Imagine if you had bought these stocks 20 years ago.
If you had, then right now you'd be earning dividend yields
of... 27%... 33%... even as high as 65%. And that's from brand name
Proctor & Gamble (NYSE:
Unfortunately, most investors will never see dividend yields
like these. They don't have the patience. They want bigdividend
checks now, and in a classic twist of irony, they're missing out on
some of themarket 's highest-yielding opportunities.
Let me explain...
When most investors think about buying an income stock, they
focus solely on the stock'scurrent yield . They think bigger equals
better, and they're most interested in stocks thatoffer headline
grabbing dividend yields.
Don't get me wrong... to some extent they're right. Clearly, a
higher dividend puts more cash in your pocket.
as I told you recently
,yield isn't the only key to a good income investment... you also
need to consider a company's dividend growth. Dividend growth can
turn lower-yielding stocks into big income producers over time.
For example, right now Proctor & Gamble pays adividend yield
of 3.2%... nothing special. But in the past 20 years, the company
has raised its dividend 799%. That means if you had bought the
stock back in 1992, then you would be currently earning ayield on
cost of 33%.
The same goes for
Johnson & Johnson (NYSE:
. If you had boughtshares of these companies twenty years ago,
thanks to dividend increases, those shares would be paying you over
That's the power of dividend growth... and it's why I think it's
one of the most important aspects of any income investment.
But that begs the question, how do you know if a company is
going to increase its dividend? Dividend increases are decided by a
company's board of directors, and there's no law that says a
company must increase its payout.
That's why I've found its best to look at companies that already
have a strong track record of growing their dividend. If a company
has a history of increasing its dividend year in and year out, then
dividend increases are clearly an important part of the company's
culture. All other things being equal, if a company has increased
its dividend consistently for 10, 20... even 50 years or more, then
it's going to be far more likely to keep its dividends growing in
With that in mind, I recently conducted an extensive search to
try and find companies that have raised their dividends for 50
years of more.
As you can see, each of these stocks has increased its dividend
every year for at least half a century.
The market clearly rewards that kind of behavior. Of the 14
companies on the list, all of them have handedly outperformed the
342% return from the S&P 500 in the Past 20 years.
But the real story is what those dividend increases have been
able to do for income-oriented investors. Just look at the dividend
yields you'd currently be earning if you had bought these stocks
just 20 years ago...
As you can see, after 20 years of consecutive dividend
increases, each of these stocks offers a very attractive yield on
cost. The highest yielding stock on the list - Lowe's - has a yield
on cost of 65%... and that's from a $37 billion company.
That just goes to show what dividend increases can do for your
portfolio. Thanks to dividend increases, some of the market's
lowest-yielding stocks can turn into big dividend payers over
Risks to Consider:
Of course with investing, nothing is 100% certain. Just because
a stock has increased its dividend for 50 consecutive years, it
doesn'tmean it's guaranteed to increase it for another 50.
Action to Take -->
But the lesson here is simple -- if you're ignoring dividend
increases, then you could be missing out on some of the market's
biggest high-yield opportunities.
-- Paul Tracy
[Note: If you're interested in learning more important qualities
to look for when coming up with income investments, my co-publisher
Lou Betancourt has come out with a new report all about how to pick
"Retirement Saving Stocks." In it, he outlines how to find the best
income investments available today. Click here to learn the names
and ticker symbols of some of these companies.]
Paul Tracy does not personally hold positions in any securities
mentioned in this article. StreetAuthority LLC does not hold
positions in any securities mentioned in this article.