Dividend growth, not yield, typically drives outperformance. Thus, you're getting more than just security from these safe dividend stocks.
Most income investors choose dividend stocks by looking at a
company's current dividend yield and history of payments. They base their
choices on historical trends and hope the gravy train of dividends will keep
chugging along – even when the economy turns south. But let's face it: Past is
not always prologue.
That's why, if you're in the search for safe dividend
stocks, you need to look beyond yield.
Reality Shares developed a system called DIVCON (short for
dividend condition) that uses several factors to pick safe dividend stocks,
after discovering that dividend growth – not yield – drives outperformance.
DIVCON's factors to assess a company's dividend health
include expected dividend growth, free cash flow-to-dividends, earnings per
share (EPS) growth, recent dividend actions and Altman Z-score (which gauges
the likelihood a company is going bankrupt). Companies are given a DIVCON score
between 1 and 100, then assigned a DIVCON rating between 1 (most likely to cut)
and 5 (most likely to increase). The implication? The highest scorers should be
among the safest dividend stocks.
They also could be among the best performers.
According to the exchange-traded fund provider, S&P 500
companies that grew or initiated dividends between 1972 and 2017 returned 9.98%
on average annually compared to 7.35% for those that didn't raise their
payouts. And for non-payers, the return was a much slimmer 2.54%. The top group
also saw less volatility.
No comments:
Post a Comment