The DIV-Net: The Secret Ingredient of Dividend Growth Stocks skip to main | skip to sidebar The DIV-Net The Dividend Investing and Value Network Home About Members Associates Join DIV-Net Submit an Article Disclaimer Admin Recent Posts From DIV-Net Members Dividend Portfolio Transfer Tuesdays - It’s difficult to stay motivated. Think about New Year’s resolutions. Usually, most people are pumped every year to start resolutions, but somehow they e... 3 hours ago Dividends Diversify 7 Types Of Goals to Set Now (With 100+ Examples) - Categories Of Goals With Examples To Kick Start Your Future Today I want to cover 7 different types of goals. Also, important traits that every goal shou... 1 day ago Dividend Growth Stocks Colgate-Palmolive (CL) Dividend Stock Analysis - Linked here is a detailed quantitative analysis of Colgate-Palmolive (CL). Below are some highlights from the above linked analysis: Company Description: C... 1 day ago Dividend Growth Investor Seven Dividend Growth Stocks Rewarding Shareholders With a Raise - I review the list of dividend increases each week, as part of my monitoring process. This exercise allows me to monitor existing holdings, but also to ke... 5 days ago Hello Suckers ... 2022 Week 37 investing and trading report - Another bad week for our portfolio. It dropped 12% again last week. But as you will see below, it is just paper losses. I didn’t sell any of my positions... 5 days ago DivGro Monthly Review Of DivGro: August 2022 - Welcome to the August review of DivGro, my portfolio of dividend growth stocks. These reviews aim to provide a summary of dividends received and to de... 6 days ago My Road to Wealth and Freedom August 2022 Passive Income $1,020 - Hey Everyone, welcome to the August 2022 Passive Income report. This is where I track our investment income from dividend stocks, index funds and exchan... 1 week ago Life With Dividends Lets talk about : 3M - In my last post, I mentioned that I was closely looking at my position in 3M especially in light of all the negative news surrounding the company. I had a ... 1 week ago Passive Income Pursuit Wow! 53 years is most impressive. Not just a King ... - Wow! 53 years is most impressive. Not just a King but a legendary hall of famer in my opinion! 2 weeks ago Dividend Geek 2020 Q1 Dividends - $430.58 - The markets have been in turmoil and I have seen my investments drop by 20%. My standard reply to market volatility has been that I don’t care because I ... 1 year ago The Dividend Gangster Portfolio Update – March 2021 – $1,000 per month! - I am a little shocked, and disappointed in myself, that it has been almost eight months since my last post. The timing makes sense though: I went back to s... 1 year ago Fiscal Voyage Passive Income for July 2020 - Once a month, I like to talk about my total passive income for the previous month. I do this to track how much passive income is coming in. When I start ... 2 years ago Dividend Cashflow Portfolio Update May 2020 - It is time to give a new update about my current portfolio. April has shown some recovery of my portfolio and also of my dividend … The post Portfolio Up... 2 years ago Harvesting Dividends Dividend Stocks That Broke Out with the S&P 500 and NASDAQ This Week - Note: This page contains affiliate links for certain services and products. I may receive compensation at no additional cost to you when you click on thes... 2 years ago Active Passive Money Buy: ABBV - Today I added a new position: ABBV. They didn't show up on my screener because some spin-off activity made it look like their div history is much shorter t... 5 years ago dennismccain - Investing - Show 10 Show All The Secret Ingredient of Dividend Growth Stocks When people learn that I am an income investor it is not uncommon for them to ask why I invest in stocks instead of other "safer" alternatives such as bonds, high yield money market accounts [MMA] or certificates of deposits [CD]. I generally start with my short answer of, "Dividend stocks have a secret ingredient that makes them a much more desirable investment." Needless to say this usually piques their interest and normally the response is something like, "Secret ingredient? What secret ingredient?" Then I explain. Dividend Stocks Hidden Power Let's assume you can find a CD that earns a similar rate as the dividend stock (a stretch now days, but stay with me) and it is federally insured, thus protecting the purchaser from loss. So it must be better, right? What separates good dividend stocks from bonds, MMAs and CDs is a hidden power not readily recognizable to the uninitiated - dividend growth. While a CD will pay a market interest rate for its term, its only growth is movement in the market rate at renewal, which can go either up or down. Contrast that with a good dividend stock with decades of consecutive annual dividend increases. Dividend Stocks