I know very little about hockey, but I have always loved this quote:I skate to where the puck is going to be, not where it has been."
- Wayne Gretzky
It can be applied to so many things in life, including investing in Dividend Growth Stocks. Just as Gretzky has a vision as to where the puck is going, investors need to have a similar vision, and not get caught up on short-sighted distractions.
Investing in dividend growth stocks requires a long-term vision. It is easy to run a screen and find stocks that are paying a 10%, 15% or 20% yield today; but how long will they be able to sustain it? Instead you may want to skate to where the future high-yielders are going to be. To do that end, here are some things you need to know...
Tracking Yield On Cost
Yield-on-cost (YOC) is simply Current Annual Dividend divided 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 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 week, I screened my
dividend growth stocks database for stocks that have a dividend growth rate in excess of 5% that will be yielding between 20% to 30% in 20 years based on their current yield and dividend growth rate. The results are presented below:
Casey's General Stores Inc. (
CASY) has over 1,650 convenience stores in the Midwest, selling food, beverage, health and automotive products. CASY is a member of the Broad Dividend Achievers™ Index.
Yield: 1.1% | Dividend Growth: 15.8% | 20 Year Yield: 20.9%
Grainger Inc. (
GWW) is the largest global distributor of industrial and commercial supplies, such as hand tools, electric motors, light bulbs and janitorial items.