{"id":822103,"date":"2025-01-26T06:11:59","date_gmt":"2025-01-26T12:11:59","guid":{"rendered":"https:\/\/newsycanuse.com\/index.php\/2025\/01\/26\/weird-economic-fear-gives-us-a-13-discount-on-this-dividend-payer\/"},"modified":"2025-01-26T06:11:59","modified_gmt":"2025-01-26T12:11:59","slug":"weird-economic-fear-gives-us-a-13-discount-on-this-dividend-payer","status":"publish","type":"post","link":"https:\/\/newsycanuse.com\/index.php\/2025\/01\/26\/weird-economic-fear-gives-us-a-13-discount-on-this-dividend-payer\/","title":{"rendered":"Weird Economic Fear Gives Us A 13% Discount On This Dividend Payer"},"content":{"rendered":"
\n
<\/p>\n

Middle aged man hugging US dollars with a frightrened facial expression<\/p>\n

<\/fbs-accordion>getty<\/small><\/figcaption><\/figure>\n

We hear a lot of chatter in the business media about productivity<\/em> these days\u2014specifically how it could decline in the US (and, by extension, hit our gains from stocks\u2014and stock-focused CEFs<\/a>).<\/p>\n

Today we\u2019re going to look at why this fear is overblown, and how we income investors can profit\u2014and collect a 6.7% dividend at a 13% discount\u2014off that disconnect.<\/p>\n

US productivity, for its part, rises by about 2% on average per year. As we discussed a couple weeks back, the S&P 500 has posted a 10.4% annualized gain since the late 1980s, and we can say that rising productivity accounts for about a fifth of that, so about a 2% gain in stocks on an annualized basis.<\/p>\n

Productivity\u2019s Long-Term Gains<\/h2>\n

Before we go further, we should spell out what we mean by productivity. The Bureau of Labor Statistics sees it as a measure of how much more efficient private companies become due to technology improvements, economies of scale, resource allocation, labor, management and infrastructure that influence overall efficiency.<\/p>\n

<\/p>\n

Worker Productivity<\/p>\n

<\/fbs-accordion>Federal Reserve<\/small><\/figcaption><\/figure>\n

Over the last 40 years, productivity has grown by 0.8% per year. (This number is lower than the 2% rate for public companies because it includes private firms). This rate has stayed steady over this 40-year period, suggesting that American companies aren\u2019t<\/em> running out of ways to make more with less.<\/p>\n

Crucially, this has happened while the US population aged at an accelerating rate.<\/p>\n

<\/p>\n

Age Dependency Ratio<\/p>\n

<\/fbs-accordion>Federal Reserve<\/small><\/figcaption><\/figure>\n

If we look at the age-dependency ratio (a ratio of people older than 64 to the working-age population, defined as people from 15 to 64), we see that it\u2019s risen by 1.1% annualized over the last 40 years. But most of those gains happened in the last 20 years; in the first 20 years, this ratio went up by a mere 0.2% annualized.<\/p>\n

So if an aging society were a hit to productivity, we would expect the productivity gains to slow down or even reverse in the last 20 years versus the prior 20 years by a big margin, and the data simply doesn\u2019t tell us that.<\/p>\n

So how much older can America get before demographics become a real concern?<\/p>\n

One way to think of this is to look at Japan, where the age-dependency ratio is 50, nearly double America\u2019s current rate. In Japan, productivity has flatlined since the late 1980s as a result of that country\u2019s economic bubble bursting. But even as its age-dependency ratio sped up in the 1990s and 2000s, Japan\u2019s productivity didn\u2019t<\/em> collapse.<\/p>\n

<\/p>\n

Japan Age Dependency<\/p>\n

<\/fbs-accordion>Federal Reseve<\/small><\/figcaption><\/figure>\n

Of course, the flatline in productivity would mean that the 2% annualized gain for S&P 500 companies we noted as being driven by productivity gains above would vanish, lowering stock returns. So maybe we aren\u2019t out of the woods yet?<\/p>\n

