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.
Investment B has a 6.1 % initial yield and a 2 % per
year nominal dividend growth rate.
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.
I believe that a careful investor can easily get a combination of 3 % to 4 % initial dividend yield and 5 % per
year NOMINAL dividend growth.
It should be straightforward to match the 5 % per
year nominal dividend growth rate of the S&P 500.
It retains the S&P 500's 5 % per
year nominal dividend growth rate.
Not exact matches
On the basis of
nominal total returns (including
dividends), we estimate zero or negative returns for the S&P 500 on every horizon shorter than about 8
years.
If I assume a
dividend growth rate of 6 percent (about the long - run average *), the current S&P 500
dividend yield of 2.1 percent (from multpl.com), a terminal S&P 500
dividend yield of 4 percent (Hussman says that the
dividend yield on stocks has historically averaged about 4 percent), the expected
nominal return over ten
years is 2.4 percent annually.
From the equation, we can see that the annualized
dividend growth rate is 6.75 % per
year (
nominal).
Practicing for Retirement In this analysis, I assumed that the DVY
dividend grows only as fast as that of the S&P 500, which is 5.5 % per
year (
nominal; without adjusting for 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.
The S&P 500 (
nominal)
dividend has grown at a remarkably stable 5 % per
year since the 1940s.
I collected additional data with initial
dividend yields of 3 %, 4 % and 5 % and
nominal dividend growth rates of 6 %, 8 % and 10 % per
year.
The
nominal dividend growth of the S&P 500 index has been remarkably stable at 5.5 % per
year (annualized).
If the stock pays no
dividend, and does not change price over 40
years, you still have an asset worth $ 100 and have lost no money (in
Nominal terms - you lose buying power due to inflation, but that's a different point).
Assuming that it only matches the
dividend growth of the S&P 500, it will grow at 5.5 % per
year (
nominal).
S&P 500
dividends have grown almost exactly 5.5 % per
year (
nominal, annualized) since 1940.
The Morningstar Income &
Dividend Investing discussion board recently included a listing of 60
years of FKINX total (
nominal) return data.
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).
It has had a remarkably stable
NOMINAL dividend growth rate of 5 % per
year since the 1950s (actually, since the 1940s).
If the initial
dividend yield is 4 % and the
nominal dividend growth rate is 5 % per
year AND if the Stock A allocation is 80 % and the TIPS allocation is 20 %, the Continuing Withdrawal Rate is 4.95 %.
As a reference, the S&P 500
dividend growth rate is 5 % per
year (annualized,
nominal).
Using a final
dividend amount of $ 20.00 and an initial
dividend amount of $ 1.4867, the rate is 5.03 % per
year (
nominal).
Since 1950 (actually, since the 1940s), S&P 500
dividends have had a remarkably steady
nominal growth rate of 5 % per
year.
Finally, I made a chart of 1951 - 2004
Nominal Dividends versus
Year.
I made a chart of 1881 - 2004
Nominal Dividends versus
Year.
If I assume a
dividend growth rate of 6 percent (about the long - run average *), the current S&P 500
dividend yield of 2.1 percent (from multpl.com), a terminal S&P 500
dividend yield of 4 percent (Hussman says that the
dividend yield on stocks has historically averaged about 4 percent), the expected
nominal return over ten
years is 2.4 percent annually.
Notice that Stock A has 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.
Dividend Growth to the Rescue Since inflation averages around 3.0 % per year, the required nominal dividend growth rates are 4.0 % an
Dividend Growth to the Rescue Since inflation averages around 3.0 % per
year, the required
nominal dividend growth rates are 4.0 % an
dividend growth rates are 4.0 % and 5.5 %.
I allocated $ 50000 to
dividend stocks with an initial
dividend yield of 3.5 % and a
nominal dividend growth rate of 5 % per
year.
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.