Unusual Economic Anxiety Offers a 13% Discount on This Lucrative Dividend Stock
In the realm of business talk, productivity is a buzzword that's tossed around quite a bit these days. There's a common fear that productivity might take a hit in the U.S., potentially impacting our gains from stocks and stock-focused Closed-End Funds (CEFs). But let's dive into why this fear might be unfounded and how income investors can profit from this situation.
The average annual growth of U.S. productivity stands at about 2%, with stocks posting a 10.4% annualized gain since the late 1980s. Interestingly, rising productivity is responsible for around 2% of this stellar stock market performance.
So, what do we mean when we talk about productivity? The Bureau of Labor Statistics defines it as a measure of a private company's efficiency improvements due to technological advancements, economies of scale, resource allocation, labor, management, and infrastructure. Over the last 40 years, productivity has risen by 0.8% annually, despite an accelerating rate of population aging.
Skeptics might argue that an aging population would negatively impact productivity. However, when we look at the 'age-dependency ratio' (the ratio of people older than 64 to the working-aged population, defined as people from 15 to 64), we see that it's risen by 1.1% annually over the last 40 years. But most of this increase happened in the last 20 years, with the rate being far lower in the preceding 20 years.
Thus, if an aging population were to significantly impact productivity, we would expect to see a slowdown or even a reversal in the last 20 years compared to the first 20 years, but the data doesn't show that. In fact, countries like Japan, with an age-dependency ratio nearly twice that of the U.S., have seen productivity flatline, yet it didn't collapse as one might expect.
So, how much older can America get before demographics become a real concern? History suggests that the demographic factors that influenced productivity in the past are vastly different from today's world. Factors like technological gains, business regulation, and the incentives for public firms to return their earnings to shareholders play a more significant role today.
In conclusion, the current pause in stock-market gains seen in 2025 is an opportunity for income investors. High-quality stock-focused CEFs like the 6.7% yielding Gabelli Dividend & Income Trust (GDV) are offering attractive discounts, making them worth considering.
Sources:
- https://www.investopedia.com/terms/c/closed-end-funds.asp
- https://www.bls.gov/opus/link/eqmsu0514.htm
- https://www.federalreserve.gov/features/behind-the-numbers/productivity-and-per-capita-income.htm
- Despite the concern that productivity might decline due to an aging population, as seen in the increasing 'age-dependency ratio' by 1.1% annually over the last 40 years, the data does not indicate a significant impact on productivity, as demonstrated by countries like Japan, which has a higher age-dependency ratio but has not seen a collapse in productivity.
- For income investors seeking opportunities during the current pause in stock-market gains, high yield funds such as Closed-End Funds (CEFs) can be a profitable choice. One example is the 6.7% yielding Gabelli Dividend & Income Trust (GDV), which offers attractive discounts.
- In the realm of dividend investing, looking at high yield funds like CEFs can help income investors capitalize on potential gains, even if productivity numbers show a slight dip, as these funds often distribute a large portion of their earnings as dividends to shareholders.
