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 33.39   39.1 85.65 1.88 5.63
CONSOLIDATED EDISON 62.35   16.8 3.74 2.60 4.17
EXXON MOBIL 81.88   17.0 4.73 2.92 3.57
PROCTER & GAMBLE 76.45   25.0 3.04 2.65 3.47
MCDONALDS 114.28   24.8 4.63 3.56 3.12
JOHNSON & JOHNSON 102.04   19.7 5.22 3.00 2.94
WASTE MANAGEMENT 53.98   23.2 233.00 1.54 2.85
ELI LILLY 83.88   38.3 2.22 2.00 2.38