If you’re focused on yields, you may be missing the most important wealth-building opportunity in dividend stocks: dividend growth.
Are you an income investor who is focused on high yields?
Yield is important. It tells you how much income you’ll earn when the next dividend check is mailed. But it provides little insight into the long-term returns of the investment.
If you’re focused on yields, you may be missing the most important wealth-building opportunity in dividend stocks. But don’t worry… you’re not alone. Most income investors make this error time and time again.
When it comes to dividend stocks, one thing matters more than everything else. That factor is dividend growth. And it measures the pace at which the dividend is increased.
There are numerous studies from research firms that prove the outperformance of dividend growth stocks. But I’m not going to bore you with stats and studies.
Instead, I’m going to tell you the story of an Ohio company that’s been rewarding its shareholders for decades.
The company is Parker-Hannifin (NYSE: PH). And last week, it took two important steps that will reward shareholders.
First, Parker-Hannifin raised its dividend by an impressive 31%. Second, the board announced a new $4 billion stock buyback plan.
The markets reacted immediately. The stock jumped 8.6% overnight and added $1.4 billion to the company’s market capitalization.
Dividend growth isn’t anything new for Parker Hannifin. The company was founded in 1918, and has been paying dividends since 1949.
Most people don’t know Parker-Hannifin, which sells motion and control technologies and systems for mobile, industrial, and aerospace use. The company employs more than 57,000 people around the world. Even dividend investors overlook this company, due to its small 2.2% dividend yield.
Parker-Hannifin is my favorite type of dividend stock. It’s what I call a “dividend achiever.” The company has been paying and growing its dividend for 58 consecutive years.
That type of commitment is crucial for income investors. This history shows me that the company puts its shareholders first, even during a recession.
During the last recession, many companies cut their dividends. Some eliminated them entirely. That wasn’t the case at Parker-Hannifin. The company actually increased its dividend between 2007 and 2009.
Dividend growth stocks like Parker-Hannifin are superb long-term investments. And I’ll show you why.
Over the last 20 years, this company raised its quarterly dividend from $0.07 to $0.63. That’s an astounding 800% increase.
So how has the stock done? It’s been superb.
The stock has soared 773% over the last two decades. That’s double the return you would have earned simply investing in the S&P 500 (NYSE: SPY).
Beating the S&P 500 for 20 Years
Source: Yahoo! Finance
It’s also far superior to the gains you would have made investing in better-known dividend achievers, including Altria (NYSE: MO), McDonalds (NYSE: MCD), and Exxon-Mobil (NYSE: XOM).
Twenty years ago, Parker-Hannifin shares traded around $10. And the dividend yield was a low 2.8%. Nobody would have looked at this company as an outstanding dividend stock.
Yet the stellar performance is indisputable. The correlation between Parker-Hannifin’s dividend growth and share price increase is no coincidence. Over long-periods of time, a stock price will almost always move in tandem with the dividend growth.
Today, there are many stocks offering higher yields than a company like Parker-Hannifin. There are even better known blue chips – like I mentioned earlier – that pay more.
Income investors who want to build wealth for the long-term need to own dividend achievers like Parker-Hannifin.
In my High Yield Wealth investment advisory, I focus on finding dividend gems like this. Our portfolio includes a variety of dividend growers and high yield stocks. If you’re serious about growing your portfolio with dividend stocks, click here now.
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The average yield of the Dow has sunk to 2.1%. That’s just sad. However, we know of one group of investors collecting up to $550 every 30 days… from a little-known investment that yields a whopping 12%! That’s roughly six times bigger than the average yield of the Dow. If you’d like to tap into this income stream, and earn six times bigger dividends, click here for our full report on this opportunity.