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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 34.71   31.6 111.00 1.88 5.42
CONSOLIDATED EDISON 61.14   16.4 374.00 2.60 4.25
MCDONALDS 98.99   22.0 4.45 3.40 3.43
EXXON MOBIL 86.52   13.1 666.00 2.92 3.37
PROCTER & GAMBLE 79.95   23.8 3.37 2.65 3.31
WASTE MANAGEMENT 50.06   24.6 2.02 1.54 3.08
JOHNSON & JOHNSON 101.35   18.3 5.59 3.00 2.96
ELI LILLY 74.30   36.3 205.00 2.00 2.69