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--- info:march_2013_evaluating_yields [2013/03/12 18:12] – created tomgee
+++ info:march_2013_evaluating_yields [2013/03/12 18:14] (current) – tomgee
@@ Line 3: / Line 3: @@
 Some examples of the first class (I am using distribution records over the pst two years):
-    FGP - Ferrelgas (steady unchanging 10% div.)
+   FGP - Ferrelgas (steady unchanging 10% div.)
    VNR - Vanguard (9% growing at 4%/year)
    QRE - QR Energy (10.6% with no growth)
@@ Line 20: / Line 20: @@
   KMI - Kinder Morgan (EPB & KMP): 4% growing at 15%
   OKE - OneOK GP: 3% growing at 23%
- TRGP- Targa (GP for NGLS): 3% growing at 36%
+  TRGP- Targa (GP for NGLS): 3% growing at 36%
   ENB - Enbridge (2.9% growing at 15%)
-The basic reason for this divide is that investors will pay more for the higher growth rates.This raises the share price and thus lowers the dividend yield.
+The basic reason for this divide is that investors will pay more for the higher growth rates.This raises the share price and thus lowers the dividend yield.\\
-How should one evaluate the two classes? I suggest adding the curent yield to the growth rate to derive an adjusted yield. E.g., assume stock XYZ is valued at 100 and pays a $5 div. per year. Let's assume a constant growth rate of 20% per year. So after 1 year, it pays a $6 dividend. Other things being equal, the market would still be willing to pay $120 for the stock's 5% dividend. This can be verified in several cases: the rise in share price mtches the rise in dividends while the yield remains the same.
+How should one evaluate the two classes? I suggest adding the curent yield to the growth rate to derive an adjusted yield. E.g., assume stock XYZ is valued at 100 and pays a $5 div. per year. Let's assume a constant growth rate of 20% per year. So after 1 year, it pays a $6 dividend. Other things being equal, the market would still be willing to pay $120 for the stock's 5% dividend. This can be verified in several cases: the rise in share price mtches the rise in dividends while the yield remains the same.\\
-But beware that growth rates are choppy and that, worst case, without prospects of continued growth, XYZ might see its "expected growth rate" decline from 20% per year to 0%. This would require the yield to jump to 10% to maintain market interest, i.e., a drop from 100 to 60 as the dividend increases while the yield doubles.
+But beware that growth rates are choppy and that, worst case, without prospects of continued growth, XYZ might see its "expected growth rate" decline from 20% per year to 0%. This would require the yield to jump to 10% to maintain market interest, i.e., a drop from 100 to 60 as the dividend increases while the yield doubles.\\
-In case I've convinced anyone, here's a list with "adjusted yield" > 20:
+In case I've convinced anyone, here's a list with "adjusted yield" > 20:\\
 TRGP, NTI, TLLP, XTXI, XTEX, OKE, EPB, CMP, OKS, SXL