Looking For Dividend Growth in the Future

Written by The Dividend Guy on August 7, 2007

Dividend growth is one of the most important metrics for a dividend investor (IMHO). The dividend growth rate that has occurred in the past can tell a great story for the investor who is searching for passive income at some point in the future. Looking at annual reports, an investor can quickly see what the company’s track record has been in raising its dividends. Using Microsoft Excel, an investor can then quickly and easily project what the future dividends are going to look like. I have done this for Home Depot:

Home Depot - Projected Dividends

I have been able to obtain prior year dividend per share (DPS) data for Home Depot. Using some trending calculations in Excel, I have had the program project what the potential dividend per share will be every year going forward to 2017. As stated on the chart, in 2017 the estimated dividend per share is $1.28. You will notice that the chart is actually showing a decline in the DPS in 2008 - this is because Excel is doing some analysis based on previous years and trying to smooth out the rather large bump in DPS that shareholders saw from 2005 to 2006 ($0.50 to $0.68).

Keep in mind that this is only projections and in no way can an investor guarantee that this is going to happen. In addition, it is not a full statistical analysis. It does however highlight the potential value dividend increases can have on a portfolio. Consider this:


Today: 100 shares of HD with $0.90 per share in dividend income = $90 per year
2017: 100 shares of HD with $1.28 per share in dividend income = $128 per year

If you are one to reinvest your dividends into more shares, this example could be more dramatic as each year you end up with more shares and more shares means more dividend income.

Keep in mind that I have done a very simple trend calculation on this data. If anyone has any suggestions to forecast dividends into the future in a better way, please let me know by using the comments.

On a final note, I am going to include this chart for some of the stocks on my watch list in August’s edition of The Dividend Guy’s Watch List Newsletter, that I send out on a monthly basis to subscribers. If you are interested in this, please click here.


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7 Comments so far

  1. Zachary August 7, 2007 9:44 pm

    I wish I had the stomach for picking individual dividend stocks. I keep the PEY Dividend ETF in my Roth IRA, though.

  2. Yielder August 8, 2007 4:08 am

    It’s dangerous to do this kind of projection. HD is a cyclical stock. Note what happened to earnings and the dividend in the last two recessions. Note also the dividend payout ratio.

  3. Yielder August 8, 2007 4:10 am

    http://i12.tinypic.com/6ag22vr.jpg goes with the preceding post

  4. Lazy Man and Money August 8, 2007 1:53 pm

    It’s interesting growth, but when I chart inflation it looks like $90 is worth $121 in 2017. It doesn’t look like a lot of “growth” at it’s current rate.

  5. The Dividend Guy August 8, 2007 7:50 pm

    Hey Yielder - thanks for the comments. I do agree that HD is cyclical, but I think the data is showing that year after year the dividend per year is going up, which is really what I am trying to show here. See this link for data going back even further:

    http://ir.homedepot.com/dividend.cfm

    All I was trying to show was that, based on some historical trends, and assuming that HD continues on with their dividend increase strategy, what the dividend per share might look like in the future.

    The chart you showed is interesting - the yearly increase in DPS varies dramatically. However, I still do see a company that consistently raises its dividend year after year.

    I do recognize that the company has some issues right now and may not be a buy until the new CEO can straighten some things out.

  6. Nabloid.com August 9, 2007 10:52 am

    I think the next five years (depending on what happens with the housing market) can be a critical time for HD to prove itself during a bad cycle. That said, it’s still a great company that is dominating the entire industry (IMO) and it has a bright future.

    However, I am a bit worried… it seems like everyone has built a new home(or moved or renovated) in the last few years and they have all purchased many items for the home from HD… but many of these purchases are long-term purchases you don’t make every day or every year.

  7. Paul Belanger August 10, 2007 11:33 am

    Looking at the trend of dividend growth is a good starting point. If the payout ratio has also been increasing then it’s a good bet that the historic dividend growth won’t persist into the future.

    I’d suggest taking your analysis one step further. If you have several years worth of data you can calculate an average return on equity for the company. With knowledge of the company’s normal return on equity and by making an assumption about the payout ratio going forward, you can come up with an estimate of retained earnings and dividends going forward. It might not be perfect, but it will give you another forecast that you can use as a check against your dividend growth assumptions.

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