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sagitarius84 (< 20)

Why Dividend Growth Stocks Rock?

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May 25, 2010 – Comments (6) | RELATED TICKERS: BG , CLX , CP

According to Ned Davis Research, $100 invested in all dividend payers of the S&P 500 index in 1972, would have grown to $2,266 by the end of 2009. The same $100 invested in non-dividend paying stocks in the S&P 500 returned a negative 39% over the same period. The performance of dividend payers and initiators was even better, returning $2,945 on the initial investment in 1972. Dividend investors should utilize every edge they could find in order to deliver above average total returns. As a result, the findings of the Ned Davis study should not be ignored. The reason why dividend growers outperform is that Continue Reading...

 

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6 Comments – Post Your Own

#1) On May 25, 2010 at 10:47 AM, sagitarius84 (< 20) wrote:

I have managed to outperform the market using a dividend growth strategy since 2007. What are your favorite dividend stocks?

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#2) On May 25, 2010 at 11:52 AM, pj19 (< 20) wrote:

SO MO SBLK

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#3) On May 25, 2010 at 4:53 PM, rd80 (98.23) wrote:

MCD

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#4) On May 25, 2010 at 5:59 PM, Mstinterestinman (< 20) wrote:

VFC,KO,BP,NUE are some other dividend payers I am quite fond of.

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#5) On May 26, 2010 at 2:22 PM, SockMarket (40.70) wrote:

That blog was poorly thought out IMO. Here is why:

1) Not all high yield companies cut their dividends, in fact it is pretty easy to tell who will and who won't. If one looks at earnings stability and payout ratio it is very obvious, very quickly.

2) High dividends come on all sorts of stocks, you don't have to chase the 15% that CanRoys or shipping companies yield. You can take the easy, safe 7.5% that you can get on companies like APU or SPH or BWP (the list goes on).

3) If I bought one of those "horrible" high yielding stocks that isn't known for dividend growth I will get alot more money out of it that if I were to buy a "dividend growth stock". To illustrate this, lets take APU and PEP.

To buy a share of APU 10 years ago today would have cost you $15.6, the current yield is $2.82, for a 18% yield on cost.In that time APU's dividend is up 28%

Now if I bought PEP back then it would cost $40.31. The current dividend is $1.92 for a yield on cost of 4.7%. In that time PEP's dividend is up 243%.

By investing a low yield, high dividend growth company, you would have gotten less dividend every year, less capital gains in the stock (another reason that people tout dividend growth stocks), and a far lower yield now. 

Buying a dividend growth stock strikes me like saying: Sure ill take a $50k a year job with a 8% raise every year instead of a $100k a year job with a 2% raise every year.

I can't understand why anyone would do it.

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#6) On May 27, 2010 at 11:50 AM, sagitarius84 (< 20) wrote:

You can always defent your point of view by picking examples that fit your beliefs. Why don't you compare results of NUE with APU over the past decade?

With higher yielding stocks you are taking on more risk. APU passes through all of its earnings to you as a unitholder. Thus it has to take on extra debt and sell more units/stock/ to expand. PEP or NUE both reinvest a portion of their earnings and distribute the rest to stockholders. A company yielding 7% that distributed over 100% of its earnings i less valuable to you as an owner than a company yielding 3% that has a 30% payout ratio.

You should look at things in the aggregate, not focus on specific examples. What happens with MLPs if we have change in the tax code? Your dividends will be toast.

What happens if interest rates increase? It will be tougher for your company to expand by selling out new units that would yield enough to satisfy new investors. 

By concentrating yourself ONLY in high yielding sectors you are exposing yourself to a higher degree of risk. If you do not see the risks, then that's your problem.

I myself am properly diversified and own a mixture of low growth high dividends stocks, mid growth mid yield, and some low yield high growth stocks.

I do buy a company that can afford to grow earnings, which thereafter drive distribution growth. 

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