💸 10 Yields You Should Know
Today is Dividend Day.
The series where I teach you 5 things about dividend investing in less than 5 minutes.
1️⃣ 10 Yields You Should Know
Dividend yield isn’t the only yield you should know.
In fact, if you're only looking at the dividend yield… you’re missing the full picture.
Gross profit, EBIT, and Earnings Yield all tell you about the profit of the business.
Free cash flow yield, buyback yield, shareholder yield…
These aren’t just numbers. They’re signals.
Signals that a company might be quietly returning a fortune to its investors – even if the headline dividend seems small.
So before you chase the next fat dividend check… here are some other yields that matter too.
2️⃣ Don’t Just Look at Yield
Sure, dividend yield tells you what you’re getting paid right now.
But what else matters?
How fast that paycheck is growing - Dividend Growth.
Take a look at the companies in this chart.
They’ve raised their dividends for at least 10 straight years.
And they’re growing those payouts by 6% a year – or more.
At 6%, your yield doubles in 12 years.
At 8%, it only takes 9.
Reinvest your dividends – or just keep saving – and it happens even faster.
3️⃣ An Investing Quote
John Maynard Keynes put it simply:
Investing is judging an asset’s lifetime yield.
Speculating is guessing what others will pay tomorrow.
Dividend investors should know the difference.
We’re not chasing trends.
We’re building income by owning businesses that will last.
“Investing is an activity of forecasting the yield over the life of the asset; speculation is the activity of forecasting the psychology of the market.”
- John Maynard Keynes
4️⃣ A Simple Dividend Strategy
Savita Subramanian is Bank of America’s Head of U.S. Equity Strategy & U.S. Quantitative Strategy.
She’s was also named one of the 100 Most Influential Women in U.S. Finance by Barron’s.
She offered up an interesting Dividend Investing Strategy on the Meb Faber show:
Divide the Russell 1000 into quintiles by Dividend Yield
Buy the second-highest yielding group - this avoids most of the distressed stocks with prices that are rapidly falling in quintile 1
Repeat monthly
It involves more trading than our style at Compounding Dividends, but according to Ms. Subramanian, over time it offers the highest total return with the lowest percentage of negative years in terms of percentage of losses.
The Wall Street Journal backtested the strategy using information from Hartford Funds and found that a $1,000 investment in the S&P 500 or its predecessor made in 1930 would have grown into $8.6 million through last year.
An investment in the second quintile of stocks by yield would have grown to $31 million!
The link to the podcast episode is above. Click on the image to see the WSJ article.
5️⃣ Example of a Dividend Stock
For today’s example of a Dividend Stock, we’ll use one included in the Russell 1000.
Graco (GGG) is a leading manufacturer of fluid handling systems and products, specializing in equipment for the construction, automotive, and industrial sectors.
Examples of their products include paint sprayers, fluid transfer pumps, and pressure washers.
Profit Margin: 22.7%
Forward PE: 27.9x
Dividend Yield: 1.4%
Payout Ratio: 36.7%
That’s it for today!
Used sources
Interactive Brokers: Portfolio data and executing all transactions
Finchat: Financial data