S&P500 Dividend Growth

The best way to characterize S&P500 Dividend Growth is to make no adjustment for inflation. The best time period to use is post-1950. The best rate to use is from 4.8% to 5.0% per year.

My Investigation

I made a chart of 1881-2004 Real Dividends versus Year. The amounts oscillated about a straight line fit. R-squared was 0.7961.

I made a chart of 1881-2004 Nominal Dividends versus Year. Exponential and power law curves did not grow rapidly enough in the last two decades. Still, the R-squared values were 0.9299 and 0.9265, respectively.

Finally, I made a chart of 1951-2004 Nominal Dividends versus Year. The exponential curve had an R-squared value of 0.9865. Oscillations were subdued.

If we assume a constant growth rate, the theoretical equation is (1+rate)^N = final dividend amount/initial dividend amount. From the actual data, the original 1951 dividend amount was $1.4867 and the final 2004 dividend amount was $17.60. The rate is 4.77% per year (nominal).

According to the exponential curve, today’s dividend amount should be $20.00. Using a final dividend amount of $20.00 and an initial dividend amount of $1.4867, the rate is 5.03% per year (nominal).

Remarks

Nominal dividend growth has been remarkably steady. Real dividend growth has fluctuated considerably.

Retirees should expect such behavior to continue. Compared to running out of money, failing to keep up with inflation is a gentle failure mechanism.

Have fun.

John Walter Russell
January 25, 2007