Is There A Relationship Between The Dividend Growth Rate And A Stock's Return? [View article]

Good idea PTI, but I believe there is a simpler way to look at the data and make a meaningful point.

Eliminate the linear fit. You cannot expect an exact proportional result in this case. In fact, your investment results would be better off if every stock showed a total return CAGR that was nearly double the DGR with a wide variance rather than a CAGR that matched the DGR exactly. If that were the case then your linear fit would stink, but your investment returns would be much better, and that's the 'alpha' most folks are looking for.

Change your plots to show the initial DGR on the X axis and the 10 year CAGR (dividends reinvested) on the Y axis. Draw a line through the X,Y points which are equal ( 0, 0 / 5, 5 / 10, 10 / etc). Calculate how many points are plotted on or above the line as a percentage of the total number of points, where each point is an individual Champion / Aristocrat.

Ideally you would want to see a high percentage of all the stocks on or above the line. This would imply that the total return CAGR going forward would be very likely to exceed the DGR at the time of purchase. It's likely that the relationship would hold reasonably well at lower DGRs and not quite so well at higher DGRs.

Of course you'd have to repeat the process on a rolling 10 year period starting each year for as far back as you can get initial data. You could then plot the percentage of stocks vs. starting year to show how well the relationship holds over various market conditions.

Based on an unscientific eyeball fit I'd say it appears that the percentage for the data you show above would be in the 70+% range.

If someone had told me 30 years ago that buying blue chips with DGRs between 8 and 15% would give me a 70+% chance of compounding my money at around 10% CAGR or better, I'd probably be a much wealthier man now.

"Are you sure dividends are added to the ending value in the calculations?" - BoomBoom99

I haven't verified any of the data Netterho provided. Ideally you would want to have a dollar amount at the start, at the end, and all the dividends reinvested in between (which is the assumption used by the calculators you noted). All I had were the starting and ending prices and the amount of the dividends as provided by Netterho.

If the starting price were actually $25.00 as you indicate, then the CAGR would be as you show, around 2.8% annually, though even that is an estimate as Netterho did not indicate how many shares were held at each point in time, nor whether the dividends were reinvested back into the stock for the entire time period.

"CAGR isn't the actual return in reality." - BoomBoom99 & netterho

CAGR is the measure of the average percentage growth per year. It is a useful way to compare the relative performance of several approaches over a long time frame.

CAGR can be calculated using the following formula:

X = Starting Value Y = Ending Value Z = Time Period (in years)

CAGR = 100 * [ { ( Y/X ) ^ ( 1/Z ) } - 1 ]

(the ^ symbol denotes raising to a power, so 3 squared would be 3^2 and the square root of 3 would be 3^(1/2))

Using netterho's numbers as an example, and assuming he invested on Jan 1, 1999:

Let's Talk About The Nifty Fifty And Dividend Growth Investing [View article]

"If most of the professional money managers underperform, and most of the retail investors underperform, who exactly IS beating the averages"

Warren Buffett, obviously. The performance of BRK is so good that it covers all the errors made by everyone else in the market and brings the average up into positive territory. (sarcasm off)

Retirement Strategy: ETF Only Portfolio Vs. Buy The Dips Portfolio - A Dreary September Update [View article]

"got any stocks you like?"

For your purposes, my thoughts would run along using the accumulated dividends to add to your smaller positions and move things toward a more even balance in each stock.

BGCP, XOM, or MO would top the list on that basis. Maybe add about $1,000 to each of those three, or scale the amount each receives based on some valuation metric.

Let's Talk About The Nifty Fifty And Dividend Growth Investing [View article]

"I like those "my first shares" stories." - Mike Nadel

At the beginning of my Junior year in college I bought "High Finance on a Low Budget" by Mark Skousen, which was on the 50% off rack in the college bookstore (I still have the book - it's very yellowed now).

Based on advice from the book I started putting 10% of my $30/week paycheck into a jar to start building my savings. When summer came along, I had a whopping $90 to work with. I invested that $90 in the 20th Century Select fund (a no load recommended in the book) and promptly forgot about it.

About 10 years later I finally opened one of the statements for that account after ignoring the ones received in between. Much to my surprise, the account was worth over $900! It had earned over 25% CAGR while I had ignored it, so I cashed it in and, being a proven investing genius, put it to work someplace where it languished interminably. LOL.

Luckily for me I am a prodigious saver so my prior mediocre investing results have only slowed me down a bit. I have to admit that the DGI approach has been the most robust approach I've found. Even _I_ am having good results using it.

Let's Talk About The Nifty Fifty And Dividend Growth Investing [View article]

"I know that you did read the article, so you know that I said those top 17 companies ALONE beat the S&P." - Mike Nadel

Those 17 companies grew at 14.1% CAGR over that 40 year span, exceeding the S&P 500 by a tad more than 3% per year ($18,700 to $3,700,000+).

