Dividend Growth Stocks With Big Yields

Posted by D4L | Saturday, September 25, 2010 | | 0 comments »

Income investors can get caught up in yields. But something else could make just as big a difference to long-term returns: dividend growth. That's because dividend growth can make lower-yielding stocks into big income producers over time. Take a look below at the income streams from a stock yielding 7% but not growing dividends, versus a 5% yielder that hikes payments 10% every year. In just five years, that 5% yield would actually be worth more than the 7% yield. And just two years later, the income stream would grow to be 27% more than the stock yielding 7%.

Buying stocks that increase dividends allows you to take advantage of one of the most powerful tools in investors' arsenal -- the wealth-building effect of compounding. And consistent dividend growth is like jet fuel for the compounding engine. But there are more advantages to companies able to consistently grow dividend payments. One often overlooked "plus" is that they tend to be safer investments. Dividends are a litmus test of a company's financial strength. Only companies able to increase earnings through good times and bad will commit to consistently raising dividends. And these are the types of businesses that tend to see more stability in their shares.

Source: TheStreet.com

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