I love dividend paying stocks. They pay you to wait on their share prices to grow with dividends. A company’s dividend growth rate is a good proxy for how much their share price should also grow.
A company’s share price is the present value of all its future cash flows (dividends) according to classic finance theory. So, a simple way to look at it is that a company who is increasing its dividends by 3% to 5% each year should see its share price of its common stock growing at approximately the same rate.
An Example of the Dividend Growth Rate in Action
To give you an example, let’s look at one of my favorite companies, Coca-Cola (Stock Symbol: KO). In 2002, the Coca-Cola company issued a quarterly dividend of 10 cents or 40 cents per year (adjusted for the 2 for 1 stock split that took place in 2012). The share price of Coke at that time was right at about $50 (or $25 factoring the split). Over the past eleven years, Coca-Cola’s dividend has increased to 28 cents per quarter or $1.12 per year. That is a 9.8% annual increase in their dividend.
Currently, Coca-Cola’s stock price has risen to $39.23 this year. That actually equates to only a 4.2% annual rise in the price of their stock (stock split adjusted). Of course, that rise hasn’t been on a straight line but ebbs and flows with the macro economy as well. So, using this dividend growth rate and the share price, it is not out of line to say that Coca-Cola may be undervalued at these levels using this metric alone. Of course, it’s not always wise to put all of your investing eggs into the one basket of a single metric. There’s more to a stock price than that.
I have been an investor in Dr. Pepper Snapple Group (NYSE: DPS) ever since it spun off from its former parent company Cadbury Schweppes in 2008. It is an excellent company with a good dividend that, not only continues to increase its dividend, but is poised to see a run in its share price as well. It is a good dividend stock that should be added to your watch list.
Here are a few reasons why I like Dr. Pepper Snapple Group shares.
Dr. Pepper Offers A Good Dividend Yield
With returns on Treasuries, money markets, and certificates of deposit still at some of the lowest levels seen in a generation, investors continue to be on the hunt for yield. At current share price levels, Dr. Pepper Snapple Group’s current annual dividend of $1.52 per share provides a dividend yield of 3.33%. Stocks like Dr. Pepper that offer over a 3% annual dividend yield provide investors with a high yield that dividend investors are looking for.
Dr. Pepper Continues To Increase Its Dividend
Dr. Pepper Snapple Group spun off and became a publically traded company in 2008. In 2009, the company started issuing a dividend, and that dividend has increased every year since 2009. The dividend has more than doubling in 4 years, which equates to over an 18% increase to the dividend annually.
Potential Reasons For Dr. Pepper’s Share Increasing
DPS Has A Low P/E Ratio
Dr. Pepper Snapple Group has a Price to Earnings (P/E) Ratio of just 15.2 with its current share price of $45.64. This P/E Ratio is well below its industry rivals Coca-Cola (NYSE: KO) and Pepsi Co. (NYSE: PEP). Currently, both Coke and Pepsi enjoy a P/E Ratio of 21.
Despite the difficulties of the current economic climate, the truth is that there has never been a better time to open your own small business or at least invest in one. However, if you are not experienced in a particular field of expertise, it can be confusing to figure out which small business niches to hang your hat on. Here are five niches that are expected to grow in 2014.
Niche 1: Building Service and Repair
When it comes to small business niches that will likely only grow larger in 2014, building service and repair is one of the best places to begin. Specifically, air conditioning is a great business example, as each year, cities and states all over the United States are posting record heat waves throughout the summer. Commercial Air conditioning service companies in NYC companies are particularly part of this group. Air conditioning is a service that most companies are willing to pay any amount of money to obtain, rather than seen as an amenity, this service is more of an essential to most business owners.
One of the key things that you will need to do if you want to run a successful business is to advertise. If you are concerned about the environment, then you will be happy to know that there are several ways that you can advertise without harming the environment. Below are some of the green ways to advertise and promote your business.
Social Media Marketing
The Internet has become one of the most popular tools for advertisement. Social media marketing will not only help your business be greener, but it will also help save your business money. Websites like Twitter and Facebook make it very easy to promote your business. Social media sites also help you stay in touch with your current customers. You should also set up your own personal blog or website. You may want to contact a SEO specialist so that you can find out ways to drive more traffic to your blog or website.
Promotional Grocery Tote Bags
One way that you can get your brand out there is by using promotional grocery tote bags. They are a great alternative to plastic grocery bags. Customers love to have products with a business’s name on it.
Use Recycled Paper For Advertisements
Despite the fact that more and more businesses are using social media to advertise, paper advertisement still remains popular. Fliers and business cards are two of the materials that you can use to promote the business in your area. However, you should consider using recycled paper for your advertisements. This will help save trees. Using recycled material will also help your business save money.
It’s a tough time in today’s economy as a business, no matter how big or small you are. No sooner does a new business get off the starting blocks, are they then faced with crunching numbers that leave heads in a spin. It’s essential, in this day and age, to pay attention to the current climate while also adhering to constantly-changing government regulations, ensuring that energy efficiency and being green are at the top of your agenda. This will improve your business reputation and the look of your balance sheets.
While reducing your carbon emissions and improving your energy efficiency may seem like hard work, in reality, there are plenty of ways in which you can do your bit for the environment without even thinking about it. It’s certainly not an arduous task to turn electricity off and to carpool – it’s simply a matter of educating and encouraging yourself and employees.
There are plenty of ways in which to improve business and commercial energy efficiency, and with inspiration from these six superstars you can implement some positive changes in your business too. Not only will you see an improvement in your quarterly expenses, but the environment will also benefit and you and your staff will feel more positive about your impact upon the planet.
With the help of the Carbon Trust and a little initiative, these six national and international giants have changed the way they think about energy. Here’s how.
A recent reader questioned the validity of a dividend aristocrat as a growth stock. His argument was whether or not you could find a growth stock among those dividend aristocrats. He asked, why invest in a dividend aristocrat because after 25 years of consistently rising dividends, how much growth could there be left in the shares?
The question, like most, begs for a little further examination. It made me dig into some questions? When does a growth stock become a value play? Can a dividend aristocrat be a growth stock? Or, is it a value stock by its very nature? And, what role does the dividend payout ratio play in our determinations?
Understanding Growth Stocks vs Value Stocks
Investopedia defines a growth stock as a stock whose share price grows at a faster rate than the overall stock market. Last year, of course, the S&P 500 Index saw a 13% gain, and it is set to make a comparable run here in 20113 as well.
Conversely, a value stock is the ying to growth stocks’ yang. Value stocks are often undervalued when compared to the company’s financial metrics. Investors often find that value stocks have a higher dividend yield, lower price to book ratio, and often a lower price to earnings (PE) ratio than growth stocks traditionally.
Can A Dividend Aristocrat Be A Growth Stock Too?
Yes, a dividend aristocrat can be a growth stock also, but it may be unlikely. They are more likely to be a value stock and a blue chip company. Out of the 59 dividend aristocrats in the S&P 500 index, many have seen year over year share price growth of over 13% in recent years. While we may not consider strong dividend payers as high growth companies, the possibility is still out there for those companies to provide both income and capital appreciation to shareholders.