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US Stocks Dividend Growth Rate - Magic Number?

In recent research paper Rebalancing and the Value Effect D. Chaves and R. Arnott (C&A) analyzed stock portfolios performances. They figure out that dividends and dividend growth are important and that rebalancing has strong impact on the performances. I'd strongly recommend read the paper or at least SA review (

One side results of the paper is calculation of average dividend growth rate /DGR/ for passive (without rebalancing) market portfolio of 1000 stocks of largest US companies in 1963-2010. The authors got DGR = 6.85% for the Market 1000 portfolio. It seems me interesting that this number is almost the same as 6.5% average DGR from 1898 to 1960 obtained by Robert M. Soldofsky and James T. Murphy ("Growth yields on common stock - Theory and tables" Robert M. Soldofsky and James T. Murphy. Iowa, 1963, p.54). The latest authors used data for 125 industrial stocks from Moody's Investor service for 1897-1929 and probably Dow-Jones Industrial after 1929 (it is a bit fuzzy in the text). So we have kind of magic number ~ 6.65% of average dividend growth rate of broad US stock portfolio.

I compared C&A results with data for S&P 500 index:

Period C&A Market 1000 S&P 500
1961-2011 n/d 5.18%
1963-2010 6.85% 5.07%
1963-1978 6.40% 5.65%
1979-1994 6.53% 6.10%
1995-2010 7.61% 5.57%

I'd like to point that during all periods C&A Market 1000 portfolio had large DGRs than S&P 500 portfolio although probably all stocks from S&P 500 are present in C&A Market 1000 portfolio. Probably it indicates that DGRs of not so big companies are higher than DGRs of biggest US companies included in S&P 500 and that according to firm life-time hypothesis the initial period of company maturity accompanies with high DGR.

Note that NOT all companies in both portfolios paid dividends and dividend change rate (DCR) for non-payers is zero. Hence it is possible that C&A Market 1000 portfolio has large fraction of dividend payers than S&P 500.

On another hand, distribution of annual dividend change rates (DCR=DGR if dividends are not decrease) for S&P 500 is quite wide:

and hence the difference between DCRs of these 2 portfolios may be just accidental.

Also it is interesting that DGRs of C&A Market 1000 portfolio increased from old days to more recent time for passive (without rebalancing) market portfolio during 3 periods outlined in C&A paper (see the table above).

John C. Bogle in his 2011 book "Don't count on it!" (p. 17), estimated that for 1872 - 2010 average annual real US stock market return was 6.5% and real investment return generated by dividends growth was 6.6%. So the magic number again.....

I think this magic number is magic only for USA with relatively small inflation [1] , other countries have their own magic as shown in the figure below.

As I expected DCRs of CCC stocks are slightly higher:

mostly due to selection of stocks in the CCC list managed by David Fish. All 3 distributions have tails for DGR>25% but I doubt that such high DGR are sustainable. If DGR>30% are pruned median DCRs are 8.21%, 8.99% and 9.13% while mean DCRs are 9.75%, 10.42% and 10.47% for 3-, 5- and 10-years data accordingly.

I'd also point that negative tail in 10-year DCR distribution reflects companies that cutted dividends but then growth dividends again.

Added 2 May 2013

It seems interesting that average real return on capital is also about 6.5% in US during last 30 years - see figure below

On another hand average in decades P/E=15 for US stocks. Again [1/(P/E)]=E/P = 6.66% which is the magic number. It means that investors apply in average 6.66% discount rate to the future profits of US companies (if they use discounted cash flow model). IMO the only reliable cash flow from investing in equities is named dividends and therefore I'm a dividend investor. Indeed dividends and their growth are responsible for ~ 95% of total return of US stock market during last 100+ years (see also


1. Average US inflation rate (~ 3%-4%) according to official statistics based on CPI while real numbers are higher (up to ~ 7%) - see and So US stock market gives a chance to protect your capital from real inflation but probably just protect.