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 35.61   32.1 1.11 1.88 5.28
CONSOLIDATED EDISON 59.60   15.8 3.74 2.60 4.36
MCDONALDS 95.65   21.6 4.45 3.40 3.55
EXXON MOBIL 82.53   12.5 6.66 2.92 3.54
PROCTER & GAMBLE 80.05   23.7 3.37 2.65 3.31
WASTE MANAGEMENT 46.53   22.9 2.02 1.54 3.31
JOHNSON & JOHNSON 98.20   17.6 5.59 3.00 3.05
ELI LILLY 86.35   42.1 2.05 2.00 2.32