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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 33.44   32.1 102.00 1.88 5.62
CONSOLIDATED EDISON 63.90   16.5 377.00 2.60 4.07
EXXON MOBIL 74.85   12.9 5.61 2.92 3.90
PROCTER & GAMBLE 71.48   22.5 3.04 2.65 3.71
MCDONALDS 97.33   22.1 4.31 3.40 3.49
JOHNSON & JOHNSON 96.22   16.0 5.68 3.00 3.12
WASTE MANAGEMENT 50.03   22.8 2.17 1.54 3.08
ELI LILLY 83.74   42.1 193.00 2.00 2.39