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?
