Chowder Rule

[AlanC]

It might be helpful to point out that the Chowder rule is a quite straightforward approximation to your discount rate. Use the constant growth dividend discount model. Solve for the discount rate, r, drop the small second order term, and you will find that your rate of return is approximately the current yield plus the growth rate. It's a quick back of the envelope approximation that I've used for years and I'm somewhat surprised that it's presented as some mysterious thing that Chowder invented. The issue, of course, is the growth rate. I think Chowder uses the past 5 year dividend growth rate but I tend to be more conservative, particularly if the rate has been decelerating.