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Old 12-15-2022, 07:53 AM   #81
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Originally Posted by NW-Bound View Post
Perhaps investopedia can explain it better than I can.

Of course you have to consider future growth prospects of the current yield as well as the stock price. Buy a stock based on a current high yield can be a bad move. Look at MSFT, a stock paying only a little over 1% dividend, yet it grows that dividend an average of 10% per year. VZ pays a high dividend of over 6% per year but only grows it 2% per year. Which stock would you rather own? I own MSFT and have for many years. Itís paying me a 5.08% yield on cost but itís stock price has soared 400%. I used to own VZ. It payed a nice dividend, but itís stock price is lower than it was ten years ago, and was never higher than about 50% of its price ten years ago.
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Old 12-15-2022, 09:48 AM   #82
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Originally Posted by Dash man View Post
Yield on cost gives a more accurate representation of the value of a dividend investment.
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A stock that regularly increases a dividend that raises yield on cost is meaningless? Thatís like saying the price increase of a stock is meaningless.

Dash, YOC does not show you how well a stock's dividend has performed.
Example - 2 stocks, AAA and BBB:
AAABBB
Purchase Price $10 $10
Original Dividend $0.20 $0.20
Current Dividend $1.50 $1.50
Yield on Cost (YOC) 15% 15%
Year purchased 2015 1995

Both have the same YOC. Both have seen the dividend grow from .20 to 1.50. But one took 20 years longer.
YOC tells you they are the same, but they are not. Looking at the dividend growth rate, rather than YOC, would show that AAA has had better dividend growth.

You mentioned that "Thatís like saying the price increase of a stock is meaningless."
Yes - a statement like "my stock has doubled in value" is somewhat meaningless, without also considering whether it doubled in value over 1 year or 10 years. Time matters. YOC ignores time.
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Old 12-15-2022, 09:52 AM   #83
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Originally Posted by Dash man View Post
Of course you have to consider future growth prospects of the current yield as well as the stock price. Buy a stock based on a current high yield can be a bad move. Look at MSFT, a stock paying only a little over 1% dividend, yet it grows that dividend an average of 10% per year. VZ pays a high dividend of over 6% per year but only grows it 2% per year. Which stock would you rather own? I own MSFT and have for many years. Itís paying me a 5.08% yield on cost but itís stock price has soared 400%. I used to own VZ. It payed a nice dividend, but itís stock price is lower than it was ten years ago, and was never higher than about 50% of its price ten years ago.
We all agree with what you wrote above.

So, why look back in the past to that YOC? I look at the present stock condition, and try to see its future prospects.
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Old 12-15-2022, 10:14 AM   #84
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Dash, YOC does not show you how well a stock's dividend has performed.

Example - 2 stocks, AAA and BBB:

AAABBB
Purchase Price $10 $10
Original Dividend $0.20 $0.20
Current Dividend $1.50 $1.50
Yield on Cost (YOC) 15% 15%
Year purchased 2015 1995



Both have the same YOC. Both have seen the dividend grow from .20 to 1.50. But one took 20 years longer.

YOC tells you they are the same, but they are not. Looking at the dividend growth rate, rather than YOC, would show that AAA has had better dividend growth.



You mentioned that "Thatís like saying the price increase of a stock is meaningless."

Yes - a statement like "my stock has doubled in value" is somewhat meaningless, without also considering whether it doubled in value over 1 year or 10 years. Time matters. YOC ignores time.


Why would you compare the YOC between two stocks that were purchased 10 years apart? That makes no sense.
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Old 12-15-2022, 10:16 AM   #85
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We all agree with what you wrote above.



So, why look back in the past to that YOC? I look at the present stock condition, and try to see its future prospects.

So a stockís history of being well managed and regularly raising its dividend over 10, 20, even 50 years doesnít give you an indication of its future prospects? Okay.
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Old 12-15-2022, 10:35 AM   #86
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So a stockís history of being well managed and regularly raising its dividend over 10, 20, even 50 years doesnít give you an indication of its future prospects? Okay.
Not really. In the long run, all companies go defunct. So, many things change in 5, or 10 years. We change (not for the better), then we die too.

This reminds me of a recent thread by Christine, where she talked about "horsey" stocks.
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Old 12-15-2022, 10:44 AM   #87
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Why would you compare the YOC between two stocks that were purchased 10 years apart? That makes no sense.
Well, you had said that "Yield on cost gives a more accurate representation of the value of a dividend investment."
I gave an example where knowing that the YOC was 15% did not give us a very good indication of how valuable the dividend had been. In one case, 15% YOC was much better than in the other case.

It sounds like we agree that comparing the YOC between different investments does not make sense.

And if so, it seems to follow that YOC, by itself, does NOT give a good representation of how well a stock's dividend has performed (since 15% might be good or maybe not so good).
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Old 12-15-2022, 10:58 AM   #88
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Well, you had said that "Yield on cost gives a more accurate representation of the value of a dividend investment."

I gave an example where knowing that the YOC was 15% did not give us a very good indication of how valuable the dividend had been. In one case, 15% YOC was much better than in the other case.



It sounds like we agree that comparing the YOC between different investments does not make sense.



And if so, it seems to follow that YOC, by itself, does NOT give a good representation of how well a stock's dividend has performed (since 15% might be good or maybe not so good).

I never said YOC by itself was a good indicator to purchase a stock. I said it was an indicator of a healthy company growing its dividend. It needs to be compared with other factors, including the payout ratio to make sure the dividend is safe and has room to grow.
YOC and the dividendís CAGR tell me dividends are beating or at least keeping up with inflation, providing me with a ďpay raiseĒ each year.
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Old 12-15-2022, 11:55 AM   #89
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I only pay attention to total return.
My SO and I use dividend income in combination with Social Security, and my small pension for living expenses
We piled monies into our Roth IRA's and 401k's leading up to retirement.
Have never sold a share of stock in the 11 years since our retirement.
Our portfolio total value fluctuates(duh!), and our total dividends per year go up each and every year.
The only hard part is keeping on eye on the stocks we hold. Not really a hard thing when you invest in solid companies like MSFT, PG, etc...
To each his own.
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