Since High Current Yield called for a 3% minimum yield, based on the 50% above the S&P 500 yield concept, Howard Miller's 5% annual dividend growth minimum, when added to the yield came out to 8%. That was exactly what my long-term goals were and I established those goals before I read Miller's book.
Absolute Total Compound Formula has expanded beyond Chowder Rule + Conventional Compound Interest.
It includes Net Income Growth, Share Buy Back, Dividend Growth, Dividend Yield, Compounding years n and lastly margin of safety in the form of ( PpresentΓ·Epresent ) Γ· ( PentryΓ·Eentry ).
It is the absolute total of Modal Compounding + Dividend Compouding.
Down to the root.
Dividend growth means there is earning growth.
Earning growth is the mother of dividend growth.
No earning growth, no dividend growth.
Chowder rule formula has error in its mathematical derivation.
It should not use addition, but use multiplication instead.
3% div growth + 5% div yield = 8 % is a wrong formula.
The correct one should be:
100Γ((1+0.03)Γ(1+0.05)-1)
= 8.15 %
Since High Current Yield called for a 3% minimum yield, based on the 50% above the S&P 500 yield concept, Howard Miller's 5% annual dividend growth minimum, when added to the yield came out to 8%. That was exactly what my long-term goals were and I established those goals before I read Miller's book.
Comment:
It's a simple math.
1.03Γ1.05
= 1.0815
This Chowder Rule is only valid if you fully reinvested back to the stock at intrinsic value.
If the investor does not reinvest the dividend, the actual dividend growth will stay at dividend growth.
The chowder score formula div growth + div yield is wrong.
When growth meets yield, use multiplication.
Effective Growth
= 100Γ ((1+ Div Growth)Γ(1+Div Yield)-1)
= 100Γ((1+0.03)Γ(1+0.05)-1)
= 8.15 %
I just found out Chowder Rule from you today.
My Absolute Total Compound formula which has been formulated a year ago, contains the essence of Chowder Rule.
Absolute Total Compound Formula has expanded beyond Chowder Rule + Conventional Compound Interest.
It includes Net Income Growth, Share Buy Back, Dividend Growth, Dividend Yield, Compounding years n and lastly margin of safety in the form of ( PpresentΓ·Epresent ) Γ· ( PentryΓ·Eentry ).
It is the absolute total of Modal Compounding + Dividend Compouding.
Chowder number = Dividend Growth + Dividend Yield
Compare Peter Lynch Idea: PEGY
P/E Number = Earning Growth + Dividend Yields
Earning growth must be at least or more than Dividend Growth for sustainability.
Let's take the situation happened at one time where Earning Growth = Dividend Growth
We have,
P/E Number = Chowder Number
To further expand for accuracy, we have.
P
= β[ (50 x Chowder number_ratio Γ eps)Β² + 100ΓepsΓdps ] + 50 x Chowder Number_ratio Γ eps
In summary,
Chowder number on the Dividend side is a copy cat of PEGY on the Earning side.