I know very little about hockey, but I have always loved this quote. It can be applied to so many things in life, including investing. 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 15% yield today; but how long will they be able to sustain it? Instead  you may want to skate to where the future 15% yielders are going to be. To do that, here are some things you need to know…

Tracking Yield On Cost

Yield-on-cost (YOC) is simply Current Annual Dividend dividend 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%.

My D4L-Data model includes projections of YOC after 5, 10, 15 and 20 years. These projections are derived by growing the current yield using the dividend growth rate. As for the dividend growth rate, I use the minimum of the 1, 3, 5, 7 or 10 year compound annual growth rates; or 15% if in every consecutive 4-year period dividends grew on average in excess of 15%.

15 Dividend Stocks With A 15% Yield In 15 Years

Sorting the stocks in my D4L-Data model by their 15 Year YOC and throwing out some bad apples, we are left with these 15 stocks that are projected to have a 15% YOC in 15 years:

T. Rowe Price Group Inc. (TROW) operates one of the largest no-load mutual fund complexes in the United States.
Yield: 1.8% | Growth: 15.0% | 15 Year YOC: 15.0%

Cardinal Health Inc. (CAH) is one of the leading wholesale distributors of pharmaceuticals, medical/surgical supplies and related products to a broad range of health care customers.
Yield: 1.8% | Growth: 15.0% | 15 Year YOC: 15.0%

Owens & Minor Inc. (OMI) is a leading domestic distributor of medical and surgical supplies to the acute care market, a health care supply chain management company, and a direct-to-consumer (DTC) supplier of testing and monitoring supplies for diabetes.
Yield: 2.4% | Growth: 13.2% | 15 Year YOC: 15.6%

Praxair Inc. (PX) is the largest producer of industrial gases in North and South America, and the second largest worldwide. It also provides ceramic and metallic coatings.
Yield: 2.0% | Growth: 15.0% | 15 Year YOC: 15.9%

Aflac Incorporated (AFL) provides supplemental health and life insurance in the U.S. and Japan. Products are marketed at worksites and help fill gaps in primary insurance coverage. Approximately 80% of earnings comes from Japan and 20% from the U.S.
Yield: 2.3% | Growth: 15.0% | 15 Year YOC: 18.2%

Stryker Corp. (SYK) makes specialty surgical and medical products such as orthopedic implants, endoscopic items, and hospital beds.
Yield: 1.2% | Growth: 20.0% | 15 Year YOC: 18.6%

Casey’s General Stores Inc. (CASY) has over 1,500 convenience stores in the Midwest, selling food, beverage, health and automotive products.
Yield: 1.3% | Growth: 19.8% | 15 Year YOC: 19.4%

Weyco Group, Inc. (WEYS) distributes, wholesale & retail, men’s branded footwear in the U.S., Canada, Europe; it offers casual footwear, dress shoes and accessories under Florsheim, other brands.
Yield: 2.6% | Growth: 15.0% | 15 Year YOC: 21.0%

Walgreen Co. (WAG) is the largest U.S. retail drug chain in terms of revenues, this company operates more than 8,000 drug stores throughout the U.S. and Puerto Rico.
Yield: 1.7% | Growth: 18.5% | 15 Year YOC: 21.7%

Nucor Corporation (NUE) is the largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas.
Yield: 3.1% | Growth: 15.0% | 15 Year YOC: 25.5%

McDonald’s Corporation (MCD) is the largest fast-food restaurant company in the world, with about 32,500 restaurants in 117 countries.
Yield: 3.2% | Growth: 15.0% | 15 Year YOC: 26.1%

ConocoPhillips Co. (COP) is the fourth largest integrated oil company in the world, and the second largest in the U.S.
Yield: 3.3% | Growth: 15.0% | 15 Year YOC: 26.6%

People’s United Financial Inc. (PBCT) provides a full range of banking and financial service products to individuals, corporations and municipal customers in the U.S. Northeast.
Yield: 6.0% | Growth: 11.3% | 15 Year YOC: 30.0%

Southside Bancshares Inc. (SBSI) primarily provides financial services to individuals, businesses, municipal entities, and non-profit organizations.
Yield: 3.7% | Growth: 16.6% | 15 Year YOC: 36.9%

Old Republic Intl (ORI) writes property and liability, mortgage guaranty, title and life, and disability insurance.
Yield: 5.4% | Growth: 15.0% | 15 Year YOC: 43.6%

One key component of current yield is risk. If Treasuries (risk free) were paying 7%, 8% or 9%, many income investors and a significant number of dividend growth investors would divert a portion of their portfolios to them.

