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SDS (Seductive Dividend Stocks)
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Sorry I hide my true identity but I'm a physicist/engineer, native contrarian and idea generator. I am an eclectic dividend investor with motto "In God We Trust, All Others Pay Cash" applied to companies I invest in. I like to read /and read a lot - did you look on my SA photo 8-)? / including... More
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• ##### A note on different dividends growth patterns 4 comments
Jul 25, 2011 6:55 PM

Most common dividends growth patterns are

1) Liniar as for example for Middlesex Water Company (NASDAQ:MSEX):

2) Exponential as for example for Procter & Gamble (NYSE:PG):

Note that bottom graph has semi-log scale.

The pattern should be considered for the dividends growth rate calculations.

I own PG and MSEX.

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• DGyoungster
, contributor

How to consider the Pattern during calculation?

Love your articles and divi heritage Project. I recently built my own spreadsheet using the following assumptions:
Initial Yield: 3%
DGR: 7%
Avg holding time: 10 years
Cap appr: 7%
Income Tax on divis: 25%
Inflation: 2,5%

This makes the Divi-curve flat. Lots of times 'endless' Holding Times are assumed, which generates the exponential hockeystick.

Using this more conservative numbers it is pretty tough to reach Financial freedom (Depending on my Personal Target Income and monthly contribution).

The best Stratege seems to Surf the exponential divi curve as Long as possible in the Sweet spot (eG PG from 00 to 2010).
14 Jul 2013, 05:00 AM Reply Like
• SDS (Seductive Dividend Sto...
, contributor

I just use DGR equations (linear, exponential and square /it happens less often/) in Gordon formula. You need to remember that the past does not guarantee the future and take numbers with grain of salt.

What is "Cap appr: 7%", is it max holding?

IMO "Inflation: 2,5%" is too low. US government data for long-term inflation ~ 3.2%, reality probably in the range 4-5%.

SDS
15 Jul 2013, 10:07 AM Reply Like
• DGyoungster
, contributor

Cap appr. = capital appreciation, the % the stocks increase in value/price each year. Lower values = more share bought, higher values = less share bought with dividend reinvestment.

Inflation numbers are for a small European country, not US-based.

DGR equations? Gordon forula? You lost me there. I simply built a spredsheet using my own calculations. I probably am not sophisticated enough to do proper modeling/scenarios to test/build different best/worstcase scenarios.

My initial idea was to draft a "worst case" plan and push forward to meet its goals. If things in real life turn out to be better, I may retire earlier.
16 Jul 2013, 04:54 PM Reply Like
• SDS (Seductive Dividend Sto...
, contributor

Gordon dividend growth model & dividend discount model are widely discussed at WWW. You can present DGR as linear or exponential function for some stocks. Roger F. Goodrich made detailed explanation on SA - read his articles.

I guess it is semantic I do not understand - value of stock (not firm) is equal to price. Number of DRIPed shares depends on stock price, dividend firm pays (i.e current yield) and number of shares you already have. Higher current yield (lower price or large dividend) is helpful for DRIP.

I agree that "worst case" plan is useful, so do not be shine in it with inflation. If your country (which?) prints money as USA or EU in last few years you should expect higher inflation in next decade than historical average. IMO in your age it is possible to handle relatively high inflation (<20%) with DGI. I think that stock prices drop down if inflation will be significantly higher that DGR and interest rate for bonds will be high - a good case for initial accumulation phase.

SDS
17 Jul 2013, 12:23 AM Reply Like

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