A long hard
look at a few numbers lead me to conclude that I would need $80,000 in
dividends per year when I turn 55 in 2034. This income will be in addition to
my DB pension. The hard part is determining how much I need to invest in
dividend growth stocks to reach my objective.
Future
dividend income heavily relies on the dividend growth rate. A change of 1% in
the average dividend growth rate can make a huge difference over a 20 or 30
year time span.
To put words into numbers, I ran a simulation for 3 different dividend growth
rates the Kraft Food Group might have over the next few decades (a while back, I ran the same type of simulation for NSC).
Inputs into
my simulation:
 100
shares @ $45.60 ($4559.95)
 $2.00
dividend in 2013 (4.39% initial yield)
 All
dividends are reinvested

Fractional shares are permitted
 The stock
price increases at the same rate as the average dividend growth rate
The numbers
in 22 years:
Div Growth Rate

4%

5%

6%

# Shares

230

227

223

Dividends/year

$1,050

$1,264

$1,519

There’s
only a few hundred dollars between each of the annual dividends, but look at
the difference in terms of percentages.
($1264  $1050) / $1050 = 20%
($1519
 $1264) / $1264 = 20%
The numbers
in 30 years:
Div Growth Rate

4%

5%

6%

# Shares

317

310

304

Dividends/year

$1,975

$2552

$3290

($2552
 $1975) / $1975 = 29%
($3290
 $2552) / $2552 = 29%
I myself
would be satisfied with an average dividend growth rate of 5% over the next 20
to 30 years. This would give me a total longterm return of 9.39% (4.39% + 5%)
as well as a great yearly dividend.
I run such
simulations for all the stocks I own. Based on my current portfolio, I estimate
yearly dividends at $43,000 by the time I’m 55. I try and pick reasonable
dividend growth rates, but a crystal ball I do not have.
How do you
estimate future dividend income?