This is because the growth rate in
the nominal dividend amount is usually steady, but inflation jumps around considerably.
The Dow Jones Utilities Average
nominal dividend amount is almost entirely unrelated to the earnings yield 100E10 / P of the S&P 500.
Keep in mind that these are growth rates of
the NOMINAL dividend amount.
Nominal dividend amounts have not fallen more than 5 % since then.
My investigation S&P 500 Dividend Growth shows that
nominal dividend amounts (i.e., before adjusting for inflation) have behaved very well since the middle of the twentieth century.
Not exact matches
The faster I can build my capital, the greater the
nominal amounts of
dividends I will receive when I convert back into a
dividend portfolio.
While the yield looks good, the
nominal amount of
dividends I actually received is rather bad.
Judging from the S&P 500 index during stagflation, you can always expect the (
nominal)
dividend amount to grow, but not necessarily as fast as inflation.
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.
If so, the formula becomes: Inflation adjusted
dividend income = (initial
dividend amount) * (1.055 ^ N) / (1.03 ^ N) With preferred stock and / or bond income, use a
nominal dividend growth rate of 0 %.
Dividend amounts rise steadily in terms of
NOMINAL (without adjustments for inflation) dollars.
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).
Judging from the S&P 500 index during stagflation, you can always expect the (
nominal)
dividend amount to grow.
Using a final
dividend amount of $ 20.00 and an initial
dividend amount of $ 1.4867, the rate is 5.03 % per year (
nominal).
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.
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 10.
I multiplied
dividend yields and prices to calculate (
nominal)
dividend amounts.
The initial
dividend yield is the same, regardless of whether you are using
nominal or real dollar
amounts.