Yield On Cost One way to compare the earning power of two investments or an investment and a CD is to look at their Yield On Cost [YOC] over time. YOC is a simple concept where you divide annual earnings over the investment's original cost. Consider this simple example of a stock with a 2.75% yield and a dividend growth rate of 7%, compared a 5-year CD paying 3.00%, where earnings in both are withdrawn when paid: Div. Stock CD Investment $ 10,000 10,000 Initial Yield 2.75% 3.00% Div. Growth 7.0% 0.0% Earnings Yr. 1 275 300 YOC Yr. 1 2.8% 3.0% Earnings Yr. 2 294 300 YOC Yr. 2 2.9% 3.0% Earnings Yr. 3 315 300 YOC Yr. 3 3.1% 3.0% Earnings Yr. 4 337 300 YOC Yr. 4 3.4% 3.0% Earnings Yr. 5 360 300 YOC Yr. 5 3.6% 3.0% Earnings Total 1,581 1,500 YOC Final 3.6% 3.0% Though the dividend stock started with a lower yield of 2.75%, its final YOC after 5 years was 3.6% compared to the constant 3.0% of the CD. The key here is to find dividend stocks that are growing their dividends and will continue to do so. Since these numbers are contrived, the obvious question is how does this translate to the real world? Dividend Stocks The Last 10 Years Below are some bellwether dividend growth stocks and their performance over the last 10 years, assuming the stock was bought at the its 2007 high price: General Dynamic (GD) - 2007 Dividend per Share: $1.16 - 2007 High Share Price: $94.55 - 2007 Yield on High Price: 1.2% - 2016 Dividend per Share: $3.04 - 2016 Yield On Cost: 3.2% - Current Yield: 1.6% Johnson & Johnson (JNJ) - 2007 Dividend per Share: $1.66 - 2007 High Share Price: $68.75 - 2007 Yield on High Price: 2.4% - 2016 Dividend per Share: $3.20 - 2016 Yield On Cost: 4.7% - Current Yield: 2.3% Coca-Cola Company (KO) - 2007 Dividend per Share: $0.68 - 2007 High Share Price: $32.16 - 2007 Yield on High Price: 2.1% - 2016 Dividend per Share: $1.40 - 2016 Yield On Cost: 4.4% - Current Yield: 3.2% McDonald's Corp. (MCD) - 2007 Dividend per Share: $1.50 - 2007 High Share Price: $63.69 - 2007 Yield on High Price: 2.4% - 2016 Dividend per Share: $3.61 - 2016 Yield On Cost: 5.7% - Current Yield: 2.5% Proctor & Gamble (PG) - 2008 Dividend per Share: $1.45 - 2008 High Share Price: $73.81 - 2008 Yield on High Price: 2.0% - 2017 Dividend per Share: $2.70 - 2017 Yield On Cost: 3.7% - Current Yield: 3.2% The above data demonstrates another important concept - growth is more important than starting point. By using the high stock price for 2004, you would have purchased the stock at its absolute lowest yield for the year. After 10 years of growth, the YOC is significantly higher than the stocks' current yield and yield on the date it was purchased. Also, note that the current yield is similar to original yield for most of the stocks, which means the share price had to grow at a similar rate as the dividend rate. Stock appreciation and income growth - it just doesn't get any better than that! Full Disclosure: Long GD, JNJ, KO, MCD, PG in my Dividend Growth Stocks Portfolio. See a list of all my Dividend Growth Portfolio holdings here. Related Articles - International Diversification May Be Closer than You Think - Characteristics of Great Dividend Growth Stocks - 8 Dividend Stocks With A 15% Yield In 15 Years - Don't Touch These 5 Dividend Stocks! - 9 Higher Yielders With A Low Free Cash Flow Payout (Photo Credit) This article was written by Dividends4Life. If you enjoyed this article, please subscribe to my feed [RSS] or have future articles emailed to you [Email]. Labels: Dividends4Life Newer Post Older Post Home RSS Email Wikinvest Wire Subscribe To Dividend Growth Investor's Newsletter Dividend Growth Investor Newsletter Annual : $65.00 USD - yearly Monthly : $6.00 USD - monthly Recent DIV-Net Core Member Posts Dividend Growth Stocks Colgate-Palmolive (CL) Dividend Stock Analysis Linked here is a detailed quantitative analysis of Colgate-Palmolive (CL). Below are some highlights from the above linked analysis: Company Description: C... 1 day ago _________________________________________________________ Dividend Growth Investor Seven Dividend Growth Stocks Rewarding Shareholders With a Raise I review the list of dividend increases each week, as part of my monitoring process. This exercise allows me to monitor existing holdings, but also to ke... 5 days ago _________________________________________________________ Comments You need to enable JavaScript to read this. Subscribe or Visit Member Sites RSS: Dividends4Life ....................................................................... RSS: Dividend Growth Investor ....................................................................... RSS: The DIV-Net Site ....................................................................... Associate Members Sites and Feeds ....................................................................... 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