The Power Of Dividend Growth

Many investors think of dividend-paying companies as boring, low-return investment opportunities. Compared to high-flying small cap companies, whose volatility can be pretty exciting, dividend-paying stocks are usually more mature and predictable. Though this may be dull for some, the combination of a consistent dividend with an increasing stock price can offer an earnings potential powerful enough to get excited about. 

High Dividend Yield?  

Understanding how to gauge dividend-paying companies can give us some insight into how dividends can pump up your return. A common perception is that a high dividend yield, indicating the dividend pays a fairly high percentage return on the stock price, is the most important measure; however, a yield that is considerably higher than that of other stocks in an industry may indicate not a good dividend but rather a depressed price (dividend yield = annual dividends per share/price per share). The suffering price, in turn, may signal a dividend cut or, worse, the elimination of the dividend. 

The important indication of dividend power is not so much a high dividend yield but high company quality, which you can discover through its history of dividends, which should increase over time. If you are a long-term investor, looking for such companies can be very rewarding.

DYI Comments:  Just as the name Dividend Yield Investor indicates is my affinity with dividends; for they have never gone out of style as far as I'm concerned.  In the end they are the real reason investors, as opposed to speculators, why institutions and individuals purchase quality companies with increasing dividends.  In my mind these are the true growth stocks.  As the dividend is increased over time so will the stock price. As the legendary Charles Dow has written:

"To know values is to know the meaning of the market.  And values, when applied to stocks, are determined in the end by the dividend yield."  

The Dividend Room is a new addition to my blog showing a list of high quality dividend paying stocks for your further study.  All picks are based upon basic time tested value approach.  All companies a reasonable low level of debt for their respective industry and a low PE multiple.  Of course a competitive dividend yield with a payout ratio less than 85% for utilities and all others less than 50%.  Also screened companies that have increased their dividends on a regular basis (the true growth stocks).  Included is additional screens based upon Benjamin Graham approach for the defensive investor.

Our attempt is to find high quality companies with yields double that of the S&P 500.

The price of oil is in the news which has pounded down the prices of many of the finest oil/gas/servicing companies in the world.  Let's start there and expand into other industries.

Yield       S&P 500 Dividend Yield 1.84%

                 Oil/Gas/Service 
6.10%      Sasol Limited symbol SSL
4.40%      Helmerich & Payne symbol HP
4.10%      Chevron Corp.  symbol CVX
3.80%      Occidental Petroleum Corp. symbol OXY

                 Utilities
4.40%      Spectra Energy Partners symbol SEP
4.20%      Companhia de Saneamento Basico symbol SBS

                 Apparel Stores
4.40%      Guess' Inc.  symbol GES

                 Tobacco Products
5.00%      Universal Corp. symbol UVV

Today stock prices have been bid up so high the list is small as one would suspect.  I would recommend that you use our stock allocation formula to arrive at your allocation of stocks to bonds. Currently it is at 24% for stocks.  This formula will be updated next month but I don't see much of a change. For your cash holdings Vanguard's Short Term Bond Index symbol VBIRX or for those in a high tax bracket Vanguard's Limited Term Tax Exempt VMLTX.

DYI      
  This blog site is not a registered financial advisor, broker or securities dealer and The Dividend Yield Investor is not responsible for what you do with your money.

This site strives for the highest standards of accuracy; however ERRORS AND OMISSIONS ARE ACCEPTED!

The Dividend Yield Investor is a blog site for entertainment and educational purposes ONLY.

The Dividend Yield Investor shall not be held liable for any loss and/or damages from the information herein.

Use this site at your own risk.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.