My investment strategy is to buy dividend paying stocks when they are value priced and then hold them to collect growing dividends.  The companies that I like to invest in typically raise their dividend annually, or they will average a high dividend growth rate over time.

While investing in dividend stocks is popular during a recession, dividend growth investors need to have the patience and discipline to stick with their strategy during economic boom times when other stocks are outperforming theirs.  The reason that patience and discipline are such strong virtues of the dividend growth investor is because of yield on cost.

Related: Beat Inflation With Rising Dividends

Yield On Cost

Once you’ve purchased a dividend paying stock, you will be receiving the dividend yield as it was on the date of purchase.  Each time that company raises their dividend, your yield on cost will increase, meaning more money in your pocket from dividend income.

After years of dividend growth your yield on cost could be in the double digits, beating the market each year with just dividends alone.

Related: 6 Reasons To Invest In Dividend Growth Stocks

Back in May 2009, I purchased the majority of my RRSP portfolio which consisted of about twelve stocks.  Over the next eighteen month, six of these stocks have raised their dividend (some multiple times).  Here is a look at the dividend growth percentages of those stocks, as well as my yield on cost:

Company Dividend Growth Rate Yield On Cost
BCE 18.8% 7.46%
T 10.5% 6.62%
EMA 28.7% 5.23%
SJR.B 4.7% 4.32%
FTS 7.7% 3.83%
ENB 14.9% 3.43%

Some of those dividend yields are starting to look really attractive and this is only after eighteen months.  I will be really excited next year when the banks finally decide to increase their dividends. We haven’t even mentioned the increase in valuation of these stock prices.

EMA is up close to 30 percent, BCE is up 35 percent, and T is up close to 45 percent over the same eighteen months.

Again, this strategy preaches patience and disciplined investing.  Many investors would take the profits from these stocks that are up 30 percent or more.  Not me, I’m not selling.

 

Related: How To Use A Stock Screener To Find The Best Stocks

Not that there is anything wrong with taking profits, it just doesn’t fit with my investing strategy.  The only way I would think of selling one of my stocks is if they slashed their dividend, or if the dividend wasn’t growing fast enough compared to others.

What do you think of yield on cost?  Is this something you measure within your portfolio?

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4 Comments

  1. The Passive Income Earner on November 8, 2010 at 10:24 am

    Yield on cost is something I definitely track as it’s essentially your ongoing income rate. Do you include the shares re-purchased in your yield on cost? I also like to track how well my initial capital does which requires a different setup for tracking and that provides me with a yield on capital. In many cases, it’s the same as the share purchase but one you do some selling and buying, it becomes different.

    • Echo on November 8, 2010 at 10:41 am

      @The Passive Income Earner
      Yes I do include shares re-purchased in my yield on cost, but so far I’ve only had to do that with TELUS. Good point about tracking how well the initial capital does, I’ll have to add that to my spreadsheet.

  2. A.Rajah on November 8, 2010 at 10:35 am

    I purchased BCE areound the same time for my RRSP and happy with the performance.

  3. Marielle Venne on January 1, 2017 at 10:28 am

    I have money sitting in my tfsa with PC financial earning very little interest. I am over 75 and wonder if I leave it for emergency as I am on pension income only with low income. Thanks

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