Dividend Growth Rates

I have collected real, annualized 5, 10, 15, 20, 25, 30, 40, 50, 60 and 100 year dividend growth rates of the S&P500. Dividend growth has been more volatile than I expected.

Calculations

I used Professor Robert Shiller’s S&P500 database. It has real dividend amounts through 2004.

Professor Shiller’s Irrational Exuberance Web Site

I determined the real, annualized dividend growth rate by solving: (1+r)^N = (real dividend amount at the end of N years)/(real dividend amount at the beginning of the period). The real, annualized dividend growth rate is r. The number of years is N.

5-Year Growth Rates

The sequences were from 1876-2004, using dividend amounts from the trailing (preceding) 5 years.

The 5-year dividend growth rate exceeded 12% per year in 1885, 1930 and 1931. The 5-year dividend growth rate fell below (minus) -10% per year in 1922, 1935 and 1936.

In the modern era, beginning in 1950, the 5-year dividend growth rate has been positive 42 times and negative 13 times (1971-1977, 1983-1985 and 2002-2004).

10-Year Growth Rates

The sequences were from 1881-2004, using dividend amounts from the trailing (preceding) 10 years.

The 10-year dividend growth rate ranged from (minus) -6.3% per year in 1921 to +8.6% per year in 1931.

In the modern era, beginning in 1950, the 10-year dividend growth rate ranged from (minus) -2.6% per year in 1976 to +6.6% per year in 1957. The 10-year dividend growth rate has been positive 44 times and negative 11 times (1974-1984).

15-Year Growth Rates

The sequences were from 1886-2004, using dividend amounts from the trailing (preceding) 15 years.

The 15-year dividend growth rate ranged from (minus) -3.4% per year in 1947 to +4.9% per year in 1962.

In the modern era, beginning in 1950, the 15-year dividend growth rate ranged from (minus) -1.4% per year in 1982 and 1984 to +4.9% per year in 1962. The 15-year dividend growth rate has been positive 46 times and negative 9 times (1953 and 1974-1984).

20-Year Growth Rates

The sequences were from 1891-2004, using dividend amounts from the trailing (preceding) 20 years.

The 20-year dividend growth rate ranged from (minus) -1.9% per year in 1921 and 1922 to +5.0% per year in 1967.

In the modern era, beginning in 1950, the 20-year dividend growth rate ranged from (minus) -0.9% per year in 1947 and 1984 to +5.0% per year in 1967. The 20-year dividend growth rate has been positive 46 times and negative 9 times (1950-1952 and 1984-1989).

25-Year Growth Rates

The sequences were from 1896-2004, using dividend amounts from the trailing (preceding) 25 years.

The 25-year dividend growth rate ranged from (minus) -1.5% per year in 1936 to +3.7% per year in 1968 and 1969.

In the modern era, beginning in 1950, the 25-year dividend growth rate ranged from (minus) -0.0% [actually, -0.008%] per year in 1994 to +3.7% per year in 1968 and 1969. The 25-year dividend growth rate has been positive 54 times and negative 1 time (1994).

30-Year Growth Rates

The sequences were from 1901-2004, using dividend amounts from the trailing (preceding) 30 years.

The 30-year dividend growth rate ranged from (minus) -1.3% per year in 1947 to +3.1% per year in 1966.

In the modern era, beginning in 1950, the 30-year dividend growth rate ranged from +0.1% per year in 1996 to +3.1% per year in 1966. The 30-year dividend growth rate has been positive 55 times and negative zero times.

40-Year Growth Rates

The sequences were from 1911-2004, using dividend amounts from the trailing (preceding) 40 years.

The 40-year dividend growth rate ranged from (minus) -0.9% per year in 1948 to +2.4% per year in 1965 and 1966.

In the modern era, beginning in 1950, the 40-year dividend growth rate ranged from +0.1% per year in 1952 to +2.4% per year in 1965 and 1966. The 40-year dividend growth rate has been positive 55 times and negative zero times.

50-Year Growth Rates

The sequences were from 1921-2004, using dividend amounts from the trailing (preceding) 50 years.

The 50-year dividend growth rate ranged from (minus) -0.2% per year in 1935 to +2.3% per year in 1970.

In the modern era, beginning in 1950, the 50-year dividend growth rate ranged from +0.3% per year in 1981 to +2.3% per year in 1970. The 50-year dividend growth rate has been positive 55 times and negative zero times.

60-Year Growth Rates

The sequences were from 1931-2004, using dividend amounts from the trailing (preceding) 60 years.

The 60-year dividend growth rate ranged from (minus) -0.0% [actually, -0.028%] per year in 1945 to +1.8% per year in 1931.

In the modern era, beginning in 1950, the 60-year dividend growth rate ranged from +0.6% per year in 1977 to +1.7% per year in 1980, 1981, 1999 and 2004. The 60-year dividend growth rate has been positive 55 times and negative zero times.

100-Year Growth Rates

The sequences were from 1971-2004, using dividend amounts from the trailing (preceding) 100 years.

The 100-year dividend growth rate ranged from +0.7% per year to +1.3% per year.

Observations and Comments

Dividend growth has been more volatile than I expected. In the modern era, the ten-year real, annualized dividend growth rate has ranged from (minus) -2.6% per year +6.6% per year. The 20-year dividend growth rate has ranged from (minus) -0.9% per year to +5.0% per year. The 30-year dividend growth rate has ranged from +0.1% per year to +3.1% per year.

Even in the modern era, it takes more than 20 years before the real, annualized dividend growth rate is consistently positive.

Absent one factor, we would not be able to rely on dividend growth to overcome a prolonged plateau at high valuations (P/E10 above 20). It is the dividend payout ratio.

Today’s dividend payout ratios are low. This does not mean that dividends must grow faster than inflation. It means that dividends can grow faster than inflation. I expect dividends to keep up with inflation as a minimum.

A prolonged earnings slump could drag down dividend growth. History tells us that prices would be hit much harder.

Have fun.

John Walter Russell
December 25, 2006