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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 36.47   39.6 0.92 1.92 5.30
CONSOLIDATED EDISON 70.72   19.0 3.73 2.68 3.71
EXXON MOBIL 81.03   17.1 4.74 2.92 3.67
PROCTER & GAMBLE 80.99   30.4 2.66 2.65 3.32
MCDONALDS 117.93   25.5 4.63 3.56 3.05
JOHNSON & JOHNSON 101.82   19.5 5.23 3.00 2.95
WASTE MANAGEMENT 53.98   23.1 2.34 1.54 2.91
ELI LILLY 71.27   32.2 2.21 2.04 2.86