Tuesday, April 19, 2022

Seeding A Forest Of Dividend Growth Stocks

In the southern U.S. where I live, there has been some controversy over harvesting forests of hardwoods and reseeding them with pines. Valuable hardwood trees such as white and red oaks, cherry, ash, yellow poplar and black walnut require decades to reach financial maturity. The southern pine reaches financial maturity in a fraction of the time, but will not bring the same price as hardwoods. Growing hardwoods is very similar to investing in dividend growth stocks.

What you plant or invest in today will not yield much for years to come. That is not to say progress is not seen. It is just slow and deliberate. To grow hardwoods it takes great foresight and commitment to the process. The small investments we make in quality dividend growth stocks each month won't provide large payments in the near-term. It will take time for the payments to grow and compound, but they will.

Consider what these "hardwood" dividend growth stocks have done over the last 10 years, assuming a buy at 2008's high:

Texas Instruments Inc. (TXN) is one of the world's largest manufacturers of semiconductors, this company also produces scientific calculator products and DLP products for TVs and video projectors.

- 2011 Yield on Cost: 1.54
- 2021 Yield on 2011 Cost: 10.6%
- Yield on Cost Growth: 6.8 times
- Years of Consecutive Dividend Increases: 40
- Current Yield: 2.7%

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 June 30 AUM of $776.6 billion.

- 2011 Yield on Cost: 2.8%
- 2021 Yield on 2011 Cost: 6.0%
- Yield on Cost Growth: 2.1 times
- Years of Consecutive Dividend Increases: 35
- Current Yield: 3.3%

Microsoft (MSFT), the world's largest software company, develops PC software, including the Windows operating system and the Office application suite.

- 2011 Yield on Cost: 2.7%
- 2021 Yield on 2011 Cost: 7.6%
- Yield on Cost Growth: 2.8 times
- Years of Consecutive Dividend Increases: 20
- Current Yield: 0.9%

When the time comes to enjoy the fruits of your labor, the steady stream of dividend income will delight the investor. When money is not an issue, few people would say, "That's a nice cherry bedroom set. Do you have anything in pine?"

Full Disclosure: Long TXN, TROW, MSFT,

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