Dividend Yield or Dividend Growth?

20 Comments so far

1. Investment » Dividend Yield or Dividend Growth? May 14, 2008 7:02 am

   […] Startup, entrepreneurship & social media insight from Instigator Blog wrote an interesting post today on Dividend Yield or Dividend Growth?Here’s a quick excerptDividend Yield or Dividend Growth? Written by The Dividend Guy on May 14, 2008 Be the First to Comment » I have been getting a whole bunch of emails recently asking me for my picks of the highest dividend yielding stocks that I would recommend buying. I think this really speaks to two factors at play here. First, I do not make recommendations on what stocks to buy. I am not a financial advisor nor am I licensed to offer investment advice. Second, when trying to build a dividend portfolio […]

2. Tyler @Dividend Money May 14, 2008 7:16 am

   Hi,
   I think that far too many investors focus on current yield. While current yield is great for those entering their retirement years (as long as it is sustainable) for those of us accumulating wealth we need dividend growth to beat inflation.
   I wrote a little scenario about the need for dividend growth to beat inflation a few days ago on my blog if you are interested.
   Great post - young dividend investors really do need to focus on dividend growth versus dividend yield.

3. Frank May 14, 2008 6:19 pm

   I definitely know what you mean. Young investors like myself tend to focus on yields rather than dividend growth, and I agree with you that’s a mistake!

4. Danger Dan May 14, 2008 7:21 pm

   I’m in the middle of setting up a conservative DIY dividend “fund”, so this is all quite timely. I certainly see the point, but I’ve been wondering about opportunity cost. It’s great that one’s initial $100 investment had a dividend that went from $2.50 to $5.00 per year and effective yield has doubled from 2.5% to 5%. But imagine the price of the stock went from $100 to $200 at the same time (i.e. same P/E ratio and payout ratio). One could then sell, take that $200 and invest in some other company paying 2.5% yield and get the same $5 per year. Which is better would depend on which company is better I suppose. Maybe the point is a reliable grower is less likely to cut dividends than a freshstart. Or is it that a reliable grower yields reliable value increases of the stock? I am thinking it is important to keep tabs on both dividend growth and on current yields of other competing opportunities.

5. Michael Barany May 14, 2008 8:36 pm

   Which would you rather have:

   A stock yielding 2 percent and the dividend growing at 10 percent per year OR a stock yielding 10 percent and the dividend growing at 2 percent per year.

   Before you answer, work out the math!

6. Bob Evans May 14, 2008 9:45 pm

   Along with yield and growth look at the amount of time the company has been paying dividends. Some really high yield companies have reduced or stopped dividends all together in the last 9 months with the sub-prime mess.
   For all of the young investors out there they might want to look into direct purchase plans, and eliminate broker fees. Some companies with direct plans even pay the fees for you. I have put together a web site with over 150 companies that offer direct purchase plans. It’s FREE for anyone that wants to look at it just go to www.aplussrc.com
   My per share cost at this time os only .34 and the great thing is you can buy stock in companies for as little as $25 to $50 a month. A great way to build a position over the long term.

7. moneygardener May 15, 2008 6:57 am

   Bob, - I love your restaurant!

8. Dividend Growth Investor Carnivals, Festivals and Blogs - April 29, 2008 May 15, 2008 7:49 am

   Well, a truly diversified dividend portfolio should contain both high-yielding, slow growing dividend payers as well as lower yielding faster dividend growers.
   The perfect dividend stock is one the increases its dividends above the rate of inflation, while maintaing an above average dividend yield as well as performing above the market over a period of 5-10 years.

9. This and That May 15, 2008 8:54 pm

   […] The Dividend Guy says that dividend growth is more important than initial yield. […]

10. Danger Dan May 15, 2008 9:17 pm

    “Which would you rather have:

    A stock yielding 2 percent and the dividend growing at 10 percent per year OR a stock yielding 10 percent and the dividend growing at 2 percent per year.”

    That’s a good question. On a dividend received basis the faster growth looks to take about 30 years to break even - those early high dividends really pay off, and within ten years you’ve recouped your initial investment, which is a happy little safety net if you don’t reinvest in the same stock. On the other hand, if (?) the price/dividend ratio is constant then the fast growing dividend would have yielded an enormous increase in stock price, whereas the high yielder would have changed only a little - with just a 6 year total return breakeven point. The trick I suppose is to find a company that can raise profits 10% per year in an economy growing at 3% a year, and do that for 30 years without getting stuck. So my answer is probably to have a little of both and hedge my bets, since the real enemy is the fickle winds of business, I reckon.

11. Dividend Growth Investor Carnivals, Festivals and Blogs - April 29, 2008 May 16, 2008 7:36 am

    The question that Michael Barany asked could be solved using a perfect world scenario and the answer would be - it doesn’t matter.
    Fascinating..

12. Financial Jungle May 16, 2008 5:39 pm

    Yield and growth are equally important. Gordon Equation states that:

    Dividend TOTAL return = Dividend Yield + Dividend Growth

    A 2% yielding, 10% growing stock generates an identical return as a 10% yielding, 2% growing stock no matter what time frame you are looking at.

13. Saturday LinksStuff, Funny Comments And Weight May 17, 2008 4:51 am

    […] Dividend Guy says that dividend growth is far more important than dividend yield when selecting dividend stocks. Excellent advice. Next question - which […]

14. carl sauve May 18, 2008 10:41 am

    How does a retail invstor compile a list of those companies with the best records for raising dividends for long periods. I have access to Globe and mail gold if there is anything on that site which would help. thanks, Carl

15. Dividend Growth Investor- Carnivals, Festivals and Blogs - May 21, 2008 May 21, 2008 8:43 am

    ..[The Dividend Guy asks his readers which one is more important, Dividend Yield or Dividend Growth?]..

16. Tenor John May 21, 2008 12:47 pm

    Thank you Dividend Guy for this symposium.
    “The math”, has had me trying to find both high yield, and high dividend-growth, stocks. Because it’s hard to find companies which grow their dividends at consistently high rates over long periods, a high d-g stock may never catch up to a high yielder.
    However, Danger Dan, and Financial Jungle, broadened the context for me and made me consider an additional feature of high d-g stocks; that of a corresponding growth in price.
    Thanks to this, I am now a little wiser.
    Do you have anything that would make me a little smarter?

17. Tenor John May 21, 2008 1:01 pm

    Carl:

    Try Mergent’s Dividend Achievers website

18. Everything Finance May 27, 2008 6:48 am

    Carnival of Everything Finance: # 18…

    Welcome to the May 27, 2008 edition of Carnival of Everything Finance.

    We had over 125 really good articles submitted for this edition. Unfortunately I could not include all of them.
    I hope you enjoy reading these articles….

19. Weekly Dividend Investing Roundup - May 31, 2008 » The Dividend Guy Blog May 31, 2008 7:45 am

    […] Carnival of Everything Finance had Dividend Yield or Dividend Growth? […]

20. Carnival of Everything Finance: # 18 | virtualgrant.com June 27, 2008 11:39 pm

    […] Dividend Guy presents Dividend Yield or Dividend Growth? posted at The Dividend Guy […]

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