Dividend growth investors like me usually seek to buy shares of great companies enjoying a huge competitive advantage and who pays a dividend every quarter. We also seek for dividend increases.
My goal is to buy stocks of these companies when they trade at fair value or when their price is undervalued with an initial dividend yield of at least 3% and I want to invest in companies who increase the dividend every year at a rate above inflation. I generally seek for a global 7-8% increase in my portfolio.
Medias don’t talk a lot about these companies because their price don’t skyrocket to the atmosphere to then fall back to the ground like those high tech stocks.
But what these companies do instead is grow slowly but surely and increase their dividend year after year at a rate far above inflation.
If you want to get rich slowly, then you might be interested by these compounding machines called the dividend Aristocrats:
What are the criteria to be part of that select list
The only companies your going to find on this list are the one that have been able to not only pay a dividend every year but also to increase it for 25 consecutive years or more!!!
Do you realize how amazing these companies are?
Lets look at some constituents of this list and analyze them a little to show you just how amazing they have been.
3M (MMM) – since 1970, the dividend of 3M has increased every year at a compounded rate of 8,18%.
AT&T (T) – since 1984, the dividend of AT&T has been consistently raised at a compounded rate of 4,74%
CHEVRON (CVX) – since 1970, Chevron’s dividend has been increased at a compounded rate of 7,36%.
CLOROX (CL) – since 1983, Clorox’s dividend has been increased at a compounded rate of 12,43%.
COKE (KO) – since 1962 Coke’s dividend has been increased at a compounded rate of 7,76%.
Exxon (XOM) – since 1970, Exxon’s dividend has increased at a compounded rate of 7,36%.
Wal-Mart (WMT) – since 1974, Wal Mart’s dividend has been increased at a compounded rate of 23,6%!!! Truly amazing!
Johnson&Johnson (JNJ) – since 1970, J&J’s dividend has been increased at a compounded rate of 13,97%!!!
I could continue like that for a long while!!!
At first, when we acquire these stocks, the yield is generally pretty low (between 2,5%-4,5%). But let’s say we take a realist 8% increase per year and let compound for 10, 20 and 30 years, we would get these figures with the purchase of a 100$ stock yielding 3% on cost if we apply an 8% increase to it every year :
On year 1, the dividend per share would be 3$ or 3%.
On year 10, the dividend would now be 6$ or 6% (yield on cost, the real yield would probably be around 3% because the market value of your share would have improved as well).
On year 20, it would be 13$ or 13%.
On year 30, it would now be 30$!!! This means that your single 100$ investment would now bring you back 30$ per year or 30%.
I love compounded interest. Time though is its most important ingredient. Just for fun, let’s look at what would be the dividend after 40 years and 50 years since I might still be alive then.
After 40 years, the dividend would be 65$ and after 50 years, 140$, yielding 65% and 140% on cost.
Investing in great companies can give my portfolio a major hedge over time.
Now let’s look at the cashflow generated by that single investment.
On year 1, I would have 3$ to reinvest. After 10 years, that single investment would have yield me a total cashflow of 43,45$ to reinvest. After 20 years, it would have added up to 137,28$. After 30 years, 339,84$. After 40 years, 774,17$ and finally, after 50 years, 1721,31$ or 17 times my initial investment.
Since I want to retire over my dividend income, dividend increases and strong companies with a wide moat will find a place in my portfolio as core holdings.
While I wouldn’t buy every companies on this list, I will for sure add the best “compounders” to my freedom fund!
I already own shares of McDonald’s and Exxon. Exxon recently increased the dividend by 9,5%!!
I’m interested in adding J&J, P&G, Wal Mart, Coke, Clorox and Colgate-Palmolive eventually to my freedom fund portfolio as soon as there’s a pullback in the stock market.
To find the dividend Aristocrats list, click here.
Were you aware that these lists existed? Are you invested in the stock market too?
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