As a kid I loved math. Unlike classic literature where I had to correctly interpret symbolism that I rarely ever noticed, math was one of the few subjects that had a definitive answer - it was either right or wrong. I took great comfort in that. Dividend investing takes advantage of certain undeniable math principles.
If you have examined one of my stock analyses, you may have noticed the metric "Rolling 4-yr Div. > 15%". This calculation determines if a company's dividends grew on average in excess of 15% for each consecutive 4-year period, within the last 10 years of history. For example, if on average dividends grew 15% or more for the periods 2005-2008 and 2004-2007 and 2003-2006 and so on to 1997-2000, then this test is true. The reason I like this metric is it identifies companies that consistently increase dividends. Another way of stating this is that if you held this company for any 4-year period over the last 10 years, you would have averaged a 15% dividend growth rate during the time you held the stock.
Contrast the above example with a company that grew its dividends at 1% per year for nine years, then sold some land in year 10 and paid a special dividend that resulted in a 140% year-over-year dividend increase. This company's average 10-year dividend growth rate is 15% [(140 + 9)/10]. Both companies would have a 15% 10-year average dividend growth rate. However, based on history the first company is more likely to raise its dividend by 15% in the future.
Ok, so why is 15% relevant? The power of 5/15, of coarse! Dividends will double every 5 years if they grow by 15% per year. Taking this undeniable math principle into consideration, it often makes sense to purchase a stock with a lower yield but with a higher growth rate. Here are few companies that I own that have the power of 5/15 working for them: Royal Bank of Canada (RY), Paychex Inc (PAYX), McDonald's (MCD), Sysco Corp (SYY) and AFLAC Inc (AFL).
Do you have the power of 5/15 working for you?
At the time of this writing I owned shares in RY, PAYX, MCD, SYY and AFL.
A home insurance or a health insurance deal is different than a dental insurance or a car insurance or any other insurance deal.
Popular Posts - Last 7 days
Presented below are my dividend stock and ETF/CEF holdings. This is not a recommendation to buy these securities. I have classified some of...
Linked here is a detailed quantitative analysis of Colgate-Palmolive (CL). Below are some highlights from the above linked analysis: Comp...
Linked here is a detailed quantitative analysis of Coca-Cola Company (KO). Below are some highlights from the above linked analysis: Comp...
As a kid I loved math. Unlike classic literature where I had to correctly interpret symbolism that I rarely ever noticed, math was one of th...
After each quarter-end, I review my asset allocation and year-to-date total returns by category. The attached PDF contains my actual asset a...
Driven by computers that cost more than the average person will earn in their lifetime the investment markets move at light speed. To keep p...
Each Sunday I highlight any notable articles that I came across over the past week, along with any Carnivals I participated in. For those re...
Monday, October 31, 2011 will mark my fourth full year of writing as Dividends4Life . It is hard to believe another year has passed. Like th...
It is the goal of many people to build enough wealth to put their kids through college, payoff their mortgage, be in a position to help thei...
Like many that came before me, I am on a journey to construct a portfolio that will provide me... Dividends 4 Life