Simplified Retirement Trainer with Dividends A

I have added dividends to the Simplified Retirement Trainer A.

Theory

I tabulated 100D5/P, 100E10/P and D5/E10 where D5 is the average of the following five years of (real) dividends, E10 is the average of the previous ten years of (real) earnings and P is the (real) price or index value of the S&P500 index.

The relationship between the dividend yield 100D5/P and earnings yield 100E10/P is strong. With 1923-1975 data, R-squared is 0.6122.

The payout ratio D5/E10 is almost independent of the percentage earnings yield 100E10/P. With 1923-1975 data, R-squared is less than 0.0001. With 1941-1980 data, R-squared is only 0.0205.

In both cases, the dividend yield is very close to 63%.

I modified the Simplified Retirement Trainer A by adding a column that calculates the dividend yield as 63% of the earnings yield. The dividend amount is the 63% of the stock balance divided by P/E10.

I have placed the new Simplifed Retirement Trainer with Dividends A in my Yahoo Briefcase in the Retirement Trainers folder. I have labeled it “Simp Ret Tr w Div A.”

Yahoo Briefcase

Additional Enhancements

I have included the interest income. It is the TIPS interest rate times the TIPS balance. I have added the dividend amount and the TIPS interest to calculate the portfolio’s income.

Have fun.

John Walter Russell
November 12, 2006