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?' Its currently yielding 7%, 8%, 9% or more?" With this statement the reader has possibly identified themselves as an income investor, and but definitely established the fact that they are 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:
Broadcom (AVGO) boasts a highly diverse product portfolio across an array of end markets.
Yield: 2.6% | Dividend Growth: 15.0% | 10 Year Yield: 10.4%
Abbvie Inc. (ABBV) is a global research-based pharmaceuticals business that emerged as a separate entity following its spin-off from Abbott Laboratories at the start of 2013. AbbVie's key drug is Humira for rheumatoid arthritis.
Yield: 4.8% | Dividend Growth: 10.2% | 10 Year Yield: 11.5%
As with past screens, the data presented above is in its raw form. Some of 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 150+ 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 ABBV.
Related Articles
