Dividend Yield (> 3%) + Dividend Growth (>5%) = > 8%
Although there are some exceptions in my portfolio, the above simple formula serves as my primary screen for potential securities. A couple quick notes:
- If a company has a dividend yield less than 3%, I worry that management does not see the importance of a dividend to potential investors. As tempting as I find the Apples and Visas of the investment universe, I do not think their management teams see the importance of distributing a material portion of their profits to investors.
- I generally consider the 1, 5, and 10-year dividend growth records of companies before I invest. Ideally, the company has a 10-year track record of dividend increases and the dividend growth is closer to the 10% range.
- I chose 8% since it covers inflation and trading costs, and equates to the long-term average return of stocks in the North American markets.