You will note that most of the above stocks are yielding under 4%. It is also important to note that I do not believe that all the above stocks will achieve their 15 year YOC. In much the same way high-yielding stocks often end up cutting their dividends, many of the above stocks will end up cutting their dividend growth rate. Put another way, there is risk associated low-yield high-dividend-growth stocks. However, for the high dividend growth stocks that perform well over the next 15 years, the rewards are potentially much higher than those of a high-yield, low growth stock.

Full Disclosure: Long OMI, NUE, MCD, COP. See a list of all my income holdings here.

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(Photo Credit)

Below are several companies stepping it up with higher cash dividends:

Hillenbrand (HI) manufactures and sells gasketed caskets made of carbon steel, stainless steel, copper & bronze; offers a cremation marketing system for funeral service professionals. December 3rd the company increased its quarterly dividend 1.3% to $0.19/share. The dividend is payable December 31, 2010, to shareholders of record at the close of business on December 15, 2010. The ex-dividend date is December 13, 2010. The yield based on the new payout is 3.9%.

Graco (GGG) is a U.S.-based global producer of industrial pumps, valves, meters, and accessories. December 3rd the company raised its quarterly dividend 5% to $0.21/share. The dividend is payable on February 2, 2011, to shareholders of record at the close of business on January 18, 2011. The ex-dividend date is January 14, 2010. GGG is a Dividend Achiever and has raised its dividend for 12 consecutive years. The yield based on the new payout is 2.2%.

Erie Indemnity (ERIE) provides sales, underwriting, and policy issuance services to the policyholders of Erie Insurance Exchange in the United States. December 7th the company increased its quarterly dividend 7.3% to $0.515/share. The dividend is payable on Jan. 20 to shareholders of record on Jan. 5. The ex-dividend date is Jan. 3. ERIE is a Dividend Achiever and has raised its dividend for 21 consecutive years. The yield based on the new payout is 3.27%.

Lawson Products (LAWS) manufactures, sells and distributes production and specialized component parts to the original equipment marketplace (OEM). December 7th the company raised its quarterly dividend to $0.12/share. The dividend is payable January 18, 2011, to stockholders of record on January 4, 2011. The yield based on the new payout is 2.1%.

CapLease (LSE) invests primarily in single tenant commercial real estate assets. December 8th the company raised its quarterly dividend 8% to $0.065/share. The dividend is payable on January 18, 2011 to stockholders of record as of December 31, 2010. The ex-dividend date is December 29, 2010. The yield based on the new payout is 4.2%.

Nucor (NUE) is largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas. December 8th the company increased its quarterly dividend 0.7% to $0.3625/share. The dividend is payable on February 11, 2011 to stockholders of record on December 31, 2010. The ex-dividend date is December 29, 2010. NUE is a Dividend Achiever and has raised its dividend for 38 consecutive years. The yield based on the new payout is 3.5%.

Stryker (SYK) makes specialty surgical and medical products such as orthopedic implants, endoscopic items, and hospital beds. December 8th the company increases its quarterly dividend 20% to $0.18/share. The dividend is payable on January 31, 2011, to shareholders of record at the close of business on December 31, 2010. The ex-dividend date is December 29, 2010. SYK is a Dividend Achiever and has raised its dividend for 18 consecutive years. The yield based on the new payout is 1.4%.

One Liberty (OLP) invests primarily in improved commercial real estate under long-term net leases. December 8th the company increased its quarterly dividend 10% to $0.33/share. The dividend is payable January 4, 2011 to stockholders of record on December 23, 2010. The ex-dividend date is December 21, 2010. The yield based on the new payout is 8.2%.

