I’ve been quite busy and stressed with Work, so haven’t had time to post much of late. My available free time wasn’t helped by a recent decision to buy a new PC game, Pillars of Eternity, either. This is an old-style RPG that’s similar to the Baldur’s Gate series.
Anyway, you’d think this would be a simple calculation really but there are some complications and factors to consider in this calculation: The definition of a “year” needs to be made, plus the impact of stock splits and the effect of exchange rates for dividends that are paid in non-sterling currencies need to be considered.
I’ve been re-thinking how to calculate the dividend growth length for companies in the UK Dividend Champions List and I’m leaning towards the following approach which is a change to my existing algorithm and hopefully a compromise towards a couple of commenters.
Current calculation method
1. Dividend Growth Length = Calendar Year Growth Length
This is based on my existing calculations using stock splits and exchange rates using the dividends for a calendar year based on the ex-dividend date.
Holding the dividend constant for a calendar year is not considered as an increase.
New calculation method
1. Calculate the Calendar Year Growth Length
Same as I currently do above.
2. Calculate the Financial Year Growth Length
This is calculated based on the dividends paid on a financial year basis but will include adjustments for stock splits and exchange rates.
Holding the dividend constant for a year will not count as an increase.
I’ll consider moving to ignoring exchange rates at a later date but that takes a little more work and I don’t think there are enough companies affected to make it worth prioritizing the effort.
3. Dividend Growth Length = the higher of 1 and 2 above
The Champion/Contender/Challenger determination will use the highest value of the Calendar Year or Financial Year growth length.
So if the Calendar Year growth Length for a company was 10 years and the Financial Year growth history was 15 years, the company would now show in the list as a 15-Year Dividend Contender. In the current UK Dividend Champions List, it’d show as a 10-Year Contender.
Reasons for changing the calculation
So why change the method? As I’m updating DividendChampions.UK, I’m realizing that not every investor is as focused on calendar year income as I tend to be. Since dividend growth length is arguably an indication of company quality, then it seems fairer to include companies that are currently being excluded just because their dividend schedule resulted in a lower calendar year payment. It’ll also allow for a combined list that’s the best of both worlds.
Changing the calculation currently means around 48 companies would see an increase to their history; most increases are just 1 year but some such as VOD and RPS will get higher increases.
But before I start making this change, I wanted to get some feedback from you, Dear Reader. Please let me know if this is a useful change.
Quote of the day
Never spend your money before you have earned it.