Dividend Days

It almost seems counterintuitive, but it’s true. If you’re a dividend investor you should focus an awful lot of your investment analysis on growth, though not in the context you’re thinking of. I’m not speaking to the growth of the firm itself, but rather the rate in which a firm increases it’s dividend payment.

This is particularly important for a variety of reasons. Firstly as you may know, dividend payers are often large companies that don’t have a whole lot of room to expand their operations. As such much of your return will be driven by the growth of the dividend payout itself. Here’s a great example from a recent article at the Motley Fool:

“Remember, my purchase price was roughly $43 per share. If you take the current annual dividend amount of $1.66 (paid out in quarterly installments, like most dividends) and divide it by my purchase price, you get a dividend yield of 3.9%. (Divide it by the current price and you get 2.6%.)

My yield is bigger because I bought the stock for less. The dividend is growing, too. When I bought back in 2002, the annual dividend was just $0.82.”

That’s in reference to Johnson and Johnson, but there are other great opportunities like this out there as well. Below are some examples (also from the article).

Tags: dividend, divindend investing, making money with dividends