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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 32.96   27.5 119.00 1.88 5.70
MCDONALDS 93.27   18.8 4.82 3.40 3.65
CONSOLIDATED EDISON 71.40   16.8 4.23 2.60 3.64
EXXON MOBIL 87.58   11.1 795.00 2.76 3.15
PROCTER & GAMBLE 85.67   25.0 3.40 2.57 3.00
WASTE MANAGEMENT 52.55   233.0 0.23 1.50 2.85
ELI LILLY 72.11   28.4 2.50 2.00 2.77
JOHNSON & JOHNSON 101.48   17.8 5.70 2.80 2.76