The Best Dividend Growth Stocks For Uncertain Times

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• Hi, My name is Aaron and Im with Dividend Stocks
  Research, today were reviewing our recently
  published article

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The Best Dividend Growth Stocks For Uncertain
Times
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You probably dont remember what you were doing
on May 6, 2010. But Ill never forget that
day. The Dow sank almost 1,000 points in 45
minutes.
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Then, an hour later, it came roaring back, up 750
points. Over the next 3 weeks, it lost another
525 points. So how about this 2015 market? How
are you dealing with the wild swings, the
volatility weve been hammered with?
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Up and down, again and again. Then a few steady
stretches just to keep us off balance. You know
what? Its like Hyman Roth says in The
Godfather This is the life we have chosen.
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(Or was it Godfather II?) Anyhow, with the
whipsaw whirring away nonstop, whats an easy way
to find the best dividend growth stocks?
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Pay attention to history. Instead of listening
to rosy predictions about the future, none of
which put food on your table, take a good, long
look in the rear view mirror.
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If there was just one thing to look at, heres
what it would be. How good a job a company does
improving its earnings quarter after quarter,
year after year.
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When earnings grow over long stretches of time,
youve got the foundation for dividend growth,
and growing dividends are what you want.
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Heres a quick history lesson. Im in a
nostalgic mood, so lets return to the years of
the Reagan White House and take a look at two of
the great stocks of the 1980s.
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Philip Morris and Merck MRK. Not a bad
pairing... one company gets you sick and sends
you to the hospital, the other one tries to get
you better and sends you home. (Nowadays Philip
Morris is Altria MO.)
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Back in 1980, when the Air Supply song Lost In
Love was on the radio, and Ronald Reagan and
Jimmy Carter were on the campaign trail, Philip
Morris generated earnings per share (EPS) of
0.20. Merck was making 0.28.
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By 1988, when President Reagan was getting ready
to move back to his California ranch, Philip
Morris EPS were 0.74 and at Merck they were
1.02.
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What did this do to the dividend? Factoring in
the compounding from reinvested dividends, by
1988 the total dividend return for Philip Morris
was 17.9. At Merck it was 11.0. What makes the
dividend yield so big?
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The compounding. If you held these stocks for
just 8 years, you didnt just have the earnings
driving dividends higher. You piled dividends on
top of dividends to compound your return.
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Thats why a trip back to the past isnt a bad
trip to take. You see how a company performs,
instead of what it promises. This is one of the
best things you can do to find the best dividend
growth stocks.
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And youre reminded that hanging onto your best
dividend stocks is a smart move. But what about
right now?
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Where do you find the dividend stocks so
everythings in place for the dividends to keep
growing?
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Easy Arithmetic Points To The Best Dividend
Growth Stocks
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The easy arithmetic looks like this. Its easier
to achieve percentage growth when you start with
a small number.
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For instance, 50 revenue growth is a lot easier
when youre going from 10 million to 15 million
than when youre going from 20 million to 30
million.
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You only need half as much money. The more the
revenue grows, the harder it is to keep
growing. Its just plain common sense.
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But common sense seems to go out the window quite
often. Look at China. For years, the Chinese
economy cranked out dazzling growth rates.
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Starting in 2003, Chinas Gross Domestic Product
(GDP) was growing at a 10 clip... or more... for
7 years in a row. Then, in 2008, it went down to
9.6. Today, its at 7.4.
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This doesnt mean theres something sick about
the Chinese economy. Its simple arithmetic.
Sustaining strong growth gets tougher as the
years go by, and you need to build on bigger and
bigger numbers.
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The same thing holds true for dividend
investors. You want to look for dividend growth
that can build on a reasonable number. A lower
percentage yield.
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If a company is paying a 2 yield, cuts you a
dividend check for 1 a year, and has a dividend
payout ratio of 30, youre looking at a pretty
nice situation.
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Heres why. The dividend probably has lots of
room to grow. The yield is already reasonable.
2 is nothing special. Its conservative, and
youre eliminating risk.
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And the dividend payout ratio is also low, which
is great. This means the company has plenty of
money to increase the dividend if it wants. Want
an example?
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Go To Vegas To Find One Of The Best Dividend
Growth Stocks
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Check in at the Wynn. Just stay away from the
casino, because youll probably do a lot better
with the Wynn Resorts stock WYNN.
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The yield is low at 1.85 and the dividend payout
ratio is in good shape, 42.4. A great example of
a conservative yield and a payout ratio thats
not too high. Thats one of the dividend ratio
payout secrets its good to know.
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But will the dividend grow? If you like Wynns
prospects, if you think earnings will grow and
there will be plenty of cash to pay the bills,
yes.
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If you have some doubts about this, then hold
off. Youre not going to find meaningful
dividend growth unless youve got earnings growth
to back it up.
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What Should You Pay For The Best Dividend Growth
Stocks?
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Heres what you should look at next when you look
at stocks like Wynn Resorts. Can you make a good
deal on this stock, thats trading at 108?
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The Price to Earnings Ratio (P/E Ratio) gives you
a good indication. Wynns P/E Ratio is 23.77.
The market PE is 18. Are you buying at or near a
market high? Nope... look at the skid Wynn has
been on.
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But you know what? When you look at the chart
and go back a few years, youll see that even
though the stock is well off its highs, it could
easily give up some more.
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Im not one for trying to time the market. Its
a tough game to play. But a lot of smart
investors will tell you... The trend is your
friend. Or...
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Never try to catch a falling knife. When you
see the price of a dividend stock like this
heading down, dont rush in. Dont assume its
going to turn around run back up.
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It could give up give up more ground just as
easily as somebody could give up their paycheck
at one of Wynns blackjack tables.
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Youre usually better off waiting for a stock to
start heading back up, and showing some signs of
life before you rush in.
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You dont have to turn yourself into a nerdy
technical analyst and wallpaper your world with
charts.
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Dividend investors dont have to obsess with
entry levels for their buy prices like day
traders do. Thats because we have more time on
our side, time for a stock to edge back up. But
its good to have a feel for history.
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Know where your dividend stock has been and how
it behaves. This is one of the ways youll be
able to find good dividend growth stocks.
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