Fast Growing Dividend Stocks

Initially, fast-growing companies that do initiate a dividend will often start out with single digit payout ratios. However, over time, as they morph from a pure growth stock into a growth and income stock, their payout ratios will tend to increase. As a result, their dividend yields will usually be lower starting out, but grow faster than a stalwart’s dividend normally would. Furthermore, if and when their growth begins to slow, their payout ratios will often increase. Therefore, what we call growth yield, and others refer to as "yield on cost", has the potential to increase rapidly over time.

A few words in favor of the dividend payers are in order. Since fast growing companies tend to be riskier than slower growers, risk should always be a consideration. One advantage that a dividend paying stock offers is both the return of and the return on capital invested. With each dividend paid, the investor has less capital at risk, and therefore, each dividend payment reduces risk. Consequently, a strong case is made that the dividend payers produce similar returns with lower risk taken.

Source: Seeking Alpha

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