When applying this concept to dividend growth stocks, the calculation is a little more complicated than the simple example above due to the annual dividend increases. Nothing that can’t be quickly modeled in a spreadsheet.
Companies with a very short payback are often troubled or have been highly discounted due to the market’s lack of faith in them. At the other extreme, do you really want to wait 30, 40 or 50 years to earn back your initial investment? As a compromise, a 9 to 13 year payback should be acceptable for most long-term investors.
Once you earn back your investment, some might say you are in a no-lose situation. I wouldn’t go quite that far, but you have found an investment that that has provided you a good historical revenue stream, and hopefully it will continue to do so in the future.
This week week, I screened my dividend growth stocks database for select stocks with a 9 to 13 year payback (at the current yield and dividend growth rate) and yield of 2.5% or more. The results are presented below:
Walgreen Co. (WAG) is the largest U.S. retail drug chain in terms of revenues, this company operates more than 8,000 drug stores throughout the U.S. and Puerto Rico.
Yield: 2.5% | Payback Years: 12.6
Microsoft (MSFT), the world's largest software company, develops PC software, including the Windows operating system and the Office application suite.
Yield: 2.7% | Payback Years: 12.5
Hasbro, Inc's. (HAS) broad portfolio of toys, games and entertainment offerings includes brands such as Transformers, Playskool, Monopoly and My Little Pony.
Yield: 3.4% | Payback Years: 12.0
Meredith Corp. (MDP) publishes a suite of magazines and websites focused on food, parents and women (Better Homes and Gardens) and operates 12 local TV stations.
Yield: 3.4% | Payback Years: 11.3
Occidental Petroleum Corporation (OXY) is one of the largest oil and gas companies in the U.S., OXY has global exploration and production operations. Its subsidiary, OxyChem, is one of the largest U.S. merchant marketers of chlorine and caustic soda.
Yield: 2.8% | Payback Years: 11.3
Harris Corporation (HRS) focuses on communications equipment for voice, data and video applications for commercial and governmental customers.
Yield: 3.0% | Payback Years: 11.2
Kinder Morgan Energy Partners LP (KMP) is one of the largest pipeline master limited partnerships (MLPs) in the U.S.
Yield: 6.1% | Payback Years: 11.0
Cracker Barrel Old Country Store (CBRL) develops and operates the Cracker Barrel Old Country Store restaurant and retail concept in the United States.
Yield: 3.0% | Payback Years: 10.6
Alliance Resource Partners LP (ARLP) produces and markets coal primarily to utilities and industrial users in the United States. It offers low-sulfur coal, medium-sulfur coal, and high-sulfur coal.
Yield: 6.3% | Payback Years: 10.4
Omega Healthcare Investors Inc. (OHI) is a real estate investment trust (REIT) that invests in income-producing healthcare facilities, mainly long-term care facilities located in the United States.
Yield: 5.9% | Payback Years: 10.1
Lockheed Martin Corp. (LMT), the world's largest military weapons manufacturer, is also a significant supplier to NASA and other non-defense government agencies. LMT receives about 93% of its revenues from global defense sales.
Yield: 4.2% | Payback Years: 9.8
Darden Restaurant Inc. (DRI) operates the Red Lobster, Olive Garden, Bahama Breeze, Seasons 52, LongHorn Steakhouse and Capital Grille chains.
Yield: 4.2% | Payback Years: 9.8
As with past screens, the data presented above is in its raw form. Some of the the companies would be disqualified for poor dividend fundamentals. However some of the others may be worth additional due diligence.
My database, D4L-Data, is an Open Office spreadsheet containing more than 20 columns of information on the 230+ companies that I track. The data is sortable and has built-in buttons and macros to make it easy to use. Companies included in the list are those that have had a history of dividend growth. The D4L-Data spreadsheet is a part of D4L-Premium Services and is updated each Saturday for subscribers.
Full Disclosure: Long MSFT, LMT in my Dividend Growth Portfolio and long MDP, OHI in my High-Yield Portfolio. See a list of all my dividend growth holdings here.
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