Imagine if you had bought these stocks 20 years ago.
Unfortunately, most investors will never see dividend yields like these. They don't have the patience. As a recent article shows, investors want big dividend checks now, and in a classic twist of irony, they're missing out on some of the market's highest-yielding opportunities.
Let me explain...
When most investors think about buying an income stock, they focus solely on the stock's current yield. They think bigger equals better, and they're most interested in stocks that offer headline-grabbing dividend yields.
Don't get me wrong... to some extent, they're right. Clearly, a higher dividend puts more cash in your pocket.
But, as I regularly remind subscribers to my Top 10 Stocks newsletter, yield isn't the only key to a good income investment... you also need to consider a company's dividend growth. Dividend growth can turn lower-yielding stocks into big income producers over time.
For example, right now Procter & Gamble pays a dividend yield of 3.1%... nothing special. But in the past 20 years, the company has raised its dividend 776%. That means if you had bought the stock back in 1993, then you would be currently earning a yield on cost of 33%.
The same goes for Johnson & Johnson (NYSE: JNJ) and Lowe's. If you had bought shares of these companies 20 years ago, thanks to dividend increases, those shares would be paying you over 40% and 35%, respectively, today.
That's the power of dividend growth... and in my mind it's one of the most important aspects of any income investment.
But that begs the question: How do you know if a company is going to increase its dividend? Dividend increases are decided by a company's board of directors, and there's no law that says a company must increase its payout.
That's why I've found its best to look at companies that already have a strong track record of growing their dividend. If a company has a history of increasing its dividend year in and year out, then dividend increases are clearly an important part of the company's culture. All other things being equal, if a company has increased its dividend consistently for 10, 20... even 50 years or more, then it's going to be far more likely to keep dividends growing in the future.
With that in mind, I recently did an extensive search to find companies that have raised their dividends for 50 years of more.
Each of the stocks in the table above has increased its dividend every year for at least half a century.
The market clearly rewards that kind of behavior. Of the 14 companies on the list, all but three have handily outperformed the 328% return from the S&P 500 in the last 20 years.
But the real story is what those dividend increases have been able to do for income-oriented investors. Just look at the dividend yields you'd be earning if you had bought these stocks just 20 years ago...
After 20 years of consecutive dividend increases, each of these stocks offers a very attractive yield on cost. The highest yielding stock on the list -- Johnson & Johnson -- has a yield on cost of 40%... and that's from a $240 billion company.
This just goes to show what dividend increases can do for your portfolio. Thanks to dividend increases, some of the market's lowest-yielding stocks can turn into big dividend payers over time.
Of course with investing, nothing is 100% certain. Just because a stock has increased its dividend for 50 consecutive years, it doesn't mean it's guaranteed to increase it for another 50.
Action To Take --> The lesson here is simple -- if you're ignoring dividend increases, then you could be missing out on some of the market's biggest high-yield opportunities.