The Chowder Rule

Dividend growth investing is by far my favorite kind of investing. The difference between dividend investing and dividend growth investing, is simple: Your dividends will grow over time, even as you stop investing, stop the DRIP and start drawing on your portfolio income!

There are many stocks which will grow their dividends annually. In fact, there’s even a Canadian Dividend Aristocrats ETF. But how do we find great dividend growth numbers and not token $0.01 increases? This is where the Chowder Rule comes in.

What is the Chowder Rule?

The Chowder Rule is one of many screeners you can use to help you narrow down your portfolio to core holdings. To follow the Chowder Rule, you take the current dividend yield and add the compounded annual growth rate (CAGR) for the dividend over the trailing 5 years. You compare this number against the rules for the Chowder Rule. A higher Chowder number is better

The Chowder Rule Formula

Current Yield + 5 Year Dividend Compounded Annual Growth Rate = Chowder Number

Three Chowder Rules

1. If a stock has a dividend yield greater than 3%, the Chowder Number must be greater than 12%
2. If a stock has a dividend yield less than 3%, the Chowder Number must be greater than 15%
3. If a stock is a utility, its 5-year dividend growth rate plus its dividend yield must be greater than 8%

Example

Below you’ll find an example of some popular Canadian stocks, along with 2 popular US technology companies. How do they measure up against the Chowder Rule?