Dividend Growth Rates And Prices

It is commonly stated that price growth and dividend growth rates are roughly equal, since they theoretically both come from the same source: Growing earnings. Let's test that hypothesis on some actual stocks. For the list of stocks, I decided to use "The Most Common Stocks for Dividend Growth Investors." I looked up their 5-year price increases and their 5-year dividend increases for the period 2007 through 2011.

I do not conclude from this study that the underlying hypothesis-that price growth and dividend growth move roughly in tandem because both are based on earnings-is incorrect. As has often been observed, if the hypothesis were not at least approximately correct, we would have dividend growth companies that would eventually reach astronomical current yields (like 20%), and we do not see this. I believe that the hypothesis is roughly correct over long time periods. The five years studied here was an unusual time period.

Source: Seeking Alpha

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