I much prefer stocks with growing dividend streams versus stocks with high yields, explains Chuck Carlson, a specialist in dividend reinvestment plans at the editor of DRIP Investor.
High-yielding stocks tend to congregate in the same few industries, thus affording little in the way of diversification. High yielders often have subpar capital-gains potential. And high yielders have little if no room for dividend hikes.
On the other hand, stocks that grow their dividends consistently provide a lot of benefits, not the least of which is an opportunity to exploit the power of compounding via reinvestment of a growing dividend stream. And if you are taking the cash and not reinvesting, dividend growth provides a way to hedge your cash flow against the adverse effects of inflation.
Perhaps the most consistent dividend payer in the Editor’s Portfolio — and one of the most consistent payers among all stocks — is Procter & Gamble (PG).
The consumer-products giant has paid a dividend for 134 consecutive years since its incorporation in 1890. And Procter & Gamble has increased that dividend for 68 consecutive years. The latest dividend hike is a 7% bump in the payout to a quarterly rate of $1.0065 per share, payable May 15.
To be sure, Procter & Gamble has not been the most dynamic stock over the years. However, its consistent dividend increases have helped these shares generate a decent total return.
A $10,000 investment in Procter & Gamble 20 years ago would have grown to more than $52,000 today (assuming you reinvested that ris- ing dividend stream). That comes out to an annualized return of roughly 8.7% — not a gangbuster return, but good enough to double your money every eight or so years.
Procter & Gamble stock has outperformed the S&P 500 Index so far this year. And the stock’s yield of 2.6% is a nice kicker to total returns. Should the recent market volatility evolve into a more protracted pullback, I would expect Procter & Gamble stock to outperform the broad market for the remainder of the year.
Please note Procter & Gamble’s direct-purchase plan has a minimum initial investment of $250. For enroll- ment information call (800) 742-6253 or visit the plan’s transfer agent, EQ, at shareowneronline.com.
