Considering recent market volatility, this might be a
good time to consider switching some of your funds from supercharged
growth stocks to boring dividend payers.
In fact, that would be a good idea no matter what the
overall market is doing. Why?
Without dividends, you only make money on a stock
when you sell it to someone else at a higher price than you paid. By
contrast, dividend stocks regularly pay you simply for holding them.
By following a conservative strategy, you could net
3% to 4% annually plus whatever share price gains your stocks rack
up while you hold them. What are your money market funds currently
How to Increase Dividend Stock Returns
But today I’m going to suggest a twist on that
strategy that could substantially increase those returns. It
involves limiting your portfolio to stocks likely to hike their
dividends while you hold them.
You could win two ways when one of your holdings
raises its payout. For starters, the dividend increase translates to
a higher return on your initial investment. Plus, the dividend hike
often drives the share price higher.
Don't Believe Me?
I first presented this strategy in a column published
almost exactly two years-ago (11/22/19). As of last Wednesday, the
four stocks that I described back then had averaged a 37% return
(dividends plus price appreciation), short of the S&P’s 45% number,
but good for a conservative strategy. All four ended the period in
the positive column and on average, hiked dividends by 15% during
How To Find Fast Dividend
Here’s how you can use
Morningstar’s Premium Stock Screener (www.Morningstar.com)
to come up with your own list.
Define Candidate Universe
Start by using MStar’s
“Dividend Yield” search parameter to specify at least 3% annual
dividend yields. Also specify
“Domestic stocks only" because the
U.S. is currently the strongest global
Let MStar Do The Heavy
Then rather than donning green eyeshades, let
Morningstar do the heavy lifting by limiting your
list to stocks "rated four or five
stars." Morningstar’s ratings, which
compare a stock’s share price to its estimated fair value, run from
one star to five stars, where higher is better.
With Stocks, History Repeats?
In my experience, stocks with strong dividend hike
track records are you best bets to repeat that process.
So use MStar’s “Dividend Growth %”
parameters to limit your list to stocks
that have already raised their payouts by at least 7% in
each of the past two years.
Following the same logic, use
Morningstar’s “12-Month Return” parameter to limit
your list to stocks that have produced
positive total return numbers over the past year.
Don't check longer periods because
Pandemic-related issues probably distorted those numbers.
Four Dividend Growth Candidates
Here are the four stocks that
turned up when I ran the screen.
• Citizens Financial
Group (CFG): Operates around 1,600 retail banks in the New
England, Mid-Atlantic and Midwest regions. Dividend yield is 3.3%.
• First Horizon Corp.
(FHN): Operates in 12 southern U.S. states. Pays 3.7% dividend
• Gilead Sciences
(GILD): A diversified pharmaceutical maker, Gilead operates in more
than 35 countries worldwide. Pays 4.1% yield.
• Trinity Industries
(TRN): Offers a variety of rail transportation products and services
as well as highway traffic control and logistical services. Pays
As always, consider the stocks turned up by any
screen to be research candidates, not a buy list.