Monday, January 27, 2014

Dividend Power: Investing for Generations

With the Fed continuing to keep interest rates near zero, I think Wall Street's upward path will continue, at least, most of the way through 2014, forecasts Jim Powell, editor of Global Changes & Opportunities.

However, I think we will see more price swings than we did last year. Alas, the screaming bargains we enjoyed over the previous two years are largely gone. And a correction is also long overdue.

Fortunately, you don't need ultra-low prices to become a big winner with dividend stocks. Unlike the fixed interest rates paid on bonds, top companies usually increase their dividends from year to year.

As the payouts increase, so does the effective yield on the money that was invested. It's very sweet. Two examples show how rewarding dividend growth can be.

The current yields for Wal-Mart (WMT) and Target (TGT) are 2.30% and 2.70% respectively. Those returns are respectable, but are nothing to get excited about.

However, Wal-Mart's dividend per share has increased at a 16% annual rate since 2004.

Target's has increased 17.6%. After ten years at those rates, the effective yields on today's cost for the stocks (often called yield on cost) would be a very impressive 8.75% and 11.62% respectively.  (more)
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