Not exact matches
It would also be necessary to look
at interest rates today vs. historical (
nominal and real), and
dividend yields.
«If net income continued growing
at this more modest pace, in lockstep with
nominal GDP, corporations would not be able to continue growing
dividends at current rates while keeping payout ratios constant.»
We look
at equity returns from several perspectives:
Nominal, Real, Price only, and Price plus
dividends.
In trying to characterize
dividend approaches, I found that the
nominal dividend of the S&P 500 index has grown consistently
at 5.5 %.
The formula for the real income of an investment
at year N is: Inflation adjusted
dividend income = (initial
dividend amount) * -LCB-[1 + (
nominal dividend growth rate)-RSB- ^ N -RCB- / -LCB-[1 + (inflation rate)-RSB- ^ N -RCB- Typically, you would use a
nominal dividend growth rate of 5.5 % per year in the absence of other information and 3 % per year inflation.
The S&P 500 (
nominal)
dividend has grown
at a remarkably stable 5 % per year since the 1940s.
The
nominal dividend growth of the S&P 500 index has been remarkably stable
at 5.5 % per year (annualized).
Assuming that it only matches the
dividend growth of the S&P 500, it will grow
at 5.5 % per year (
nominal).
You should be able to construct a highly diversified portfolio with an initial
dividend yield above 4 % that grows its
dividend amount
at least as fast as 5.5 % per year (
nominal).
I took the investments from Taken
At Face Value, Condition A. Investment A has a 3.5 % initial yield and an 8 % per year
nominal dividend growth rate.
There were several years during the Great Depression when
nominal dividends showed a loss
at Year 10.
Here is the equation for the total percentage increase in
nominal dividends at Year 10.
Similarly,
at 5.5 %
nominal growth, the
dividend amount increases to 3.0 % * (1.307) = 3.92 % of the original balance
at Year 5 and 3.0 % * (1.708) = 5.12 % of the original balance
at Year 10.
This time I took the investments from Taken
At Face Value, Condition A. Investment A has a 3.5 % initial yield and an 8 % per year
nominal dividend growth rate.
At 4 % nominal growth, the dividend amount increases to 3.0 % * (1.217) = 3.65 % of the original balance at Year 5 and 3.0 % * (1.480) = 4.44 % of the original balance at Year 1
At 4 %
nominal growth, the
dividend amount increases to 3.0 % * (1.217) = 3.65 % of the original balance
at Year 5 and 3.0 % * (1.480) = 4.44 % of the original balance at Year 1
at Year 5 and 3.0 % * (1.480) = 4.44 % of the original balance
at Year 1
at Year 10.