Dividend Yield vs. Dividend Growth

Dividend Growth Investing involves not only picking dividend paying stocks, but stocks that grow their dividends year after year. Investing in stocks for income requires dividend growth investors to find a balance between the current dividend yield and the dividend growth rate (DGR). 
 
As a dividend growth investor, I want to build a dividend income stream to achieve financial independence. It is as important to build the present income stream as is the growth of dividends over time. Ideally I want the rate of dividend growth to beat the inflation rate by a few percentage points. This article takes a look at my portfolio holdings and present a visual representation of the current yield and the 5-year DGR.


A couple of items to note from the chart below are: only stocks are included (all funds from my holdings have been left out), and one stock – IAMGold (IMG.TO) is missing, as it recently cut their dividends to 0.

Observations

  • I want the equities either high on the y-axis or far to the right (within reason…as being too far to the right can be a red flag).
  • The numbers presented here are the current yields. I have held some of these stocks for years and the yield-on-cost is higher.
  • As the dividends rise, year after year, those equities will start moving to the right (when considering yield-on-cost)
Some observations about specific equities:
  • BCE Inc’s (BCE.TO) dividend growth rate is unsustainable at 25%, especially with its current payout ratio at 85% of earnings. I expect BCE to come down lower on the graph to a more normal level.
  • CHS Inc (CHSCP) has no dividend growth and although it has a good yield, I will be considering selling this position.
  • Only two equities are below the 2% yield line (far to the left) – The Jean Coutu Group Inc (PJC.A.TO) and Qualcomm Inc (QCOM). However, they both have high dividend growth rate (15.3% and 13.66% respectively), so I am not too concerned about the current low yield.
  • Wells Fargo & Co (WFC) saw a dividend cut during the financial crisis which made it drop below the 0% DGR line. However, WFC has started raising its dividends again, so I expect that to start moving up.

Overall, I am happy with the layout of the stocks I hold. In addition, I hold funds which are high yielders providing me with more income currently which I use to reinvest into my stock holdings.

 
What do you think of this representation? I think visually it provides me a viewpoint akin to a birds eyeview for my portfolio.
 
Full Disclosure: Long all equities mentioned here. My full list of holdings is available here.

4 thoughts on “Dividend Yield vs. Dividend Growth

  1. Good morning R2R. I do like this graphic. I hadn’t really thought of putting a graphic like this together before. So thank you. Now I want to add a time component to it :o) I hope you are starting to feel better. Take care
    -Bryan

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