Comments on: Dividend Growth Model

By: Dividend Growth Investor

Dividend Growth Investor — Thu, 22 Jan 2009 20:37:06 +0000

Jim,

As a dividend growth investor myself I do not rely on models that assume a constant growth in dividends. Instead dividend investors should look for:

-Adequate stock valuation
-Sound business model ( beware of cyclical stocks)
-Long history of dividend growth ( 10 or more yrs, preferably 25)
-Decent initial yield to compensate even if dividend growth slows down
- make sure the dividend is adequately covered by earnings
- make sure the company has a solid history of EPS growth

By: Eric N.

Eric N. — Sat, 17 Jan 2009 01:08:56 +0000

haha I don’t blame you. It’s mind boggling to keep up.

P.S. I seriously love this new threaded feature. It makes it organize and (dare I say) more fun to comment!

By: jim

jim — Fri, 16 Jan 2009 22:49:59 +0000

There’s been so much consolidation that I got confused.

By: Eric N.

Eric N. — Fri, 16 Jan 2009 22:45:28 +0000

Wait, it might be just me but do you mean in your post that Bank of America bought WaMu? That’s how I read it hence the confusion…

By: Mark

Mark — Thu, 15 Jan 2009 19:47:31 +0000

Good formula. It is risky though because a stock like Bank of America is going to have to cut or eliminate its dividend. I think that you have to take expected earnings growth into account and then compare it to the historical payout rate.

By: thomas

thomas — Wed, 14 Jan 2009 05:18:50 +0000

Isn’t this one of the items discussed in the book “#1 rule” or something like that?

By: Manshu

Manshu — Tue, 13 Jan 2009 23:14:35 +0000

Dividend investment is good if you are going to invest in cash rich companies. Companies that are able to generate cash quarter after quarter, year after year are a good bet.

So it is a good idea to look at the Cash Flow Statement of the company when using this formula.

By: Mr. ToughMoneyLove

Mr. ToughMoneyLove — Tue, 13 Jan 2009 22:02:11 +0000

I bought BAC in 2007 because of its dividend yield. I sold it in 2008 when it cut its dividend. BAC will probably cut it more this year. I think it’s a terrible investment right now, even as a dividend play. I believe the BAC CEO will be canned shortly. Also, the Dogs of the Dow model failed miserably last year because too many of the dogs were in financials. Finally, look for Obama and crew to increase the tax rate on dividends, at least for people who can actually afford to buy stocks. It’s a scary time to be a dividend investor.

By: Rob

Rob — Tue, 13 Jan 2009 20:43:29 +0000

BAC is sitting at $10.65 per share right now.. far below the $14.28 of just a few days ago. I’m going to have trouble *not* buying some more of this stock if it stays at its current level…. Under 11 bucks a share is almost ridiculous for this stock.

No doubt it makes your formula look even more impressive $10.65 cost vs $18.38 estimated value.

By: jim

jim — Tue, 13 Jan 2009 18:58:49 +0000

You guys are right, good catch, thanks!

By: M

Tue, 13 Jan 2009 18:27:31 +0000

In your example is the dividend “$0.32 a year” or $0.32 a quarter?

By: Kevin

Kevin — Tue, 13 Jan 2009 18:12:03 +0000

It appears you meant to say $0.32 a quarter and $1.28 a year.

By: Frugal Dad

Frugal Dad — Tue, 13 Jan 2009 16:32:35 +0000

The dividend growth model is an interesting valuation tool. I personally like the idea of investing in stocks for passive dividend growth, and the formula you’ve presented would be yet another way to screen potential buys.

By: jim

jim — Tue, 13 Jan 2009 15:17:58 +0000

I get them confused myself all the time but it was JP Morgan:
JPMorgan Chase to Buy Washington Mutual
In a deal brokered by the federal government, JPMorgan Chase will pay $1.9 billion for deposits and branches. WaMu depositors will be protected

By: Jessica

Jessica — Tue, 13 Jan 2009 13:46:28 +0000

I thought Chase bought WaMu?