Tuesday, August 29, 2017

Dividend Growth Stocks

Why you buy dividend growth stocks is because you can get some really good dividend yields when you hold the stocks for some year. The longer you hold a stock the higher the dividend yield on your stock's purchase price. This is how you win in the stock market.

I bought Royal Bank of Canada (TSX-RY, NYSE-RY) in 1995. On my original purchase, I am making a 47.9% dividend yield. Say I spent $10,000 on this stock on 1995. That means that in the current year I will make $4,790 in dividends after holding this stock for some 22 years. When I bought this stock, I got a 4.27% dividend yield. Of course Canadian Banks are some of the best dividend payer on the TSX.

Another example is Canadian Tire Corp (TSX-CTC.A, OTC-CDNAF). I bought this stock in 2000 so I have had this stock for some 17 years. When I bought this stock it had a 1.79% dividend yield. This year I will earn 11.7% on my original purchase price. So if I paid 10,000 for this stock in 2000, I will get $1.170 in dividends this year. This is a Consumer Discretionary stock.

The next one is a Consumer Staple stock. They tend to have low yields, but good growth. I bought Metro Inc. (TSX-MRU, OTC-MTRAF) in 2004 some 13 years ago. When I bought this stock the dividend yield was 1.87%. This year I am earning 11.04% on my original purchase price. So that means I will get $1,104 in dividends this year.

Another example is SNC-Lavalin Group Inc. (TSX-SNC, OTC-SNCAF) which I bought in 1998 some 19 years ago. When I purchased this stock it had a 2.35% dividend yield. On my original purchase price I am making a yield this year at 32.12%. This means if I had paid $10,000 for this stock, this year I would get $3,212 in dividends.

An example I have of a utility is Emera Inc. (TSX-EMA, OTC-EMRAF). I bought this stock in 2005. They have a good dividend, currently at 4.36% and low growth. When I bought this stock it had a 4.70% dividend yield. The 5 and 10 year dividend growth is at 8.7% and 8.4% per year over the past 5 and 10 years. This year I am earning 11.03% in dividends. So if I invested $10,000 initially, I would get $1,103 in dividends this year after some 12 years.

The examples would not be complete without a REIT. REITS tend to have moderate to good distributions with low distribution growth. I bought Canadian Real Estate Investment Trust (TSX-REF.UN, OTC-CRXIF) in 2006 some 11 years ago. When I bought this stock it had a 4.50% distribution yield. This year I am earning 7.09% on my original investment. This means if I have paid $10,000 for my initial investment I would be earnings $709.00 in distributions this year.

For REITs, do not forget that distributions are not dividends and there are different taxes. In 2016, 1.90% was capital gains, 4.44% was Foreign Business Income, 84.29% was other income (Taxed like interest income) and 9.38% was Return of Capital. You pay no tax on return of capital until your total return of capital equals your stock's purchase price.

Making money in the stock market can take time. You want to start early and get some dividend growth stocks and just let them grow their dividends.

On my other blog I wrote yesterday about Andrew Peller Ltd. (TSX-ADW.A, OTC-ADWPF)... learn more. Tomorrow, I will write about Badger Daylighting Ltd. (TSX-BAD, OTC- BADFF)... learn more on August 30, 2017 around 5 pm

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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