I appreciate your thoughts, and there is no question that there will need to be hard decisions made at some point in the near future.  The problem is not coming up with thoughtful solutions; it’s getting them through Congress with 70MM voting retirees receiving benefits.  

When FDR signed the original Social Security bill in 1935, the average life expectancy was 60, with roughly 40 employees paying into the program for every retiree.  Today, life expectancy has moved up to just under 80, and there are just 3 employees paying in for every retiree.  The math shows the OASI trust being depleted in 2032-2034.  

The good news, if you’re looking for a change, and the bad news, if you’re living on the benefit, is that once that point is reached, the program will legally be required to cut benefits by about 20%.  The program doesn’t go away; there will still be money coming into it, but only enough to cover about 80% of what is currently being paid out in other words.  Now, there could be something thoughtful implemented, like the two ideas you provided, or remove the COLA adjustment, or a myriad of other things to push that out.  Again, though, the political will to get any of that done voluntarily before that point is reached is slim to none, unfortunately.

Well, I would first start by thanking WSJ for giving us the date on which ‘this time is different’ was published on the subject, to officially begin the process of it being proven otherwise. Yes, the dividend yield is at an all-time low on the index itself, given its run-up and shifting in tech weighting within it. No, that doesn’t change the evergreen investment advantage that companies with rising dividend payments have outperformed the broad market over the past 50 years, and with less volatility.

I suppose I could be cheeky with the author and say 1999 just called and wants its article idea back – but I’ll take the high ground, and I, of course, do understand the interest. Of course, AI Capex, buybacks, and the high-flying performance have driven some to question history; that is to be expected. It was the same in the 1990s, just before the ‘lost decade’ of broad market returns from 2000-2010, when dividend growers outperformed by 5% per year. I wouldn’t go so far as to say that era is assuredly coming back, or if so, when, but I would just point to the simple premise and value proposition.

Companies with growing dividends that compound at 6-8% annually are, by definition, more durable cash flows and business models in order to do so. CAPEX and share buybacks are discretionary and cyclical by comparison, but yes, some periods favor one approach over the other. That doesn’t mean there isn’t an opportunity to have exposure to AI within the dividend portfolio, either. From the largest alternative manager in the world being the major underwriter of data center finance, to the world’s largest networking and IT services companies in the portfolio. I say it’s a ‘both/and’ portfolio answer rather than a monolithic one-or-the-other answer the article suggests.

One has to look at NET STOCK BUYBACKS, not just stock buybacks, because if a company is buying back stock in one end of the pool, and issuing new stock on the other end, they haven’t actually bought any back at all. And some of the largest buyback situations we have seen (most of these) have resulted in MORE stock being issued on a net basis, not LESS, meaning it was no form of return of capital to shareholders, at all. Even using a total shareholder yield of “buybacks plus dividends” the total return of capital to shareholders is as low as it has ever been, but the “buybacks” part of that is highly disingenuous because companies don’t end up with MORE stock issued when they are really buying back. Stock buybacks are, by and large, a form of executive compensation and not a form of returning capital to shareholders. I have a whole chapter in my forthcoming book on this very subject.

We will often cite both, including the rate of change versus the prior period, when it is a helpful indication of the trend. The reason we don’t solely do that is that there are too many short-term nuances and anomalies that can distort it, and because markets discount expectations in advance. If inflation comes in at 3% versus 2% the quarter prior, that would be an unwelcome development. If expectations, however, were for it to come in at 4% given a 25% rise in energy prices from a geopolitical event, that context changes everything in the evaluation of whether it is good or bad and what it means for markets. Both can be useful, but citing things versus expectations factors in all the nuances and anomalies, including how they have altered the absolute rate of change from prior periods and what has already been discounted into markets. The relevance for market participants is in how prices reset around what the news revealed versus what was previously priced in.