If you buy a stock that eventually increases its dividend by
100% in the coming years, you’re going to double your money or better as that
happens. Find a payout with 200%, 300% or even 500% upside? Then we have a
secure way to total returns up to 500%.
(We’ll discuss five generous payers in a minute, with price
upside up to 500%.)
Why does dividend growth matter so much more than earnings,
sales or even cash flow growth? Well, we income investors buy a stock for one
of three reasons:
- A meaningful current yield
- The potential for a higher yield-on-cost over time, and/or
- Price gains
When these factors combine, they can create 100% price
upside with a safe dividend payers. Share prices tend to rise in tandem with
runaway dividends, as investors pay more for the now-higher yield.
Got a dividend grower that’s cheap? Even better. It means
that management can put its payout hikes on steroids by repurchasing its own
bargain shares. (Look, there’s a reason it’s called “financial engineering” –
it works!)
Let’s discuss five fast growing payouts on already-cheap
stocks. If I were the chief financial officer (CFO) of one of these firms, I
would be salivating at how fast I’ll be able to double these share prices. All
have triple-digit upside potential, and all their CFOs need to do is to
continue growing their dividends and repurchase cheap shares when appropriate.
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