Ask Globe Investor: Why does John Heinzl focus on the percentage increase in dividends? A company increasing its dividend yield from 0.1 per cent to 0.2 per cent is credited with a 100-per-cent increase. However, this is quite small in absolute terms. I would much prefer a company that increases its dividend yield from 4 per cent to 4.4 per cent, which is only a 10-per-cent increase but actually much more substantial.
Like you, I have little interest in a stock that doubles its yield from a minuscule 0.1 per cent to a slightly less minuscule 0.2 per cent. Because my primary goal is to increase my investment income , I focus on stocks with higher yields that hike their payouts regularly. This month alone, I’ve received dividend increases from five companies in my model Yield Hog Dividend Growth Portfolio – namely, Royal Bank , Canadian Imperial Bank of Commerce , Bank of Montreal , Telus Corp. and CT Real Estate Investment Trust . The average increase was about 3 per cent.
That may not seem like much, but because all of these companies have relatively high dividend yields – averaging about 5.4 per cent – the increase in my dollar income will be more substantial than if I owned stocks with tiny yields that grew at a faster rate. To really appreciate the power of a high yield combined with consistent dividend growth, however, you need to look at a portfolio of stocks over a multi-year period. When I started my model dividend portfolio with $100,000 of virtual “cash” on Oct. 1, 2017, it was generating annual income of $4,094. Now, thanks to dozens of dividend increases and regular reinvestment of my dividends, the portfolio is throwing off $7,050 of cash annually – an increase of about 72 per cent.