Tag Archives: NYSE:TGT

3 Important Dividend Investing Concepts: Real Life Examples

This is a guest contribution written by Ben Reynolds at Sure Dividend. Sure Dividend uses The 8 Rules of Dividend Investing to systematically find high-quality dividend growth stocks trading at fair or better prices.

Investing concepts can seem divorced from reality. Theories become more understandable through real world examples.

This article takes a look at 3 important dividend investing concepts and provides real world examples to help either explain the point or show evidence of why it matters.

Total Return

Total return measures exactly what the name implies. Total return includes the capital appreciation and dividends of an investment.

The concept of total return is critical to investing success. It is the one number that determines how quickly your money will grow. All other things being equal, the higher the total return, the better. Here’s  how you can double your money.

Calculating a reasonable expected total return will help to guide your investing decisions.

Returns in the market can come from only 3 places:

  1. Change in intrinsic-value-per-share (typically measured by earnings-per-share growth)
  2. Change in valuation multiple (typically measured by the price-to-earnings multiple (P/E))
  3. Dividends

My estimate of The Coca-Cola Co’s (NYSE:KO) total returns over the next 5 years is below.

First, we know the company’s dividend yield is 3.2%. The company is a Dividend King – it has paid increasing dividends for over 50 consecutive years. We can reasonably assume Coca-Cola will continue paying dividends.

3.2% a year is our expected return from dividends for Coca-Cola. Read More

How To Reinvest Dividends for Higher Income and Returns

There are different ways to reinvest dividends. A simple way and a complex one. The simple way is to turn on the dividend reinvestment plan (DRIP) for companies you already own. The complex way is to pool your dividends and perhaps other available funds together and make a new purchase. Which is better?

Personally, I do a little bit of both. I DRIP, and I collect and invest. Out of the 37 stocks that I own, only six have DRIP turned on. I only turn on the DRIP for companies I believe are undervalued.

I can’t say which is better for you because I don’t know your goals. But I’ll discuss the benefits and the downside so you can decide which dividend reinvestment strategy better suits you.

DRIP: Keeping it simple

If you are the type of investor that wants to keep things simple, then, you can easily turn on the DRIP for all your holdings and be done with it. This is assuming that you hold quality dividend stalwarts in your portfolio. These dividend stocks generate consistent cash flows and have been growing dividends for years.

The US dividend stocks that come to mind include Coca-Cola (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and Target Corporation (NYSE:TGT). They have increased dividends for at least 48 years in a row.

Here are their dividend growth rates in various periods:

Stock 1Yr DGR 3Yr DGR 5Yr DGR 10Yr DGR
Coca-Cola 8.9% 9.1% 8.3% 9.3%
J&J 6.6% 7% 7.4% 9.7%
Target 20.3% 20% 22.8% 20.3%

Read More