This is a guest contribution written by Ben Reynolds at Sure Dividend. Sure Dividend uses The 8 Rules of Dividend Investing to systematically find high-quality dividend growth stocks trading at fair or better prices.
Investing concepts can seem divorced from reality. Theories become more understandable through real world examples.
This article takes a look at 3 important dividend investing concepts and provides real world examples to help either explain the point or show evidence of why it matters.
Total return measures exactly what the name implies. Total return includes the capital appreciation and dividends of an investment.
The concept of total return is critical to investing success. It is the one number that determines how quickly your money will grow. All other things being equal, the higher the total return, the better. Here’s how you can double your money.
Calculating a reasonable expected total return will help to guide your investing decisions.
Returns in the market can come from only 3 places:
- Change in intrinsic-value-per-share (typically measured by earnings-per-share growth)
- Change in valuation multiple (typically measured by the price-to-earnings multiple (P/E))
My estimate of The Coca-Cola Co’s (NYSE:KO) total returns over the next 5 years is below.
First, we know the company’s dividend yield is 3.2%. The company is a Dividend King – it has paid increasing dividends for over 50 consecutive years. We can reasonably assume Coca-Cola will continue paying dividends.
3.2% a year is our expected return from dividends for Coca-Cola. Read More