Here is a good post for yield investors. Here Dividend Growth Investor highlights why it is worthwhile to invest in a company with consistent dividend growth rather than one with a terminal dividend yield.
Let’s illustrate this with an example. Abbott Labs (ABT) is a dividend aristocrat which has raised distributions for 37 years in a row. It yields 3% right now, but has a ten year dividend growth rate of 9%. At this rate the company would double its dividend every 8 years. The growth has slowed over the past decade however – since 1983 the dividend growth was almost 13.1% per annum. The stock yielded 2.2% in 1983, which was hardly under the radar of any yield chaser. In fact the current yield at year-end for Abbott fluctuated between a low of 1.20% in 1998 and a high of 2.89% in 2009. The visionary investor who purchased Abbott at the end of 1983 achieved a yield on cost of 10% in 1992 in addition to holding onto a five-bagger. Twenty six years later this investor would have achieved a yield on cost of 55%, which is something that even the highest yielding stock out there cannot match.
An investor in a high yielding stock in 1983 would have most likely kept on receiving a high current yield for a long period of time. The main issue with this scenario is that the purchasing power of the flat dividend payment would have been cut in half over the past quarter of a century. Similarly an investor in 30 year US Treasury Bonds would have kept receiving the same amount of income each year. Check my analysis of Abbott Labs.
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