I'd have to guess that a die-hard MPT-er would be crowing to beat the band about that kind of 'alpha' if they could find a mix of funds to generate it over a 40 year time span.

Retirees, The S&P 500 And Cash Are All You Need [View article]

"one should enjoy their life while it is enjoyable. most I see and know in their 80's are not doing much. the fear and power of money such a powerful thing." - gregbb

So is the fear of not having anything to eat, nor any place to sleep. There is no shame in careful husbandry of ones resources in order that life's necessities can be obtained. It is a rational response to be careful with one's money when there is barely enough to cover the bills.

I know of a good many people who have no retirement savings yet spend several nights a week out carousing and spending what little spare money they earn on non-necessary pursuits. They have little fear of money's power, until the day arrives where the heat, light, and water stop working and they have to choose between starving or freezing.

Ignoring the reality of paying one's future bills, or labelling it "the power of money" in an effort to minimize it's importance is something of a form of denial, it seems to me. That doesn't mean a frugal person can't go out and have some fun once in a while when their income supports it, but it also doesn't mean that foregoing some fun so you can pay tomorrow's bills is a bad, or evil, thing.

Retirees, The S&P 500 And Cash Are All You Need [View article]

Based on the numbers, inflation ran at about 4.2% CAGR over this span.

I haven't run the numbers for comparison, but a DGI portfolio yielding 4% with 4.5% dividend growth would have done the trick and still had a significant amount of equity left, no? The cash flow would have been a bit different, but similar.

How A Dividend Growth Investor Can Cope With Risk [View article]

"an MBS filled with crappy mortgages had low safety, which seems obvious. But if they are all seen as "just mortgages," the risk becomes less obvious. It is still there, just harder to see. ... Maybe the ratings agencies fell into that trap" - DVK

The ratings assessment was likely based on presumed independence for each mortgage when in fact there was an immense correlative factor between them all. The theory assumes Factor X will only spoil a small subset of a large set of mortgages. Statistical evaluations rely on independence of the event / impact interaction.

The reality was that Factor X impacted nearly the entire sub-prime universe at once. Obvious in hindsight, not so much before that point it seems.

## Is There A Relationship Between The Dividend Growth Rate And A Stock's Return? [View article]

Eliminate the linear fit. You cannot expect an exact proportional result in this case. In fact, your investment results would be better off if every stock showed a total return CAGR that was nearly double the DGR with a wide variance rather than a CAGR that matched the DGR exactly. If that were the case then your linear fit would stink, but your investment returns would be much better, and that's the 'alpha' most folks are looking for.

Change your plots to show the initial DGR on the X axis and the 10 year CAGR (dividends reinvested) on the Y axis. Draw a line through the X,Y points which are equal ( 0, 0 / 5, 5 / 10, 10 / etc). Calculate how many points are plotted on or above the line as a percentage of the total number of points, where each point is an individual Champion / Aristocrat.

Ideally you would want to see a high percentage of all the stocks on or above the line. This would imply that the total return CAGR going forward would be very likely to exceed the DGR at the time of purchase. It's likely that the relationship would hold reasonably well at lower DGRs and not quite so well at higher DGRs.

Of course you'd have to repeat the process on a rolling 10 year period starting each year for as far back as you can get initial data. You could then plot the percentage of stocks vs. starting year to show how well the relationship holds over various market conditions.

Based on an unscientific eyeball fit I'd say it appears that the percentage for the data you show above would be in the 70+% range.

If someone had told me 30 years ago that buying blue chips with DGRs between 8 and 15% would give me a 70+% chance of compounding my money at around 10% CAGR or better, I'd probably be a much wealthier man now.

## Young Canadian Portfolio [View article]

I haven't verified any of the data Netterho provided. Ideally you would want to have a dollar amount at the start, at the end, and all the dividends reinvested in between (which is the assumption used by the calculators you noted). All I had were the starting and ending prices and the amount of the dividends as provided by Netterho.

If the starting price were actually $25.00 as you indicate, then the CAGR would be as you show, around 2.8% annually, though even that is an estimate as Netterho did not indicate how many shares were held at each point in time, nor whether the dividends were reinvested back into the stock for the entire time period.

## Young Canadian Portfolio [View article]

CAGR is the measure of the average percentage growth per year. It is a useful way to compare the relative performance of several approaches over a long time frame.

CAGR can be calculated using the following formula:

X = Starting Value

Y = Ending Value

Z = Time Period (in years)

CAGR = 100 * [ { ( Y/X ) ^ ( 1/Z ) } - 1 ]

(the ^ symbol denotes raising to a power, so 3 squared would be 3^2 and the square root of 3 would be 3^(1/2))

Using netterho's numbers as an example, and assuming he invested on Jan 1, 1999:

X = 10.00

Y = 10.92 + 26.78 = 37.70

Z = 14.75

CAGR = 100 * [ { ( 37.70/10 ) ^ ( 1/14.75 ) } - 1 ] = 9.41%

This means his initial $10.00 investment compounded at a pace equivalent to 9.41% every year over the entire 14.75 years.

