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 CostYield-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 30% in 20 years based on their current yield and dividend growth rate. The results are presented below:
Johnson Controls Inc. (JCI) supplies building controls and energy management systems, automotive seating, and batteries. The company has paid a cash dividend to shareholders every year since 1887 and has increased its dividend payments for 23 consecutive years.
Yield: 2.1% | Dividend Growth: 12.4% | 20 Year Yield: 22.1%
Parker-Hannifin Corp (PH) is a global maker of industrial pneumatic, hydraulic and vacuum motion/control systems, including related pumps, valves, filters, hoses, etc. Its products are used in everything from jet engines to autos, trucks and utility turbine. The company has paid a cash dividend to shareholders every year since 1949 and has increased its dividend payments for 59 consecutive years.
Yield: 2.2% | Dividend Growth: 14.0% | 20 Year Yield: 27.0%
MEC Industrial Direct (MSM) is a direct marketer that offers a range of industrial products to customers throughout the U.S.; it focuses on maintenance, repair and operations (MRO) supplies. The company has paid a cash dividend to shareholders every year since 2003 and has increased its dividend payments for 12 consecutive years.
Yield: 2.2% | Dividend Growth: 12.2% | 20 Year Yield: 22.6%
Archer-Daniels-Midland Co. (ADM) is one of the world's leading agribusiness concerns, with major market positions in agricultural processing and merchandising. The company has paid a cash dividend to shareholders every year since 1927 and has increased its dividend payments for 40 consecutive years.
Yield: 2.4% | Dividend Growth: 13.0% | 20 Year Yield: 27.2%
UGI Corp. (UGI) operates propane distribution, gas and electric utility, energy marketing and related businesses through subsidiaries. The company has paid a cash dividend to shareholders every year since 1885 and has increased its dividend payments for 28 consecutive years.
Yield: 2.6% | Dividend Growth: 9.6% | 20 Year Yield: 23.6%
T. Rowe Price Group Inc. (TROW) operates one of the largest no-load mutual fund and life cycle fund complexes in the United States, with December 31 AUM of nearly $747 billion. The company has paid a cash dividend to shareholders every year since 1986 and has increased its dividend payments for 28 consecutive years.
Yield: 2.7% | Dividend Growth: 12.8% | 20 Year Yield: 29.9%
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. The company has paid a cash dividend to shareholders every year since 2003 and has increased its dividend payments for 13 consecutive years.
Yield: 6.1% | Dividend Growth: 6.9% | 20 Year Yield: 23.4%
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 TROW in my High Dividend Growth Portfolio, long OHI in my High-Yield Portfolio. See a list of all my dividend growth holdings here.
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- Seeding A Forest Of Dividend Growth Stocks
- 7 Stocks With A Strong Cash To Dividend Coverage
- Optimizing Your Asset Allocation
Tags: PH, JCI, MSM, ADM, TROW, UGI, OHI,