Here are some examples of back tested data on historical dividend payers that show the accuracy of predicting the future price of a dividend paying stock
1. AT&T (T)
Price in 1985 – $6.45
12 month dividend in 1985 – .47
You wouldn’t have known a good growth rate, but could have assumed a roughly 5% or 6% growth. This would be for a company that can beat inflation, but isn’t expected to make massive growth.
Plug in the calculation for 25 years, and choose a dividend growth rate of 5.5% and you get the current dividend payout, and an accurate return during this time.
Current Dividend Payout – 1.68. (predicted to be 1.71)
Current Price – $28.87 (expected price $24.70)
The AT&T return over the previous 25 years is close to over 600% or 26% per year.
2. Proctor and Gamble (PG)
Price in 1990 – $8.00
12 month dividend in 1990 – .21
Growth rate so far was 6.25% for 5 years 13% for 10 year (average, .09625),
Plugging in these numbers turned out to be a little low. The growth rate turned out to be around 11%
The estimated return based on 9.63%
Current Price $61.04 (estimated $49.52)
Current Dividend Payout – 1.93 (estimated 1.19)
If you would have estimated 11% correctly, the Current Dividend Payout and Current Price are estimated accurately.
Either way, the estimated 20 year return of 661% would have been a worthwhile investment choice.