As a comparison SPY grew at about 4.87% CAGR over the same span, per longrundata.

## American Capital Agency (AGNC) Goes Monthly [View instapost]

Hope you get a chance to enjoy the leaves changing color in the coming weeks.

## Let's Talk About The Nifty Fifty And Dividend Growth Investing [View article]

Warren Buffett, obviously. The performance of BRK is so good that it covers all the errors made by everyone else in the market and brings the average up into positive territory. (sarcasm off)

## Retirement Strategy: ETF Only Portfolio Vs. Buy The Dips Portfolio - A Dreary September Update [View article]

For your purposes, my thoughts would run along using the accumulated dividends to add to your smaller positions and move things toward a more even balance in each stock.

BGCP, XOM, or MO would top the list on that basis. Maybe add about $1,000 to each of those three, or scale the amount each receives based on some valuation metric.

## Retirement Strategy: ETF Only Portfolio Vs. Buy The Dips Portfolio - A Dreary September Update [View article]

I'd say a 10.94% gain is much preferable to a 5.30% gain over any time frame. Nicely done.

## Let's Talk About The Nifty Fifty And Dividend Growth Investing [View article]

At the beginning of my Junior year in college I bought "High Finance on a Low Budget" by Mark Skousen, which was on the 50% off rack in the college bookstore (I still have the book - it's very yellowed now).

Based on advice from the book I started putting 10% of my $30/week paycheck into a jar to start building my savings. When summer came along, I had a whopping $90 to work with. I invested that $90 in the 20th Century Select fund (a no load recommended in the book) and promptly forgot about it.

About 10 years later I finally opened one of the statements for that account after ignoring the ones received in between. Much to my surprise, the account was worth over $900! It had earned over 25% CAGR while I had ignored it, so I cashed it in and, being a proven investing genius, put it to work someplace where it languished interminably. LOL.

Luckily for me I am a prodigious saver so my prior mediocre investing results have only slowed me down a bit. I have to admit that the DGI approach has been the most robust approach I've found. Even _I_ am having good results using it.

## Let's Talk About The Nifty Fifty And Dividend Growth Investing [View article]

You can imagine the extent of their due diligence...

PBR => Purchased By Ruskies

## Let's Talk About The Nifty Fifty And Dividend Growth Investing [View article]

Beer has other qualities than that? Who knew? ;-)

## Let's Talk About The Nifty Fifty And Dividend Growth Investing [View article]

Those 17 companies grew at 14.1% CAGR over that 40 year span, exceeding the S&P 500 by a tad more than 3% per year ($18,700 to $3,700,000+).

I'd have to guess that a die-hard MPT-er would be crowing to beat the band about that kind of 'alpha' if they could find a mix of funds to generate it over a 40 year time span.

## Retirees, The S&P 500 And Cash Are All You Need [View article]

So is the fear of not having anything to eat, nor any place to sleep. There is no shame in careful husbandry of ones resources in order that life's necessities can be obtained. It is a rational response to be careful with one's money when there is barely enough to cover the bills.

I know of a good many people who have no retirement savings yet spend several nights a week out carousing and spending what little spare money they earn on non-necessary pursuits. They have little fear of money's power, until the day arrives where the heat, light, and water stop working and they have to choose between starving or freezing.

Ignoring the reality of paying one's future bills, or labelling it "the power of money" in an effort to minimize it's importance is something of a form of denial, it seems to me. That doesn't mean a frugal person can't go out and have some fun once in a while when their income supports it, but it also doesn't mean that foregoing some fun so you can pay tomorrow's bills is a bad, or evil, thing.

## Retirees, The S&P 500 And Cash Are All You Need [View article]

I haven't run the numbers for comparison, but a DGI portfolio yielding 4% with 4.5% dividend growth would have done the trick and still had a significant amount of equity left, no? The cash flow would have been a bit different, but similar.

## How A Dividend Growth Investor Can Cope With Risk [View article]

The ratings assessment was likely based on presumed independence for each mortgage when in fact there was an immense correlative factor between them all. The theory assumes Factor X will only spoil a small subset of a large set of mortgages. Statistical evaluations rely on independence of the event / impact interaction.

The reality was that Factor X impacted nearly the entire sub-prime universe at once. Obvious in hindsight, not so much before that point it seems.

## What Is Risk For A Dividend Growth Investor? [View article]

Sounds like a title for a new book on DGI. "Putting Lethargy to work". Subtitle: "If you can avoid Sloth you'll do OK"

When do you plan to release the new tome? :-)