Dividends must have been paid long enough for several cycles of share price undervalue and overvalue to be established, in order that extremes of high and low dividend yield can be observed.
The Value Table shows the dividend yields at which a company’s share price is at historic undervalue levels – low share price (LoPr) with high yield (Hyld%) – as well as at historic overvalue levels – high share price (HiPr) with low yield (Loyld%).
Share prices are Undervalued or Overvalued when they are within a ten per cent range of their historic levels of high dividend yield (Hyld%) or low dividend yield (Loyld%).
The numbers in the share price columns (LoPr and HiPr) are the equivalent share prices to the dividend yields shown in the respective undervalued and overvalued dividend yield columns.
The color coding in the Status (‘S’) column of the table indicates the current share price valuation of the company. The column will be green when the company is historically undervalued, orange when the company is historically overvalued and white when the company is trading between historically undervalued and overvalued.
Share prices are Undervalued (Green) or Overvalued (Orange) in the Yield Chart when they are within a ten per cent range of their historic levels of high or low dividend yield.
Highs (Blue) and Lows (Red) are shown based on the monthly high and low share prices.
To reduce the period under consideration drag to the right the “slider” below the chart.
From the years collated Diageo has a track record of:
A long period of uninterrupted dividends will show us how companies and their management teams have performed going through several business and economic cycles.
Dividend growth is the hallmark of a high quality company. Dividends will not be maintained or raised if future earnings are in doubt.
A company that is making profitable progress should be able to boost its dividend by 7.5% or more at least five times in a 12-year period.
Compound Annual Growth Rate
For illustration purposes, we show the 5 year dividend CAGR and 12 year dividend CAGR for Diageo:
Note: CAGR is a pro forma number that provides a “smoothed” annual yield, so it can give the illusion that there is a steady dividend growth rate even when the annual dividend increases can vary significantly.
CAGR is used as a measure to evaluate how well one dividend paying company performed against other dividend paying companies in the same sector.
We are particularly interested in companies with a dividend CAGR of 8 per cent or higher for both the most recent five and twelve year periods.
Dividend Income Investor.com does not hold a position in this stock and does not plan to initiate a position within the next 72 hours.