The growth rates of GDP and dividends

GDI is equal to GDP. For simplification, GDI has two components, wage and dividend. Assume dividend growth rate is constant. The stock market return would be d + g, where d is dividend yield and g is the growth rate of dividend.

From 1928 to 2024, the average annual return of S&P 500 is 10%. The dividend yield has been declining over time. Since 1990, the average dividend yield has been below 2%. (From 1990 to 2024, the average annual return of S&P 500 is about 10.8%.) Suppose the average dividend yield is 2.5%, the average annual return of S&P 500 is 10%. This implies a growth rate of dividend of 7.5%. (In 1990, the total dividends paid by S&P 500 companies were approximately $60 billion. By 2022, this figure had grown to around $564 billion. The average annual rate of change in total dividend payouts for the S&P 500 from 1990 to 2022 is approximately 7.5%.)

The average annual GDP growth rate in the U.S. since 1990, without adjusting for inflation, is approximately 4.5%. (about 5.5% since 1960) So the dividend growth rate is higher than GDP growth rate. The dividend portion of GDI is increasing over time. Hence the wage portion of GDI is declining over time. This also suggests that wage earners are increasingly less able to participate in the stock market boom.

Stock market returns contain large chuck of speculative components. But over long period of time, its statistical impacts become less significant. Stock market only reflect the survivors. A book by Jeremy Siegel is titled The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New. The title and content of the book shows that the Tried and the True Triumph Over the Bold and the New when we study the details of history. This suggests that survivor bias is less a concern, at least in the US market. The following is an example of HP, copied from copilot. While HP itself did not do well, some of its spin offs did better.

Let's break down the stock market returns for HP, Agilent Technologies, and Keysight Technologies since their respective spin-offs:

Agilent vs. HP (since 1999 spin-off)

• Agilent Technologies (A): Since its spin-off from HP in 1999, Agilent's stock has experienced various fluctuations but has generally trended upwards. From its initial price of around $35.46 in 1999, it has grown to approximately $126.55 as of March 2025.

• HP Inc. (HPQ): HP's stock has also seen growth over the years, despite some volatility. From around $15.53 in 1999, HP's stock price has increased to approximately $29.29 as of March 2025.

Agilent vs. Keysight Technologies (since 2014 spin-off)

• Agilent Technologies (A): Since the spin-off of Keysight Technologies in 2014, Agilent's stock has shown significant growth. As of March 2025, Agilent's stock price has increased from around $37.69 in 2014 to approximately $126.55.

• Keysight Technologies (KEYS): Keysight has also performed well since its spin-off. Its stock price has risen from about $28.33 in 2014 to around $154.52 as of March 2025.

Both Agilent and Keysight have shown strong performance since their respective spin-offs, with Keysight experiencing particularly robust growth. Agilent has also outperformed HP since its spin-off in 1999.

References

1.      J.B. Maverick,

https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp

2.     Sean Ross      https://www.investopedia.com/articles/markets/071616/history-sp-500-dividend-yield.asp