Growing Dividends Equal A BIG Yield

Here’s a great article from Selena Maranjian on the importance of growing dividends:

I did an interesting little calculation the other day. You see, I own shares of Motley Fool Income Investor recommendation Johnson & Johnson, which I bought for about $43 each back in 2002. The stock has recently been trading for around $66 per share. If you look up the dividend yield for the stock, it’s approximately 2.3%, a pretty respectable number. That’s the yield you’d get on your investment if you bought the shares at the current price.

Not me, though. My dividend yield for Johnson & Johnson is approximately 3.5%. Even better: I suspect it might be 13% or more in just 10 years.

Let me explain
Remember, my purchase price was roughly $43 per share. If you take the current annual dividend amount of $1.50 (which is paid out in quarterly installments, like most dividends), and divide it by my purchase price, you get a dividend yield of 3.5%. Divide it by the current price, and you get 2.3%.

My yield is bigger because I bought the stock for less. The dividend is growing, too. When I bought back in 2002, the annual dividend was just $0.82.

Here’s a quick look at J&J’s quarterly and annual dividend amounts in past years, plus the increase of each amount over the previous sum…

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