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 32.64   32.0 102.00 1.88 5.76
CONSOLIDATED EDISON 66.64   17.4 377.00 2.60 3.90
EXXON MOBIL 75.88   13.2 561.00 2.92 3.85
PROCTER & GAMBLE 72.42   23.9 3.04 2.65 3.66
MCDONALDS 99.79   22.9 4.31 3.40 3.41
JOHNSON & JOHNSON 93.93   16.4 5.68 3.00 3.19
WASTE MANAGEMENT 50.53   23.1 217.00 1.54 3.05
ELI LILLY 87.52   44.2 1.93 2.00 2.29