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5 Best Stocks for Continued Dividend Growth

Don't just chase yield — chase potential

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Money Dividends 185The best dividend stocks are not always the ones with the highest yields. After all, a company that pays a 10% dividend today might be doing so because it paid 5% a year ago and just saw its share price cut in half.

Instead of simply chasing yield, then, long-term investors should consider buying a stock based on its dividend growth potential. This will increase your personal yield over time even if the dividend yield for new money never changes much.

Consider the following math.

  • ABC Corp. pays $1 annually in dividends and trades for $50 when you buy it. The yield at the time, then, is 2% — $1 in dividends divided by $50 as your cost per share.
  • In five years, ABC Corp. pays $1.50 in annual dividends and trades for $75. The dividend yield to new money still is 2%, but your personal yield is 3% — $1.50 now in dividends divided by your personal cost basis of $50.
  • In 10 years, ABC Corp. pays $2 in annual dividends and trades for $100. The yield to new money is still 2%, but your personal yield is 4%.

Get the idea?

Viewed this way, then, the best dividend stocks are the ones that have a strong record of dividend growth and the potential for continued dividend increases going forward.

Here are five stocks that fit that description:

Article printed from InvestorPlace Media,

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