1

After simple math I concluded that

5% growth + 2% yield  = 7% growth + 0% yield 
= 0% growth + 7%yield = 1% growth + 6% yield .. etc.

assuming fix rates, and reinvesting the yield.

Are my calculation right ? If so, what is the appropriate verbiage to expresses this fact ?

2

In my mind its not the same. If growth is stock value then this is incorrect because of compound interest in stock price.

$100 stock price after one year would be $105 and a dividend would be $2 Next year the stock would be $110.20 (Compound Interest) and would the Dividend really go up in lock step with the stock price?

Well probably not, but if it did then maybe you could call it the same.

Even if the dollars are the same the growth rate is more variable than the dividends so its valuable to segregate the two.

I am open to criticism, my answer is based on my personal experience and would love to hear contrary positions on this.

  • 1
    Keep in mind that if the initial dividend is reinvested (whether in the same company or another with equivalent return), then compounding will apply to those dividends. – Grade 'Eh' Bacon Jul 7 '16 at 18:28
2

Avoiding the complexities of tax [dividends likely taxed the year they are received, barring special tax accounts which many countries implement in for example, locked-in retirement type accounts; share growth is likely only taxed when sold / on death / on expatriation / similar], and assuming you reinvest the dividends every year in new shares, then yes, total growth in your account is the same whether that growth is comprised of entirely dividends, entirely share increase, or a mixture of both.

It is those caveats (tax + reinvestment) which could change things.

-1

The sum of the dividend yield plus capital growth is called total return.

In your examples, you get to a total return of 7% through several different (and theoretically equivalent) paths. That is the right way of thinking.

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