Chowder Rule

[Kerim]

Thanks very much for all of the thoughtful replies. The Chowder rule seems to be popular indeed, even if most are careful to indicate that it is only one of many metrics to consider. I guess I'll just have to remain content with not "getting it."

I still understand that yield and dividend growth are related in important ways, but I just can't see the logic of adding the numbers together -- even as just one step in a screening process.

Let's say company A has a yield of 4 percent and dividend growth of 7 percent, and company B has a yield of 2 percent and dividend growth of 15 percent. Those are very different profiles, and we all would dive deeper to understand the specifics of each company. But at a fundamental level, you are comparing a company with a higher initial yield and slower (but still healthy) dividend growth with a lower yielding company that has higher dividend growth. And there are lots of reasons a person might choose one over the other.

So what actionable information is added by saying that company A has a Chowder number of 11 and company B has a Chowder number of 17? We all weight the importance of yield and growth differently, and indeed might weight them differently be sector or individual company. Is company B worth more attention than company A (17 is a lot higher than 11, after all)? It depends on what you need and want in your portfolio. And given that yields are likely to be lower than dividend growth percentages, the Chowder approach would seem to weight growth much higher than initial yield. I'm just not seeing the value of this metric.

Thanks again for trying to help me understand this one.