Dividends4Life: At What Price Should You Buy A Dividend Growth Stock?

As a dividend growth investor, I place a high value on valuation (pun intended). There are several reasons for this, but two of the most important are: 1.) Better-valued stocks are less likely to deal you a capital gains disappointment over the long term and 2.) Better-valued stocks are likely to be offering a higher initial yield. The capital gains margin of safety is important even in dividend growth investing.

The higher initial yield point is obvious. Yield and price are inversely related. Yield = Dividend / Price. As price goes down, yield goes up and vice-versa. So buying at a better valuation (lower price) means that you get a higher yield right out of the starting gate. Assuming that your stock never cuts its dividend, your initial yield is the lowest yield on cost that you will ever experience for that purchase. It's locked in. So obviously, all else equal, a higher initial yield is better.

Source: Seeking Alpha

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