MDW1954 wrote:
MDW1954 wrote:Given the interest in these charts, and the ongoing debate/ discussion, I thought I'd post one more. I found the percentage change take on things to be quite instructive. (I have another version, ranked, that I can post on request.)
My take (but feel free to chip in):
* Double-digit reversals in income are rare
* Reversals in income are infrequent, and relatively minor
* Most reversals in income are a single-digit affair
Am I missing anything?
(quoting the two halves of MDW1954's post out of order to put the text I'm responding to reasonably close to the response)
Firstly, surely the first and last of those are basically the same observation, just looked at from two different angles?
Secondly, if a period of significant dividend cuts typically lasts for say 6 months to a year (which accords with my experience since the turn of the century, which is roughly when I started to pay proper attention to the dividend income they produced), then quite a lot is going to depend on when that period started and ended. For example, if a year-long period of significant dividend cuts starts in April and ends in March the following year, it's going to produce a big percentage drop in a single tax year; if a similar period starts in October and ends in September the following year, it's going to produce two roughly half-sized percentage drops in each of two consecutive tax years. If the overall income drop is say 15%, that's likely to make a difference between one double-digit drop and two single-digit drops. I.e. the split you're seeing between double- and single-digit year-on-year drops may well be rather randomly influenced by just when the drop started relative to the starts and ends of the year-long periods you're looking at.
I'd be fairly certain that at least the consecutive drops by 6.3% and 4.7% in the tax years ending in 2003 and 2004 are essentially due to just one period of moderately significant dividend cuts. I was paying a great deal of attention to dividend income levels towards the end of 2002 and for several months afterwards, as I was somewhat tentatively and experimentally running two different yield-based strategies at the time (one HYP and the other a Value strategy that aimed to hold shares for a few months to a few years and make most of its returns from capital gains, using dividend yield as its major value indicator) - it was that period that convinced me that the Value strategy was both much more work and much more volatile than I wanted, and caused me to start running HYP as a major strategy. So I strongly suspect that those two drops are basically a 10.7% drop (-6.3% and -4.7% compounded) that happens to have been split between the two tax years, and so are really one double-digit drop rather than two single-digit drops.
I don't have any similar memories of the 1993/1994 period, but the consecutive drops by 7.1% and 3.8% in those tax years might well similarly be a 10.6% drop that happens to have been split between the two tax years, and so again really be one double-digit drop rather than two single-digit drops.
If this interpretation is right, then the chart shows:
* Single-digit drops in 1996 and 2019;
* Double-digit drops in 1993/1994, 2003/2004, 2010 and 2021 (and 1989, but ignore that, since tjh292633 has said that it's due to his investment timing and doesn't reflect what was happening on the market);
and that would indicate that while income drops are indeed fairly rare (and indeed rarer than the chart indicates at 6 in 32 years rather than 8 in 32), when they do happen they're more likely to be double-digit drops than single-digit drops.
No guarantee that this interpretation is right, of course - as I say above, I've no memory of what was going on with dividends in 1993/1994, and even my memory of what was happening to them in 2003/2004 could be dismissed as anecdotal evidence and possibly influenced by the passage of many years. And even if it is right, 4 out of 6 observations going one way is
very poor statistical evidence that things going that way is more likely (e.g. if you toss 6 fair coins, the chance of getting a 3:3 heads:tails split is 31.25%, while the chance of getting a 2:4 or 4:2 split is 46.875% - that's not a good basis for any sort of idea that a 2:4 or 4:2 split indicates unfair coins are being used!).
So my take on these figures is:
* Reversals in income are fairly infrequent, maybe happening about once every 5 years on average.
* When an income reversal does happen, it can be anything from pretty minor (a few percent) to quite major (multiple tens of percent).
Finally and just to be clear, I'm not saying your take is wrong - it could well be right. But I do think it goes beyond what these data support.
Gengulphus