Western Union (WU) is a leading independent provider of consumer money transfer services. December 8th the company raised its quarterly dividend 17% to $0.07/share. The dividend is payable December 31, 2010 to shareholders of record at the close of business on December 20, 2010. The ex-dividend date is December 16, 2010. The yield based on the new payout is 1.5%.

Freeport-McMoRan (FCX) is the world’s second largest copper producer and a major producer of gold and molybdenum. December 9th the company increased its quarterly dividend to $0.50/share, announced a $1.00/share supplemental dividend and also announced a 2-for-1 stock split. The yield based on the new payout is 1.8%.

W. P. Carey (WPC) is an investment firm that provides long-term sale-leaseback and build-to-suit transactions for companies worldwide and manages a global investment portfolio. December 9th the company raised its quarterly dividend 0.5% to $0.51/share. The dividend is payable on January 15, 2011 to shareholders of record as of December 31, 2010. The ex-dividend date is December 29, 2010. The yield based on the new payout is 6.9%.

Taubman Centers (TCO) is the general partner of The Taubman Realty Group L.P., an operating partnership that owns, operates and develops regional shopping centers across the U.S. December 9th the company increased its quarterly dividend 5.4% to $0.4375/share/share. The dividends are payable on Dec. 31 to shareholders of record on Dec. 17. The ex-dividend date is Dec. 15. The yield based on the new payout is 3.63%.

C.H. Robinson (CHRW) is a global provider of multimodal transportation and logistics solutions has a network of over 230 offices in North America, South America, Europe, and Asia. December 9th the company raised its quarterly dividend 16% to $0.29/share. The dividend is payable on January 3, 2011, to shareholders of record on December 20, 2010. The ex-dividend date is December 16, 2010. CHRW is a Dividend Achiever and has raised its dividend for 12 consecutive years. The yield based on the new payout is 1.5%.

Edison Int’l (EIX) is the holding company for Southern California Edison. Other businesses include electric power generation, financial investments, and real estate development. December 9th the company increased its quarterly dividend 1.6% to $0.32/share. The dividend is payable January 31, 2011, to shareholders of record on December 31, 2010. The ex-dividend date is December 29, 2010. The yield based on the new payout is 3.4%.

IAMGOLD (IAG) is a Canada-based mining and exploration company. December 9th the company raised its quarterly dividend 33% to $0.08/share. The dividend is payable January 14, 2011 to shareholders of record as of the close of trading on December 24, 2010. The ex-dividend date is December 22, 2010. In future, the Company plans to pay its dividend semi-annually. The yield based on the new payout is 1.9%.

Selecting stocks with increasing dividends is critical for an income growth strategy. The above list contains stocks that recently raised their dividends; it is not a list of recommend buys. As always, due diligence should be performed before buying or selling any stock. For a list of stocks with a long string of consecutive cash dividend increases, see this list.

Full Disclosure: Long NUE. See a list of all my income holdings here.

Related Posts
- High-Yield Dividend Stocks: A Safer Approach
- Increasing Dividend Yield Part II: REITs
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I. International Fund in my 401(k)

This International Equity Index Fund seeks to match the performance of the MSCI EAFE Index which consists of approximately 1,200 stocks in 21 developed market countries outside of North and South America, and represents approximately 85% of the total market capitalization in those countries.  When compared to other options in my 401(k), I have been generally pleased with this funds performance over time. YTD Return:  (-7.2%)

II. International Exchange Traded Funds (ETF) Within My Asset Allocation Portfolio

The international component on my asset allocation portfolio is in iShares MSCI EAFE (EFA).  EFA seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in the European, Australasian and Far Eastern markets, as measured by the MSCI EAFE Index. This fund is tracking the same index as my 401(k) above, but with somewhat better results. YTD Return: (-5.1%)

III. Individual International Dividend Stocks

It was my desire to have international representation within my income investments, so I first looked to identify good non-U.S. dividend individual stocks that had an ADR trading on the New York Stock Exchange.  To identify these stocks I used the International Dividend Achievers™ list.  To become eligible for inclusion, a company must be incorporated outside of the United States. The companies must be have an American Depository Receipt or common stock trading on NYSE, NASDAQ or AMEX. Companies must have paid increasing regular annual dividends for five or more consecutive years. What I found is that most companies outside the U.S. follow a different dividend model.  Here are some of the differences:

