The Long-Run Drivers of Stock Returns: Total Payouts and the Real Economy

Posted: 17 Apr 2017 Last revised: 21 Apr 2017

See all articles by Philip U. Straehl

Philip U. Straehl

Morningstar Investment Management

Roger G. Ibbotson

Yale School of Management; Zebra Capital Management, LLC

Date Written: May 22, 2017


We provide theoretical and empirical evidence over 1871–2014 that total payouts (dividends plus buybacks) are the key drivers of long-run stock market returns. We show that total payouts per share (adjusted for the share decrease from buybacks) grew in line with economic productivity, whereas aggregate total payouts grew in line with GDP. We also show that a dividend discount model (DDM) based on current yields and historical growth rates underestimates expected returns relative to the total payout model. Finally, we demonstrate that the cyclically adjusted total yield (CATY) predicts changes in expected returns at least as well as the cyclically adjusted price-to-earnings ratio (CAPE).

Keywords: Portfolio Management, Economic Analysis and Capital Market Expectations, Key Macroeconomic Factors Affecting Asset Returns, Corporate Finance, Dividend Policy: Dividend Theory, Corporate Finance, Dividend Policy, Factors Affecting Dividend Payout Policy Dividend Policy

Suggested Citation

Straehl, Philip U. and Ibbotson, Roger G., The Long-Run Drivers of Stock Returns: Total Payouts and the Real Economy (May 22, 2017). Financial Analysts Journal, Vol. 73, No. 3, 2017, Available at SSRN:

Philip U. Straehl (Contact Author)

Morningstar Investment Management ( email )

22 W Washington
Chicago, IL 60602
United States

Roger G. Ibbotson

Yale School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6021 (Phone)
203-432-6970 (Fax)

Zebra Capital Management, LLC ( email )

2187 Atlantic Street
Stamford, CT 06902
United States
203 701 5900 (Phone)

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