February Stock Market Purchase – Dividend Growth Stocks Outperform

Hartford Funds recently published a piece on the power of dividends. Now there is nothing groundbreaking about this piece. It simply shows what many a research article has shown over the course of history – dividend growth stocks outperform.

The main talking point of the article can be found half way down the page. It shows the average annual return for different kinds of stock groups between 1972 and 2017. They are as follows:

  • Dividend Payers and Initiators: 10.07%
  • Dividend Payers: 9.25%
  • No Change in Dividend Policy: 7.47%
  • Dividend Non-Payers: 2.61%
  • Dividend Cutters and Eliminators: -0.35%
  • S&P 500: 7.70%

As seen from the above, the key takeaway is that dividend growth stocks deliver returns above and beyond those in any other group. That is why I choose to invest in quality dividend growth stocks. It is a strategy which works. Research after research shows it works. Fish where the fish are. If you want to achieve market beating returns, invest in dividend paying companies that increase their payments to you every year.

I would urge each and every one of you to go and read that article. It offers empirical evidence on the power of dividends and is written in an easy to understand manner. Read it. Understand it. And let the power of dividends work in your favour.

February purchases

Over the past month, I bought shares in the following companies:

  • Vodafone: 112 shares at £1.39 each. Dividend Income: £12.18
  • XPP: 14 shares at £20.50 each. Dividend Income: £11.06
  • BAT: 63 shares at £24.05 each. Dividend Income £122.85

The BAT purchase did not occur during the monthly stock programme but was instead bought as an outright purchase. The fall in price of BAT stock brought the dividend yield to 8.1%. This is well covered by free cash flow. In the lows £20’s, the price of BAT was just too tempting. As I knew I would make a big purchase – 63 shares equals £1,515 – it would be worth making an outright purchase.

Whether I make an outright purchase or use the monthly stock dealing programme is determined by the amount invested due to the different dealing charges.

If I want to invest a small amount into a company, say £150, then the monthly stock purchase programme would make sense. This is because he dealing fee is only £1.50 or 1% of the total. If I had to make an outright purchase, the dealing charge would be £10 which its close to 7% of the £150 total. I would be giving up a years gains in fees. A big no no.

So if I make a big purchase, say for £1000, an outright purchase would make sense as I don’t have to wait for the day the monthly stock purchase programme takes place. And although I would still be paying £10, this amount only accounts for 1% of £1000 so it is still rational.

This BAT purchase now brings my total BAT holdings to 226 shares. The annual dividend I currently expect BAT is £440.70

I certainly expect this figure to rise given BAT is a dividend growth company. BAT is actually posting its results today so it will be interesting to see their results and what level of dividend growth they propose.

At present, taking the current BAT dividend, my total expected annual dividend is £3,271. It makes me excited just thinking about it. I’m beginning to see the fruits of my labour. Onwards and upwards.