No. of Recommendations: 15
Looking at dividends, I think the analysis should be based on the marginal dollar added to the cash pile versus the average dollar in the cash pile.
I am assuming the following:...
Good way to think of things, I like it.
In particular, this bit--
Buy backs over the last 10 years average $8B per year, going forward say $10B per year which leaves $60B per year [to allocate]"
I'd use after-inflation estimated returns for everything. It tends to emphasize that the real after-tax return on cash is likely zero.
But the later part with the conclusions concerns me.
An estimate of getting a nominal 9% easily in the US stock market in the next decade leaves me more than a bit dubious. Even if stock valuations went only 1/4 of the way back down to the "old normal" over the next ten years, those sort of returns would be hard to come by. e.g., Even if the market were at the level that was still more expensive than 75% of the time this century based on smoothed real earnings, the index would be 28% lower right now. If it glided down to that "richer than usual" level over ten years, it would be a drag of 3.2%/year.
Jim
