When applying this concept to dividend growth stocks, the calculation is a little more complicated than the simple example above due to the annual dividend increases. Nothing that can’t be quickly modeled in a spreadsheet.
Companies with a very short payback are often troubled or have been highly discounted due to the market’s lack of faith in them. At the other extreme, do you really want to wait 30, 40 or 50 years to earn back your initial investment? As a compromise, a 9 to 13 year payback should be acceptable for most long-term investors.
Once you earn back your investment, some might say you are in a no-lose situation. I wouldn’t go quite that far, but you have found an investment that that has provided you a good historical revenue stream, and hopefully it will continue to do so in the future.
This week, I screened my dividend growth stocks database for select stocks with a 9 to 13 year payback (at the current yield and dividend growth rate), 20 years of consecutive dividend growth and a yield between 2.5% to 6.0%. Selected results are presented below:
Franklin Resources Inc. (BEN) is one of the world's largest asset managers, serving retail, institutional and high-net-worth clients. The company has paid a cash dividend to shareholders every year since 1981 and has increased its dividend payments for 37 consecutive years.
Yield: 3.0% | Payback Years: 11.8
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: 5.2% | Payback Years: 12.9
Southside Bancshares Inc. (SBSI) owns Southside Bank, which primarily provides financial services to individuals, businesses, municipal entities, and non-profit organizations. The company has paid a cash dividend to shareholders every year since 1969 and has increased its dividend payments for 24 consecutive years.
Yield: 3.7% | Payback Years: 12.2
Helmerich & Payne, Inc. (HP) is the holding company for Helmerich & Payne International Drilling Company, an international drilling contractor. The company has paid a cash dividend to shareholders every year since 1959 and has increased its dividend payments for 46 consecutive years.
Yield: 4.5% | Payback Years: 19.2
IBM's (IBM) global offerings include information technology services, software, computer hardware equipment, fundamental research, and related financing. The company has paid a cash dividend to shareholders every year since 1916 and has increased its dividend payments for 23 consecutive years.
Yield: 5.2% | Payback Years: 19.2
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 BEN, ABBV.
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Tags: BEN, ABBV, SBSI, HP, IBM,
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