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Monday, December 12, 2005

Carnival of Personal Finance 26

Check out other articles from other finance blogs at this week's carnival, hosted by Wealth Junkie.

One article that caught my eye was an article about increasing S&P 500 Dividends at The Real Returns. Increasing absolute dividends comes as no shock to me; as the overall market rises (which it has done historically), the amount of dividends paid out to maintain a certain yield must also increase.

Before you go rushing out and investing in the S&P 500 for dividend payouts, know that the current dividend yield (for the past 12 months) is only 1.77%. The average yield growth rate of 6.24% actually has nothing to do with what the actual return you would get.

EDIT: A poster commented that "Dividend Growth + Current Dividend Yield usually ends up being the total return. So, 6.25% + 1.75% = 8.00% should be a long term expected return for the S&P 500. Better than bonds."

However this is not true. A 6.25% dividend yield growth based off of a 1.75% current divided yield means that the dividend will grow to 1.75 * 1.0625 = 1.859%. No where near 8%.

For example, Pfizer this week raised its quarterly dividend from 19 cents a share to 24 cents a share. That increase of 26% is dividend yield growth. Its current annual dividend yield is 3.70% (from Yahoo Finance).

Someone please correct me if I'm wrong.

1 Comments:

Anonymous Anonymous said...

Dividend Growth + Current Dividend Yield usually ends up being the total return. So, 6.25% + 1.75% = 8.00% should be a long term expected return for the S&P 500. Better than bonds.

2:01 PM  

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