Investors pay too much attention to prices. That’s not investing. It’s trading. Sitting still and collecting dividends is investing. Let’s focus on the best part of dividend investing—dividend increases.
I wrote about my “survival stock” Hormel last week. The company began paying its dividend back in 1928, when cool Calvin Coolidge was president of the United States. It hasn’t looked back since. On Friday, Hormel released its quarterly earnings. Thanks to products like Spam, earnings were up 14% from a year ago, and revenues by 5%.
Hormel trades at around $28. It pays a quarterly dividend of 15 cents, or 60 cents a year, giving it a yield just over 2%. Five years ago, it paid an annual dividend of 30 cents, so it has doubled its dividend in five years for a CAGR of 15%. Let’s assume it can do the same over the next five years.
If the dividend is $1.20 in five years and the yield is still just over 2% a year, then the stock price would be around $60. Which means your reward for sitting still and collecting dividends is that you will double your money without paying any attention to daily price swings.