activities, which is already negatively impacting other businesses that support the industry as these companies are instituting massive cuts to their spending as they struggle to remain solvent.

Under U.S. law, firms that will be laying off significant numbers of workers must provide their affected employees at least 60 days of notice in advance of the layoffs taking effect. Since January and February 2015 has seen many announcements of such mass layoffs in the industry, which will extend beyond mere oil workers, we should see a considerable increase in the number of Americans filing initial unemployment insurance claims in March and April 2015 should the recent rebound in oil prices not prove to be sufficient to forestall tens of thousands of pending layoffs in the industry.

Data Source

Standard & Poor. Monthly Dividend Action Report. [Excel Spreadsheet]. Accessed 2 March 2015.

Dividends: U.S. Economy Contracts in January 2015

Going by the number of publicly-traded companies that acted to cut their dividends in January 2015, the U.S. economy didn't just experience recessionary conditions during the month. Instead, it outright contracted.

Monthly Number of Public U.S. Companies Announcing Dividend Cuts, 
January 2004 through Present (January 2015)

Or perhaps a better description of what happened is that the U.S. oil industry's efforts to push its luck as far as it could has run out of good luck to push.

By that, we're referring to the consequences of falling oil prices, which are forcing an increasing number of companies tied to oil extraction activities in the United States to take the dramatic step of slashing their dividends. With 57 U.S. companies taking that action in January 2015, the number of companies taking that action in a single month is consistent only with previous months in which the U.S. economy either experienced contraction or in response to major dividend tax rate hikes.

January 2015 saw no major tax rate hikes on dividends, so contraction it is.

We think the sudden increase in the number of companies cutting their dividends represents something of a delayed reaction on the part of many firms, which we suspect hoped to be able to ride out the halving of crude oil prices in the second half of 2014 through the end of the year. As such, the best case scenario going forward would be for a declining number of companies to cut their dividends in each of the next several months ahead. A worst case scenario would have the number of dividend cutting companies increase in that time frame.

We should note that the action of cutting dividends is never taken lightly by a company's leadership, given that it can significantly disrupt the expected earnings of many of the people who own and run such firms, where dividends can represent a substantial portion of their annual incomes. Cutting dividends is typically only done when firms lack both the positive earnings and cash flow needed to sustain cash dividend payments at the levels they've previously promised. With that being the case, when a company cuts its dividends, it is confirming that its business prospects have definitively turned for the worse without the potential for a rapid recovery in the near term.

Data Source

Standard & Poor. Monthly Dividend Action Report. [Excel Spreadsheet]. Accessed 2 February 2015.

Dividends: U.S. Economy Experiencing Contractionary Forces

In December 2014, the number of publicly-traded U.S. companies announcing that they would reduce their dividend payments jumped up to 25, a level that we believe is consistent with contractionary distress being present within the U.S. economy.

Monthly Number of Publicly-Traded U.S. Companies Announcing Dividend Cuts, January 2004 through December 2014

From our observations of the limited data available, having 10 or more companies announce that they are cutting their dividend payments in a single month is sufficient to indicate that there are recessionary conditions in the U.S. economy. When that figure rises above 20 per month, it tends to coincide with some degree of contraction within the U.S. economy, which can impair the nation's GDP.

That's not to say that level of contraction qualifies as a full-bore recession - from all indications, it's more a sign that there is an increased degree of distress within the U.S. economy that is, as yet, too limited in scale, scope or duration to qualify as an official period of recession as might be determined by the National Bureau of Economic Research, which we describe being in a state of microrecession.

While the number of U.S. companies acting to cut their cash dividend payments to investors has been above the recession line for some time, the type of company announcing dividend cuts has begun to expand in recent months. Prior to November 2014, most firms announcing dividend cuts were those that are especially sensitive to rising interest rates, such as real estate investment trusts, which have been on tap ever since the U.S. Federal Reserve confirmed that it would be terminating its most recent quantitative easing programs by the end of 2014.

While many of those types of firms are still announcing dividend cuts, we've observed an increasing number of oil industry-related firms that have begun taking similar actions in response to falling profits, which are being driven by plunging world oil prices and their effect upon business revenues.

At present, it would appear that the fallout is very limited in scope, with just a handful of very small and price-sensitive firms in oil-related industries taking the action of cutting their dividends as their revenue and profit prospects fade. The big questions going into 2015 are: how far will oil prices drop, how long might they stay depressed and will other sectors be able to benefit enough to offset the distress in the oil industry? The answers to these questions will determine the duration and severity of the recessionary forces at work within this sector of the U.S. economy and the stock market as a whole.

Data Source

Standard & Poor. Monthly Dividend Report. [Excel Spreadsheet]. Accessed 6 January 2015.