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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 34.00   28.5 119.00 1.88 5.53
CONSOLIDATED EDISON 62.32   16.7 371.00 2.60 4.17
MCDONALDS 99.11   20.7 4.82 3.40 3.43
EXXON MOBIL 86.74   11.5 759.00 2.76 3.18
PROCTER & GAMBLE 84.63   24.8 3.40 2.57 3.04
ELI LILLY 70.59   31.8 222.00 2.00 2.83
JOHNSON & JOHNSON 102.52   17.8 5.70 2.80 2.73
WASTE MANAGEMENT 0.00   19.5 2.79 1.54 0.00