There are income investors and Dividend Growth investors. While the distinction is rather simple, it slips past many casual observers. Income investors are investing for maximum current income, while dividend growth investors are looking to maximize income over an extended period of time –Â usually sacrificing current income for higher future earnings.
Sometimes when I write about a stock that is yielding 2%, 3% or even 4%, I get a question that goes something like, "Why would you buy that stock when there are better options like 'Amalgamated Risk?' It's currently yielding 7%, 8%, 9% or more." With this statement the reader has possibly identified as an income investor, and definitely established the fact that he/she is not a dividend growth investor.
Tracking yield on cost
Yield-on-cost (YOC) is simply Current Annual Dividend dividend by Original Cost Per Share. YOC not a substitute for calculating an internal rate of return (IRR). The IRR calculation takes into account both capital appreciation and the timing of cash flows (purchases, sells and dividends).
However, as a dividend growth investor, my primary focus is on dividend growth and since my desired holding period is forever, capital appreciation is often little more than an interesting side note.
YOC is much better suited for tracking dividend growth since it is individually tied to a stock and takes into account all the variations of growth rates over time, along with the timing of purchases. Also, it is useful when trying to explain to our income investor brethren why we chose the stock yielding 3% over 'Amalgamated Risk' at 8%.
This week, I screened my dividend growth stocks database for select stocks that will be yielding 10% in 10 years at its current yield and dividend growth rate. The results are presented below:
Union Pacific Corporation (UNP, Financial) operates the largest U.S. railroad, with more than 32,000 miles of rail serving the western two-thirds of the country.
Yield: 1.7% | Dividend Growth: 20.0% | 10 Year Yield: 10.1%
Texas Instruments Inc. (TXN, Financial) is of the world's largest manufacturers of semiconductors, this company also produces scientific calculator products and DLP products for TVs and video projectors.
Yield: 2.5% | Dividend Growth: 15.0% | 10 Year Yield: 10.3%
Target Corp. (TGT, Financial) operates nearly 1,800 Target, SuperTarget and CityTarget general merchandise stores across the U.S.
Yield: 2.8% | Dividend Growth: 20.0% | 10 Year Yield: 15.9%
Cisco Systems, Inc. (CSCO, Financial) offers a complete line of routers and switching products that connect and manage communications among local and wide area computer networks employing a variety of protocols.
Yield: 2.9% | Dividend Growth: 15.0% | 10 Year Yield: 11.7%
Cracker Barrel Old Country Store (CBRL, Financial) develops and operates the Cracker Barrel Old Country Store restaurant and retail concept in the United States.
Yield: 3.0% | Dividend Growth: 20.0% | 10 Year Yield: 18.4%
Wisconsin Energy Corp. (WEC, Financial) serves more than 1.1 million electric customers in Wisconsin and Michigan's Upper Peninsula, and more than 1 million natural gas customers in Wisconsin.
Yield: 3.0% | Dividend Growth: 15.0% | 10 Year Yield: 12.2%
Microsoft (MSFT, Financial), the world's largest software company, develops PC software, including the Windows operating system and the Office application suite. See full analysis here.
Yield: 3.1% | Dividend Growth: 15.0% | 10 Year Yield: 12.4%
Lockheed Martin Corp. (LMT, Financial), the world's largest military weapons manufacturer, 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: 3.2% | Dividend Growth: 15.0% | 10 Year Yield: 11.8%
Occidental Petroleum Corporation (OXY, Financial) is one of the largest oil and gas companies in the U.S., OXY has global exploration and production operations. Its subsidiary, OxyChem, is one of the largest U.S. merchant marketers of chlorine and caustic soda.
Yield: 3.6% | Dividend Growth: 12.5% | 10 Year Yield: 11.7%
Omega Healthcare Investors Inc. (OHI, Financial) is a real estate investment trust (REIT) that invests in income-producing healthcare facilities, mainly long-term care facilities located in the United States.
Yield: 4.8% | Dividend Growth: 8.6% | 10 Year Yield: 10.5%
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 250+ 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 TXN, CSCO, LMT, MSFT, OXY in my Dividend Growth Portfolio and long OHI in my High-Yield Portfolio. See a list of all my dividend growth holdings here.
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