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 income investor 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% and current yield of 2% or higher that will be yielding between 20% to 35% in 20 years based on their current yield and dividend growth rate. The results are presented below:
Hormel Foods Corp. (HRL) is a multinational manufacturer and marketer of consumer-branded food and meat products. The company has paid a cash dividend to shareholders every year since 1928 and has increased its dividend payments for 52 consecutive years.
Yield: 2.0% | Dividend Growth: 15.0% | 20 Year Yield: 33.0%
3M Co. (MMM) provides enhanced product functionality in electronics, health care, industrial, consumer, office, telecommunications, safety & security and other markets via coatings, sealants, adhesives and other chemical additives. The company has paid a cash dividend to shareholders every year since 1916 and has increased its dividend payments for 60 consecutive years.
Yield: 2.7% | Dividend Growth: 11.2% | 20 Year Yield: 22.5%
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. The company has paid a cash dividend to shareholders every year since 2011 and has increased its dividend payments for 8 consecutive years.
Yield: 3.1% | Dividend Growth: 12.7% | 20 Year Yield: 32.4%
Abbvie Inc. (ABBV) is a global research-based pharmaceuticals business that emerged as a separate entity following its spin-off from Abbott Laboratories at the start of 2013. AbbVie's key drug is Humira for rheumatoid arthritis. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 46 consecutive years.
Yield: 4.3% | Dividend Growth: 10.2% | 20 Year Yield: 22.2%
Westwood Holdings Inc. (WHG) provides investment advisory services to a wide range of institutional clients, and also provides trust and custodial services. The company has paid a cash dividend to shareholders every year since 2002 and has increased its dividend payments for 17 consecutive years.
Yield: 4.7% | Dividend Growth: 8.9% | 20 Year Yield: 26.1%
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 200+ 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 HRL, MMM, CSCO, ABBV, WHG. See a list of all my Dividend Growth Portfolio holdings here.
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