Seeding A Forest Of Dividend Growth Stocks

In the southern U.S. where I live, there has been some controversy over harvesting forests of hardwoods and reseeding them with pines. Valuable hardwood trees such as white and red oaks, cherry, ash, yellow poplar and black walnut require decades to reach financial maturity. The southern pine reaches financial maturity in a fraction of the time, but will not bring the same price as hardwoods. Growing hardwoods is very similar to investing in dividend growth stocks.

What you plant or invest in today will not yield much for years to come. That is not to say progress is not seen. It is just slow and deliberate. To grow hardwoods it takes great foresight and commitment to the process. The small investments we make in quality dividend growth stocks each month won't provide large payments in the near-term. It will take time for the payments to grow and compound, but they will.

Consider what these six "hardwood" dividend growth stocks have done over the last 10 years, assuming a buy at 2008's high:

Lowe's Companies, Inc. (LOW) sells retail building materials and supplies, lumber, hardware and appliances through more than 1,800 stores in the U.S. and Canada.

- 2008 Yield on Cost: 1.5%
- 2017 Yield on 2008 Cost: 3.9%
- Yield on Cost Growth: 2.6 times
- Years of Consecutive Dividend Increases: 55
- Current Yield: 1.9%

Cracker Barrel Old Country Store (CBRL) develops and operates the Cracker Barrel Old Country Store restaurant and retail concept in the United States.

- 2008 Yield on Cost: 2.3%
- 2017 Yield on 2008 Cost: 9.1%
- Yield on Cost Growth: 3.6 times
- Years of Consecutive Dividend Increases: 16
- Current Yield: 3.0%

Illinois Tool Works Inc. (ITW) is a diversified manufacturer that operates a portfolio of 60 business units that serve industrial and consumer markets globally.

- 2008 Yield on Cost: 2.2%
- 2017 Yield on 2008 Cost: 4.0%
- Yield on Cost Growth: 1.8 times
- Years of Consecutive Dividend Increases: 54
- Current Yield: 1.9%

Microsoft (MSFT), the world's largest software company, develops PC software, including the Windows operating system and the Office application suite.

- 2008 Yield on Cost: 2.5%
- 2017 Yield on 2008 Cost: 4.3%
- Yield on Cost Growth: 1.7 times
- Years of Consecutive Dividend Increases: 16
- Current Yield: 1.9%

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.

- 2008 Yield on Cost: 1.7%
- 2017 Yield on 2008 Cost: 5.6%
- Yield on Cost Growth: 3.3 times
- Years of Consecutive Dividend Increases: 15
- Current Yield: 2.4%

When the time comes to enjoy the fruits of your labor, the steady stream of dividend income will delight the investor. When money is not an issue, few people would say, "That's a nice cherry bedroom set. Do you have anything in pine?"

Full Disclosure: Long CBRL, ITW, MSFT, LMT in various dividend income portfolios. See a list of all my Dividend Growth Portfolio holdings here.

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