6.7 Example: Historical Growth Rate of IBM’s Dividends

If a stock pays dividends over a long period of time then we estimate the constant growth directly from the dividend series.  This is the case for IBM where we analyze approximately 50-years of quarterly dividends.  To estimate dividend growth we obtained quarterly dividend data for IBM from January 1962 through to February 2011 from Yahoo Finance:

Step 1:  Got to Yahoo Finance and enter the stock ticker IBM

Step 2:  Click on Historical Prices and select Dividends only:

Step 3:  Click on Get prices above and then click on Yahoo’s button download to a spreadsheet.  Save the .csv file and then open in Excel:

Step 4:  Give focus to Valuation tutor and select the Regression Calculator in Valuation tutor from the Tools menu item:

Step 5:  Set the Regression calculator as follows:

By ticking the Take Log of the Dependent Variable will let the calculator compute the growth coefficient directly:

Step 6:  Now copy the dividends from Excel’s cells B2 down (see earlier step 3 above for the Excel sheet) and paste into Valuation Tutor by clicking on "Paste Y Data" above and then click on Run Regression:

The coefficient for time (quarters) is 0.01953 which from this regression provides a direct estimate of constant growth for a quarter.  We can annualize this estimate as follows:  1.0196^4 = 1.08 for 8%.  That is, over a very long period of time dividends from IBM have grown at an annual rate of 8% per annum.

You are encouraged to repeat the above example for a traditional or old economy stock of your choice that has a long series of dividends available.