There\u2019s just one problem with this conclusion: The flatlining in productivity started when Japan\u2019s old-age dependency ratio was two-thirds what it is in America today, at the level the US saw in 1980.<\/p>\n

So it clearly wasn\u2019t demographics that caused this productivity drop in Japan. And, in fact, if we zoom out, we quickly see the issue: From 1954 to 1990, Japan\u2019s productivity across all sectors grew at an annualized 2% per year, and from 1954 to today it\u2019s grown by 1.0%, still ahead of America\u2019s 0.8% rate!<\/p>\n

If you know your history, you can see what\u2019s happening here: The after-effects of World War II and the demographics of that period were a lot<\/em> different from today\u2019s world, which is why extrapolating productivity trends from the ratio of old to young just doesn\u2019t make sense. There are more important factors at play today, like technological gains, business regulation and whether public firms are incentivized to keep passing on their earnings to shareholders.<\/p>\n

America has outrun both Japan and the rest of the world on all of these factors, as we can see from this chart of the gains in benchmark index funds for the S&P 500<\/a> (in purple), global stocks, excluding America (in orange) and Japanese stocks (in blue).<\/p>\n

<\/p>\n

US Stocks Outperform<\/p>\n

<\/fbs-accordion>Ycharts<\/small><\/figcaption><\/figure>\n

Considering this, the current pause<\/a> in stock-market gains we\u2019ve seen in 2025 so far is a blessing and an opportunity. For those who\u2019ve been out of the market out of fear that the recovery of the last two years is played out, the mostly flat movement of the S&P 500 over the last month allows some time to jump back in.<\/p>\n

It\u2019s also creating an opportunity to compound this potential in some high-quality stock-focused CEFs like the 6.7%-yielding Gabelli Dividend & Income Trust (GDV)<\/strong>, whose discount to net asset value (NAV, or the value of the stocks it holds) has been narrowing, while still remaining attractive, at around 13%:<\/p>\n

<\/p>\n

GDV Discount<\/p>\n

<\/fbs-accordion>Ycharts<\/small><\/figcaption><\/figure>\n

GDV has been oversold for a while, and investors realized this last year and started to bid its discount up from the near-18% level to where it is today.<\/p>\n

However, the fund remains much cheaper than the average 6.6% discount for all equity CEFs and is focused on high-quality US companies like American Express (AXP), Mastercard (MA) <\/strong>and JPMorgan Chase (JPM)<\/strong>, its fund\u2019s top-three holdings.<\/p>\n

Plus, because of GDV\u2019s deep discount, the yield on its NAV (as opposed to the discounted market price) comes in at 5.9%. That\u2019s significantly below the 6.7% yield on market price and is much less than the fund\u2019s 7.4% annualized total NAV returns over the last decade.<\/p>\n

Michael Foster is the Lead Research Analyst for <\/em>Contrarian Outlook<\/em><\/a>. For more great income ideas, click here for our latest report \u201c<\/em>Indestructible Income: 5 Bargain Funds with Steady 8.6% Dividends.<\/em><\/a>\u201d<\/em><\/p>\n

Disclosure: none<\/em><\/p>\n<\/div>\n

Read More<\/a>
\n Michael Foster<\/p>\n","protected":false},"excerpt":{"rendered":"

Middle aged man hugging US dollars with a frightrened facial expression getty We hear a lot of chatter in the business media about productivity these days\u2014specifically how it could decline in the US (and, by extension, hit our gains from stocks\u2014and stock-focused CEFs). Today we\u2019re going to look at why this fear is overblown, and<\/p>\n","protected":false},"author":1,"featured_media":822104,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[22270,3561],"tags":[],"class_list":{"0":"post-822103","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economic","8":"category-weird"},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts\/822103","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/comments?post=822103"}],"version-history":[{"count":0,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts\/822103\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/media\/822104"}],"wp:attachment":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/media?parent=822103"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/categories?post=822103"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/tags?post=822103"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}