Around 2010, a Seeking Alpha contributor writing under the name "Chowder" published a deceptively simple rule for screening dividend growth stocks. It caught on — first on Seeking Alpha, then Reddit's r/dividends — because it combines two things that matter in a single number.
The formula
Chowder Score = Current dividend yield (%) + 5-year dividend CAGR (%). A score ≥ 12 is generally considered passing for most stocks. For utility stocks — which have lower natural growth rates — the threshold is typically lowered to 8.
| Company | Current Yield | 5yr Div. CAGR | Chowder Score | Pass? |
|---|---|---|---|---|
| Johnson & Johnson | 3.1% | +6.3% | 9.4 | No (borderline) |
| Lowe's | 2.0% | +18.5% | 20.5 | Yes |
| 3M Company | 5.4% | +1.2% | 6.6 | No |
| Colgate-Palmolive | 2.4% | +3.6% | 6.0 | No |
Why it works
The formula is a proxy for total return from income alone. If you believe dividends are paid from genuine earnings and grow sustainably, a stock with a 12% Chowder Score should deliver approximately 12% in total dividend-related return over time: some from current income, the rest from dividend growth that eventually lifts the yield on your original cost basis.
It also catches two opposite failure modes: a stock with 8% yield and 0% growth (might be a yield trap) fails. A stock with 1% yield and 10% growth (too low current income) also fails. The formula requires both income and growth to be meaningful.
The limitations
- It's backward-looking. A 5-year CAGR of 15% doesn't guarantee future growth — particularly if the payout ratio is already stretched.
- It doesn't account for valuation. A stock can have a great Chowder Score at any price. Combined with historical yield context, it becomes much more powerful.
- It penalises mature, slow-growing utilities that may be excellent income investments at the right price.
- The 12% threshold is arbitrary. In a higher interest rate environment, the hurdle arguably should be higher.
How to use it alongside valuation context
The most effective approach is to combine the Chowder Rule with yield-vs-history analysis. A stock with a Chowder Score of 14 is interesting. A stock with a Chowder Score of 14 AND a dividend yield in the top quartile of its 5-year historical range is potentially excellent — because that combination suggests you're both getting good absolute yield and good growth, at a price that is historically attractive.
The Dividend Kings and Aristocrats tier lists include Chowder scores in the Pro columns — alongside yield vs 5-year average and P/E vs history — so you can see the full picture at a glance.
See Dividend Kings tier list →