I skate to where the puck is going to be, not where it has been."
- Wayne Gretzky
It can be applied to so many things in life, including investing in Dividend Growth Stocks. Just as Gretzky has a vision as to where the puck is going, investors need to have a similar vision, and not get caught up on short-sighted distractions.
Investing in dividend growth stocks requires a long-term vision. It is easy to run a screen and find stocks that are paying a 10%, 15% or 20% yield today; but how long will they be able to sustain it? Instead you may want to skate to where the future high-yielders are going to be. To do that end, here are some things you need to know...
Tracking Yield On Cost
Yield-on-cost (YOC) is simply Current Annual Dividend divided by Original Cost Per Share. YOC not a substitute for calculating an internal rate of return (IRR). The IRR calculation takes into account both capital appreciation and the timing of cash flows (purchases, sells and dividends).However, as a dividend growth investor, my primary focus is on dividend growth and since my desired holding period is forever, capital appreciation is little more than an interesting side note.
YOC is much better suited for tracking dividend growth since it is individually tied to a stock and takes into account all the variations of growth rates over time, along with the timing of purchases. Also, it is useful when trying to explain to our high-yield brethren why we chose the stock yielding 3% over 'Amalgamated Risk' at 8%.
This week week, I screened my dividend growth stocks database for stocks that have a dividend growth rate in excess of 5% that will be yielding between 15% to 20% in 15 years based on their current yield and dividend growth rate. The results are presented below:
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: 7.8% | Dividend Growth: 6.3% | 15 Year Yield: 18.6%
Microsoft (MSFT), the world's largest software company, develops PC software, including the Windows operating system and the Office application suite.
Yield: 2.4% | Dividend Growth: 15.0% | 15 Year Yield: 19.6%
Lockheed Martin Corp. (LMT) is the world's largest military weapons manufacturer, and also a significant supplier to NASA and other non-defense government agencies. LMT receives about 93% of its revenues from global defense sales.
Yield: 2.7% | Dividend Growth: 15.0% | 15 Year Yield: 20.8%
Cracker Barrel Old Country Store (CBRL) develops and operates the Cracker Barrel Old Country Store restaurant and retail concept in the United States.
Yield: 2.7% | Dividend Growth: 15.0% | 15 Year Yield: 22.2%
Texas Instruments Inc. (TXN) is one of the world's largest manufacturers of semiconductors, this company also produces scientific calculator products and DLP products for TVs and video projectors.
Yield: 2.6% | Dividend Growth: 16.0% | 15 Year Yield: 24.4%
Cisco Systems, Inc. (CSCO) offers a complete line of routers and switching products that connect and manage communications among local and wide area computer networks employing a variety of protocols.
Yield: 3.4% | Dividend Growth: 15.0% | 15 Year Yield: 25.1%
Phillips 66 (PSX), spun off from ConocoPhillips in 2012, is one of the largest independent refiners and marketers of petroleum products in the U.S.
Yield: 3.2% | Dividend Growth: 15.0% | 15 Year Yield: 26.1%
CVS Health Corporation (CVS) is the largest pharmacy health care provider in the U.S.
Yield: 2.5% | Dividend Growth: 17.6% | 15 Year Yield: 28.7%
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 250+ 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 OHI, MSFT, LMT, CBRL, TXN, CSCO. See a list of all my Dividend Growth Portfolio holdings here.
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