11-20-2014, 11:11 AM
(This post was last modified: 11-20-2014, 11:13 AM by Dividend Watcher.)
R2R, let's add some nuances here since I was too tired when I got home to fully explain it.
One instance that may skew the numbers is if the first dividend payment in 2011 was actually accelerated into 2010 (I think those were the years) to ameliorate some changes in the tax laws affecting dividends. Mr. Fish does compensate for this but some sources may not and it will look like a dividend cut and skew the CAGR if you begin or end your calculations in those years. A real pain in the keister because now you have to go look at the company's IR website to see if they detail the dividend payments.
Another would be companies that pay a special dividend. Do you include it in the CAGR formula or not? I prefer it not be considered because special dividends are usually used to either 1.) reward shareholders for an exceptionally good year and not part of the board's stated dividend policy or 2.) reflect a one-time event such as a sale of a major portion of the business or a product line. I can't speak to any one source as to whether they include those amounts or not.
Also, you want to watch for companies that make a large increase in the dividend for one year to realign their payout with a board's new strategy or in a reaction to activist investors. For example, PEP increased their dividend 15% early in 2014 in what some say is a response to activist' calls to split the company. They were following a 5-9% increase schedule for a long time and I'm expecting it to drop back to the former level going forward. MMM, MDP, CBRL and HP come to mind also. In these cases, I either like to look at what was happening prior to the big jump or after (if there's enough data to make a valid trend) and expect that to be the trend in the future barring any other information.
To illustrate, the latest CCC List shows a 1/3/5/10 DGR for Helmerich & Payne (HP) of 364.3%, 80.8%, 46.9% & 23.3% respectively. Certainly you can't expect these types of growth rates to be normal. Right next to those numbers, the yearly dividend payment shows their dividend went from $0.28 in 2012 to $1.30 in 2013. Now if I go back to the 12/30/2011 CCC List, I see HP's dividend growth rates as 18.2%, 11.0%, 8.5% & 5.7%. Their latest was 10%, if I recall correctly. That's still acceptable to me, especially for their business model and industry, when you consider you're starting with a >3% yield if you bought some at these prices.
So, if you're relying on the dividend growth rate (or chowder number) to help winnow down your list of candidates, you'll want to go back year by year for a few years to see if there were any "abnormalities" in their payouts. I use the S&P tear sheet and/or longrundata.com to check these.
One instance that may skew the numbers is if the first dividend payment in 2011 was actually accelerated into 2010 (I think those were the years) to ameliorate some changes in the tax laws affecting dividends. Mr. Fish does compensate for this but some sources may not and it will look like a dividend cut and skew the CAGR if you begin or end your calculations in those years. A real pain in the keister because now you have to go look at the company's IR website to see if they detail the dividend payments.
Another would be companies that pay a special dividend. Do you include it in the CAGR formula or not? I prefer it not be considered because special dividends are usually used to either 1.) reward shareholders for an exceptionally good year and not part of the board's stated dividend policy or 2.) reflect a one-time event such as a sale of a major portion of the business or a product line. I can't speak to any one source as to whether they include those amounts or not.
Also, you want to watch for companies that make a large increase in the dividend for one year to realign their payout with a board's new strategy or in a reaction to activist investors. For example, PEP increased their dividend 15% early in 2014 in what some say is a response to activist' calls to split the company. They were following a 5-9% increase schedule for a long time and I'm expecting it to drop back to the former level going forward. MMM, MDP, CBRL and HP come to mind also. In these cases, I either like to look at what was happening prior to the big jump or after (if there's enough data to make a valid trend) and expect that to be the trend in the future barring any other information.
To illustrate, the latest CCC List shows a 1/3/5/10 DGR for Helmerich & Payne (HP) of 364.3%, 80.8%, 46.9% & 23.3% respectively. Certainly you can't expect these types of growth rates to be normal. Right next to those numbers, the yearly dividend payment shows their dividend went from $0.28 in 2012 to $1.30 in 2013. Now if I go back to the 12/30/2011 CCC List, I see HP's dividend growth rates as 18.2%, 11.0%, 8.5% & 5.7%. Their latest was 10%, if I recall correctly. That's still acceptable to me, especially for their business model and industry, when you consider you're starting with a >3% yield if you bought some at these prices.
So, if you're relying on the dividend growth rate (or chowder number) to help winnow down your list of candidates, you'll want to go back year by year for a few years to see if there were any "abnormalities" in their payouts. I use the S&P tear sheet and/or longrundata.com to check these.
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan