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 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) and yield of 2% or more. The results are presented below:
Walmart Stores Inc. (WMT) - Walmart Stores Inc. is the largest retailer in North America and operates a chain of discount department stores, wholesale clubs, and combination discount stores and supermarkets.
Yield: 2.8% | Payback Years: 13.0
AT&T Inc. (T) - AT&T Inc. (formerly SBC Communications) provides telephone and broadband service and holds full ownership of AT&T Mobility (formerly Cingular Wireless). AT&T Corp. was acquired in late 2005 and BellSouth in late 2006.
Yield: 6.1% | Payback Years: 12.9
Target Corporation (TGT) - Target Corp. operates operates about 1,500 Target and 250 SuperTarget general merchandise stores across the U.S.
Yield: 2.2% | Payback Years: 12.6
T. Rowe Price Group Inc. (TROW) - T. Rowe Price Group Inc. operates one of the largest no-load mutual fund complexes in the United States.
Yield: 2.7% | Payback Years: 12.5
McDonald's Corporation (MCD) - McDonald's Corporation is the largest fast-food restaurant company in the world, with about 32,500 restaurants in 117 countries.
Yield: 2.8% | Payback Years: 12.2
Walgreen Co. (WAG) - Walgreen Co. is the largest U.S. retail drug chain in terms of revenues. It operates more than 8,000 drug stores throughout the U.S. and Puerto Rico.
Yield: 2.2% | Payback Years: 12.1
Waste Management Inc. (WM) - Waste Management Inc. is the largest U.S. trash hauling/disposal concern.
Yield: 4.6% | Payback Years: 12.1
Lowe's Companies Inc. (LOW) - Lowe's Companies, Inc. sells retail building materials and supplies, lumber, hardware and appliances through more than 1,700 stores in the U.S. and Canada.
Yield: 2.7% | Payback Years: 11.2
AFLAC Incorporated (AFL) - Aflac Incorporated provides supplemental health and life insurance in the U.S. and Japan. Products are marketed at work sites and help fill gaps in primary insurance coverage. Approximately 80% of earnings comes from Japan and 20% from the U.S.
Yield: 3.5% | Payback Years: 11.0
Intel Corporation (INTC) - Intel Corporation is the world's largest manufacturer of microprocessors, the central processing units of PCs, and also produces other semiconductor products.
Yield: 4.1% | Payback Years: 10.6
ConocoPhillips Co. (COP) - ConocoPhillips Co. was formed in 2002 when Phillips Petroleum and Conoco merged and is now is the fourth largest integrated oil company in the world.
Yield: 4.2% | Payback Years: 9.9
Watsco Inc. (WSO) - Watsco Inc. is the largest U.S. distributor of air-conditioning, heating and refrigeration equipment, and related products.
Yield: 4.2% | Payback Years: 9.9
Lockheed Martin Corp. (LMT) - Lockheed Martin Corp. is the world's largest military weapons manufacturer and is also a significant supplier to NASA and other non-defense government agencies. LMT receives about 93% of its revenues from global defense sales.
Yield: 4.3% | Payback Years: 9.7
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 210+ 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 WMT, T, MCD, INTC, COP, LMT. See a list of all my dividend growth holdings here.
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