Comments on Dividend Growth Investor: Dividend Growth beats Dividend Yield in the long r...

I agree with the previous post about charting a hi...

2010-02-19T03:28:02.734-08:00

I agree with the previous post about charting a high yielder next to ABT. It would be interesting to chart a high yielder or two next to ABT and track both income and total return. Novated lease

Dividend investing is a great way to 'smooth&#...

2010-02-14T14:45:24.350-08:00

Dividend investing is a great way to 'smooth' out your ups and downs in the market. Dividend growers that pay a steady year-over-year increase are consistent investments that will have great long term effects in your portfolio. I am not at retirement age, so I reinvest all dividends back into the company through their DRIPs. In addition, I sell put and call options on the same companies to create income.

I agree with the 2 other posters, to be fair you m...

2010-02-11T05:37:21.608-08:00

I agree with the 2 other posters, to be fair you must chart it against higher dividend stock and assume that the difference in yield of the higher yielding stock be invested in more stock. It a stock yielding 3% with divided growing at 10% 18 years to pass a stock that does not grow its dividend but yields 8% if the difference in yield is reinvested.

Yield Div growth rate Yield
1 40 $1.20 3.00% 10.00% 40.00 8.00% $3.20
2 40 $1.32 3.30% 10.00% 42.00 8.00% $3.36
3 40 $1.45 3.63% 10.00% 44.04 8.00% $3.52
4 40 $1.60 3.99% 10.00% 46.11 8.00% $3.69
5 40 $1.76 4.39% 10.00% 48.20 8.00% $3.86
6 40 $1.93 4.83% 10.00% 50.30 8.00% $4.02
7 40 $2.13 5.31% 10.00% 52.39 8.00% $4.19
8 40 $2.34 5.85% 10.00% 54.46 8.00% $4.36
9 40 $2.57 6.43% 10.00% 56.48 8.00% $4.52
10 40 $2.83 7.07% 10.00% 58.42 8.00% $4.67
11 40 $3.11 7.78% 10.00% 60.27 8.00% $4.82
12 40 $3.42 8.56% 10.00% 61.98 8.00% $4.96
13 40 $3.77 9.42% 10.00% 63.51 8.00% $5.08
14 40 $4.14 10.36% 10.00% 64.83 8.00% $5.19
15 40 $4.56 11.39% 10.00% 65.87 8.00% $5.27
16 40 $5.01 12.53% 10.00% 66.58 8.00% $5.33
17 40 $5.51 13.78% 10.00% 66.90 8.00% $5.35
18 40 $6.07 15.16% 10.00% 66.73 8.00% $5.34
19 40 $6.67 16.68% 10.00% 66.01 8.00% $5.28
20 40 $7.34 18.35% 10.00% 64.62 8.00% $5.17

I agree retirees are reluctant to sell assets, but...

2010-02-10T21:06:46.797-08:00

I agree retirees are reluctant to sell assets, but that would seem to be a better approach than just buying riskier securities with questionable abilities to sustain yields.

The underlying point of the importance of dividend growth is a great one. Even someone retiring in their 60's may live another 20+ years and benefit from long term income growth. If someone is not comfortable owning lower yielding stocks, maybe they can go halfway and own a group of higher yielding stocks with sustainable but slower growing dividends mixed in with stocks with somewhat higher growth rates.

A portfolio of:
MO,VZ,T,HCN,EPD,O,NNN,SO,BMY,LLY,COP,BP,PAYX,LEG,SYY,MCD,EXC,KFT,KMB,GPC yields about 5.5% and has a good chance of growing their dividends enough to keep up with inflation.

Jeff

I think the time horizon of the investor is the ke...

2010-02-10T16:29:13.377-08:00

I think the time horizon of the investor is the key. With a short horizon, a low current yield/high growth pick (e.g., WMT) won't "catch up" to something with a higher current yield (e.g., ED). ED is also less price volatile than WMT -- potentially a plus for people near retirement or saving for a specific near-term goal like college tuition.

As someone with a 30 yr time horizon, I'm a believer in the growth approach. As I get older, circumstances permitting, I'll sit on my original positions in companies like JNJ, but I'd put increasingly more new moneys into higher current yield choices (all within the context of whole-portfolio asset allocations).

One thing to ask yourself, however, is if you believe that a company's next 30 years are likely to have similar growth opportunities as it had in its past 30 years. Can WMT continue to grow at the rate it had been? Are some companies too mature and too big to keep up its growth pace? Can tobacco companies continue to increase earnings for the foreseeable future? An investor should at least consider these and not be tempted by the high dividend growth, and more than an investor should be tempted by a high current yield.

Um, do you have any hard data backing your asserti...

2010-02-10T13:52:37.412-08:00

Um, do you have any hard data backing your assertion? I mean, picking one stock in retrospective and then claiming "look, I'm right, this stock proves it" is not a convincing argument, actually it's no argument at all.

All I would have to do to counter is point out BoA, which was a dividend aristocrat until last year, and now doesn't pay a dividend at all.

For starters, it doesn't have to be scientific data. Maybe two different portfolios to compare, one based on dividend growth, the other on dividend yield?

I agree with the previous post about charting a hi...

2010-02-10T11:23:44.626-08:00

I agree with the previous post about charting a high yielder next to ABT, but I'd take it a step further. This may be outside of the scope of your resources, maybe something for an academic study, but have you seen any analysis that dividend growth beats dividend yield on a broad basis? Not just one stock, but maybe all stocks with 9+% dividend growth vs. all stocks with 5+% dividend yield, or something like that?

I would add that retirees are loath to sell assets...

2010-02-10T05:11:10.354-08:00

I would add that retirees are loath to sell assets to live on, so while total return is attractive, it's cash flow that carries they day. Unfortunately, most didn't start buying dividend growers like ABT 30 years ago, so they naturally gravitate to the higher payers when they switch from growth stocks at retirement.

It would be interesting to chart a high yielder or two next to ABT and track both income and total return. How long does it take for ABT to pull ahead?

Instructive post, thanks.