In looking at two companies in the same sector, would you prefer to have a stock that pays a 2.7% dividend or one that pays a 3.1% dividend? The answer might seem obvious at first; all else equal, who wouldn’t take the higher cash payout? “Company A,” has done a much better job than the other of raising its dividend over the past decade and particularly in the last few years.
Company A is the lower yielding of the two, with a current dividend yield of 2.7%. But should it continue to raise its dividend in the years ahead, investors would realize a much higher cash payout over time despite the slightly lower yield today. I’m sure you know what my answer is, and you probably agree. You will probably agree even more when you find out what the two companies in question are: Company A is megaretailer Wal-Mart (WMT) and Company B is beleaguered electronics chain Best Buy (BBY).
Source: Guru Focus
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