High Yield Vs. Low Yield Dividend Stocks
Recently I looked at my watch list I had about 1.5 years ago and I saw some stocks I really missed investing in. The best examples are 3M, McDonalds, Allianz, Voestalpine, Siemens, Whirlpool, Apple, Kimberly Clark etc. just to name a few one.
The reason I did not invest is that was not I was not convinced about those companies... it was more about let's wait a little longer for a further drop. I also calculated the possible YOC I would currently have right now and yeah sometimes the biggest mistake in investing is not investing. Don't get me wrong, I think I have some great companies in my portfolio and I am really happy about what I have so far but I also missed opportunities.
As I was looking at my misses the idea about this article came to my mind:
Which stocks are better, high yield or low yield dividend stocks?
Therefore, I analyzed the dividend growth of three companies a high yield dividend income like AT&T, a lower yield income stock like 3M but having a high dividend growth rate and I also looked a steady grower like PG is with medium dividend yield. My assumption is that I would have invested $3,000 on January 1, 2011. My aim is to see with which stocks would have created more dividend income in the last five years.
AT&T
In 2011 the share price was at $29.67 with a yearly dividend of $1.73 per share. The average increase was at 2.21% per year, so on the lower side. All in all the yearly dividend income in 2016 is at $195.15 before taxes. But at the same time the total dividend increase is only around $20.
PG
In 2011 the share price was at $46.37 with a yearly dividend of $1.97 per share. The average increase was at 2.21% per year, so on the lower side. All in all the yearly dividend income in 2016 is $123.21 before taxes. But at the same time the total dividend increase is ~ $32.
In 2011 the share price was at $86.67 with a yearly dividend of $2.20 per share. The average increase was at 2.21% per year, so on the lower side. All in all the yearly dividend income in 2016 is at $153.69 before taxes. But at the same time the total dividend increase is close to $77.
Conclusion
All in all over a relatively short time frame of 5 years, the high yield stock delivers still the highest dividend income. Nevertheless, the highest total increase comes from MMM. As dividend investing is a long time game the winner in the end will be MMM. But why invest in higher yield stocks then? Well, I think you should also generate a reasonable dividend income in the short term therefore a mixture of higher yields like VZ, T ; steady growers like PG and high growth stocks like CVS build a very good foundation for your portfolio.
Personally one of my criteria of my investments is that I want to have a Yield on Costs of 3.8% after three years of the purchase.
Disclosure: Long T, PG.
I do not recommend any decision to the reader or any user, please consult your own research. Thank you for your understanding.