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Wed. Dec. 8, 2010

13 Dividend Stocks With A Good Yield/Growth Mix *

As dividend growth investors we understand the danger of focusing on high yield alone. Many, if not most, high yields are simply not sustainable over the long term. However, we often turn our heads to what can be an equally dangerous metric – high dividend growth rates. Like high yields, high dividend growth rates often are not sustainable. As a company grows and matures, incremental sales and earnings are harder to come by. So what is a good mix of yield and growth?

Consider the following table:

Initial Yield
Growth Rate
Yr.5 Yr.10 Yr.20
1% 11% 1.7 2.8 8.1
2% 10 3.2 5.2 13.5
3% 9 4.6 7.1 16.8
4% 8 5.9 8.6 18.6
5% 7 7.0 9.8 19.3
6% 6 8.0 10.7 19.2
7% 5 8.9 11.4 18.6
8% 4 9.7 11.8 17.5
9% 3 10.4 12.1 16.3

The first column is the initial yield of the stock. The second column is the dividend growth rate over the period. The final 3 columns are the yields on cost (YOC) after the 5th, 10th and 20th years.  After 10 years, the YOC has either doubled (initial yields of 1%-4%), nearly doubled (initial yield of 5%) of exceeded 10% (initial yields of 6%-9%). After 20 years all the YOCs exceeded 10% except the 1% initial yield. Note that the sum of each initial yield and growth rate equals 12%, which is a nice rule of thumb to look for.

The following dividend stocks have a current yield + growth rate between 10%-12%:

Current Growth
Company Yield Rate Sum
Abbott Labs (ABT) 3.63% 8.3% 11.90%
J&J (JNJ) 3.37% 8.4% 11.79%
Harleysville Grp (HGIC) 3.77% 8.0% 11.77%
Kimberly-Clark (KMB) 4.26% 6.7% 10.93%
Northeast Utilities (NU) 3.24% 7.6% 10.80%
Buckeye Partners (BPL) 5.62% 5.1% 10.69%
McCormick & Co. (MKC) 2.25% 8.3% 10.58%
Intel Corporation (INTC) 2.91% 7.4% 10.35%
CenturyLink, Inc. (CTL) 6.68% 3.6% 10.25%
J.M. Smucker Co. (SJM) 2.46% 7.6% 10.11%
Procter & Gamble (PG) 3.09% 7.0% 10.05%
Coca-Cola (KO) 2.73% 7.3% 10.05%
Aqua America (WTR) 2.73% 7.3% 10.01%

There is no hard and fast rule to what initial yield + growth rate should equal. To be more conservative you could limit your selection criteria to less than 10%. This of course will lower the future YOC, but highlight stocks that should have a greater chance of performing. As always, a careful evaluation should be performed before buying or selling any stock.

Full Disclosure: Long ABT, JNJ, HGIC, KMB, INTC, CTL, PG, KO. See a list of all my income holdings here.

Related Posts
- The 2010 Dividend Aristocrats
- Is Now The Right Time To Start Investing?
- 12 Dividend Stocks For A Rainy Day
- 10 Stocks With 100+ Years of Dividend Payments
- Who is David Dodd and Why Should We Listen to Him

(Photo Credit)


3 Responses to “13 Dividend Stocks With A Good Yield/Growth Mix *”

  1. mike says:

    Thanks, D4L. For clarification, is the growth rate column in your table of stocks over 10 years?

    mike

  2. D4L says:

    Mike: See the link below for how I calculate the dividend growth rate:

    http://dividendsvalue.com/info/glossary/#Dividend-Growth-Rate

    Best Wishes,
    D4L

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