• Many Foreign Companies Pay Dividends Based on a Percent of Earnings
  This produces a very erratic cash stream. Consider Unilever plc (UL). Its ADR paid $0.353 in Nov/07, $0.668 in May/08 and $0.33 in Nov/08.
• Many Foreign Companies Only Pay Dividends Annually
  I need more feedback than this. I would hate to wait a full year before learning a company plans to slash its dividend. Examples of annual dividends include Shenandoah Telecommunications Co. (SHEN), Siemens AG (SI) and Stryker Corp. (SYK).
• Most Foreign Companies Pay Dividends in Their Local Currency
  Most Canadian companies pay quarterly consistent dividends, similar to companies in the U.S. However, they pay the dividends in Canadian dollars, so the currency risk is with the U.S. investor.  There is probably much less fluctuation between the U.S. and Canadian dollars than most other currencies. However, it exists. Consider the last five dividends on Canadian National Railway Company (CNI): Mar/08 $0.223, June/08 $0.225, Sep/08 $0.217, Dec/08 $0.189 and Mar/09 $0.200. The quarterly dividend dropped 10% from Mar/08 to Mar/09 in U.S. Dollars while it increased its dividend 10% over the same period in Canadian dollars.

I am sure there are more, but one exception to all the above is BP plc (BP). BP’s ADR has paid a consistent quarterly dividend denominated in U.S. dollars.

IV. International Income ETFs and Income Closed-End Funds (CEFs)

One thought was that a market basket of international stocks in either an ETF or CEF would help mitigate some of the issues above. Many of these created problems of their own. Some such as Alpine Total Dynamic Dividend Fund (AOD) has the option to invest in the U.S. also and when things turned ugly, they brought the cash home.  Other funds such as Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO) and PowerShares International Dividend Achievers Portfolio (PID) have not performed well as dividend investments. Each has cut its dividend, with PID cutting multiple times.  I now question the wisdom of ETFs and CEFs inclusion in an income portfolio, but that is a different discussion.

Conclusion

After much consideration, I have concluded that income investing and international securities don’t mix very well for all the reasons listed above.  Going forward, my primary focus will be on U.S. equities for my dividend income portfolio.  I will use my 401(k) and my Asset Allocation Portfolio to ensure an adequate international allocation. As for the securities that I currently hold, I will individually evaluate the appropriateness of them remaining in my portfolio. Consistent with this methodology, I will remove most International Achievers from the Stock Ideas page, leaving only those that I own or have identified as being an excellent income investment.

Full Disclosure: Long EFA, CNI, BP, AOD, ETO, PID

An increasing cash dividend keeps pressure on management to ensure the company is well run. If there are too many missteps, then eventually a dividend will slip. Earnings can be manufactured, cash can not. Always follow the cash and it just might lead you to a great company. Here are eight stocks striving to be a great by raising their cash dividends:

• Stryker (SYK) Boosts Dividend 21% to $0.40/Share (0.88%)
• Lincoln Electric (LECO) Raises Qtr. Dividend by 8% to $0.27/Share (2.27%)
• OGE Energy (OGE) Boosts Annual Dividend 3c to $1.42/Share (5.57%)
• J & J Snack Foods (JJSF) Boosts Qtr. Dividend by 5.4% to $0.0975/Share (1.22%)
• Wisconsin Energy (WEC) Raises Qtr. Dividend by 25% to $0.3375/Share (2.61%)
• AXIS Capital (AXS) Increases Qtr. Dividend by 8% to $0.20/Share (3.05%)
• Ecolab Inc. (ECL) Increases Qtr. Dividend by 8% to $0.14/Share (1.47%)
• Universal Health Realty (UHT) Raises Qtr. Dividend to $0.59/Share (1.47%)

After running these companies through my D4L-PreScreen.xls model, the Dividend Achiever UHT is worthy of a more complete evaluation with a NPV of MMA Differential of $9,282. None of the other companies’ NPV of MMA Differentials were close enough to warrant a more complete evaluation.

Disclosure: No position in the aforementioned stocks.

(Photo: Steve Woods)