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 40.61   17.6 2.31 1.92 4.70
CONSOLIDATED EDISON 75.30   19.5 3.87 2.68 3.47
EXXON MOBIL 87.28   34.6 2.52 3.00 3.45
MCDONALDS 115.36   22.2 5.19 3.76 3.09
PROCTER & GAMBLE 89.75   24.3 3.69 2.68 2.99
JOHNSON & JOHNSON 118.13   22.2 5.32 3.20 2.68
WASTE MANAGEMENT 63.76   24.8 2.57 1.64 2.57
ELI LILLY 80.26   34.6 2.32 2.04 2.53