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Actionable news in TEGP: Tallgrass Energy GP LP,

2 Stocks With Attractive Yields And Growing Dividends

There are few strategies more successful at producing consistent market-beating total returns than investing in companies that can accelerate their dividend payment year after year. An ever increasing dividend combined with an attractive yield will produce a growing cash income stream on top of capital gains that can be a powerful tool for increasing your wealth.

To call the stock markets “choppy” so far in 2016 would be a tremendous understatement. I talk to many investors who are having a hard time deciding whether to buy, sell, or stay on the sidelines. In this type of market, it is nearly impossible for an individual investor to time investments and “buy low and sell high,” to book some attractive profits. This is one of the reasons that I stick to a higher-yield dividend-focused investment approach.

Like many successful endeavors, my dividend strategy is based on a simple concept, but it can be and is difficult to put into action. The strategy comes from the idea that stocks that increase their dividends year after year will generate both total returns from share price appreciation and a growing cash income stream. For me, the most important step is to invest in stocks where there is a high probability of future, continuing dividend increases.

The details of which stocks to pick get tougher. One option is to go with higher-yield stocks where the expected dividend growth rates are low. For example, a stock like Ship Finance International Limited (NYSE: SFL) will grow its dividends by 2% to 6% per year, but investors get a 12% current yield. To further improve total returns from a stock like SFL, all or a portion of those big dividend payments can be reinvested to generate a growing dividend stream. Taking 8% as cash and reinvesting the other 4% would boost the realized dividend growth rate into the high single-digits, well above current inflation.

Another approach is to invest in stocks with high dividend growth rates and relatively low current yields. Tallgrass Energy GP LP (NYSE: TEGP) has the potential to produce up to 40% annual dividend growth over the next few years, and the stock yields 4%. These two stocks are examples of the extremes in the dividend growth picture.

Disclosure: There are currently over twenty of these...