Daily dividend news for investors in dividend stocks

Targeting A Retirement Income Level From A Dividend Growth Portfolio - Part 3

Published Wed, 21 Dec 2011 13:13:08 -0500 on Seeking Alpha

I have on occasion seen the equation put forth here on Seeking Alpha that Dividend Yield plus Dividend Growth equals Return. This is a mathematical fallacy. To quote the ever wise David Van Knapp: it's like "adding the speed of a car to its acceleration--the result makes no sense." But why do some dividend investors continue to cite this as a metric? I considered my own previous article in this series. In this article, I analyzed something that I know dividend investors intuitively understand...there is an inverse mathematical relationship between dividend yield and dividend growth. In other words, to end up with an equal result over some time period, a stock with a lower current dividend yield must have a higher growth rate than a stock with a higher current yield. Unfortunately, I think a few investors (perhaps understandably) extrapolate this relationship to conclude that it is perfectly symmetric...i.e. at...

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Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
AT&T 34.01   30.9 1.11 1.88 5.53
CONSOLIDATED EDISON 62.50   16.7 3.71 2.60 4.16
MCDONALDS 98.74   21.8 4.45 3.40 3.44
PROCTER & GAMBLE 81.00   24.0 3.37 2.65 3.27
EXXON MOBIL 86.97   11.5 7.59 2.76 3.17
JOHNSON & JOHNSON 101.08   18.0 5.59 3.00 2.97
WASTE MANAGEMENT 52.66   18.8 279.00 1.54 2.92
ELI LILLY 71.58   35.4 204.00 2.00 2.79