Dividend Yield or Dividend Growth?

After looking into the 10-10 strategy form a previous post where you focus on screening stocks based on a 10 percent dividend growth for 10 years. I though I’d compare a hypotethical investment performance between a dividend growth, a dividend yield and both together.

I am purely interested to see where one type of dividend investment thrives over the other.

Dividend Yield

Crescent Point Energy

I have picked a company with a decent yield in today’s terms. It’s currently yielding 5.92% and pays its dividend monthly with a discount of 5% on DRIP. It’s a company that operates in the oil and gas industry in Canada. I don’t expect significant dividend growth from this company but the monthly dividend and yield are sustainable and attractive.

I have put a stock appreciation of 5% for every years below and I have not included the discount in the calculations. The investment triples in 15 years. It’s return on investment I would be happy with even if the dividends don’t increase.

YearSharesPriceDividendsYieldNew SharesValue
2011250$46.27$2.765.96%12$11,567.50
2012262$48.58$2.765.68%12$12,728.88
2013274$51.01$2.765.41%12$13,977.47
2014286$53.56$2.765.15%12$15,319.11
2015298$56.24$2.764.91%12$16,759.96
2016310$59.05$2.764.67%12$18,306.60
2017322$62.01$2.764.45%12$19,966.00
2018334$65.11$2.764.24%12$21,745.58
2019346$68.36$2.764.04%12$23,653.20
2020358$71.78$2.763.85%12$25,697.22
2021370$75.37$2.763.66%12$27,886.51
2022382$79.14$2.763.49%12$30,230.49
2023394$83.09$2.763.32%12$32,739.14
2024406$87.25$2.763.16%12$35,423.09
2025418$91.61$2.763.01%12$38,293.58

Just Energy

Let’s look at a higher yield stock. I am going to take Just Energy (JE) which is involved in the sale of natural gas and/or electricity in a number of provinces in Canada and states in the U.S. It has maintain its yield since it converted into a corporation in January. (Just like CPG earlier in 2010.) This one does better than CPG under the same stock appreciation.

YearSharesPriceDividendsYieldNew SharesValue
2011795$14.55$1.248.52%60$11,567.25
2012855$15.28$1.248.12%60$13,062.26
2013915$16.04$1.247.73%60$14,677.86
2014975$16.84$1.247.36%60$16,422.36
20151035$17.69$1.247.01%72$18,304.61
20161107$18.57$1.246.68%72$20,556.88
20171179$19.50$1.246.36%72$22,988.60
20181251$20.47$1.246.06%72$25,612.11
20191323$21.50$1.245.77%72$28,440.50
20201395$22.57$1.245.49%72$31,487.70
20211467$23.70$1.245.23%72$34,768.51
20221539$24.89$1.244.98%72$38,298.69
20231611$26.13$1.244.75%72$42,094.96
20241683$27.44$1.244.52%72$46,175.12
20251755$28.81$1.244.30%72$50,558.05

Dividend Growth

Enbridge

For the dividend growth, I am going to pick Enbridge TSE:ENBNYSE:ENB . It was highlighted in the BNN interview as a Canadian stock matching the 10/10 strategy criteria. It has had an average of 12% dividend growth over the past 10 years and also just split recently which also highlight a good stock appreciation.

I am starting with the same approximate amount as CPG for the dividend yield and I using a dividend growth of 12% per year as an average. The results are quite good. In fact, it beats a high yield stock with little to no dividend growth.

YearSharesPriceDividendsYieldNew SharesValue
2011365$31.63$0.983.10%8$11,544.95
2012373$33.21$1.103.30%12$12,387.89
2013385$34.87$1.233.53%12$13,425.75
2014397$36.62$1.383.76%12$14,536.42
2015409$38.45$1.544.01%16$15,724.60
2016425$40.37$1.734.28%16$17,156.73
2017441$42.39$1.934.56%20$18,692.77
2018461$44.51$2.174.87%20$20,517.54
2019481$46.73$2.435.19%24$22,478.05
2020505$49.07$2.725.54%24$24,779.60
2021529$51.52$3.045.91%28$27,255.10
2022557$54.10$3.416.30%32$30,132.60
2023589$56.80$3.826.72%36$33,456.93
2024625$59.64$4.287.17%44$37,276.93
2025669$62.63$4.797.65%48$41,896.28

Power Financial

I thought I’d pick a candidate I really like but would have failed the criteria for lack of dividend increase in 2010. However, even without the increase, the company still has an average of 14.75% of dividend growth per year. This company is Power Financial TSE:PWF.

YearSharesPriceDividendsYieldNew SharesValue
2011378$30.54$1.404.58%16$11,544.12
2012394$32.07$1.605.00%16$12,634.40
2013410$33.67$1.845.45%20$13,804.84
2014430$35.35$2.105.94%24$15,202.16
2015454$37.12$2.416.48%28$16,853.19
2016482$38.98$2.767.07%32$18,787.22
2017514$40.93$3.157.71%36$21,036.23
2018550$42.97$3.618.41%44$23,635.07
2019594$45.12$4.149.17%52$26,802.16
2020646$47.38$4.7410.00%64$30,605.91
2021710$49.75$5.4210.90%76$35,319.97
2022786$52.23$6.2111.89%92$41,055.74
2023878$54.85$7.1112.96%112$48,154.31
2024990$57.59$8.1414.13%136$57,011.85
20251126$60.47$9.3215.41%172$68,085.97

Thoughts

All of these investments scenarios have one major benefit of dividend investing in common and it is compound growth. You can take the rule of 72 to approximate how fast your dividend investment doubles (assuming you DRIP your shares) but in the scenarios above, it does much more than double after 15 years. At a minimum, it is tripling!

The difference between ENB and PWF is quite large. I was quite surprised to see the results. It’s due to the initial yield on cost. The higher the yield, the better as growth is always over the previous year so it compounds faster.

If you have a short-term window, 5 years or less, a high yield stock may be better. Be careful though, as high yields can be signed of trouble … If you have time on your side, a good dividend growth stock should shine. The higher the yield on your initial investment, the better off you’ll be.

Again, don’t forget that the numbers are based on compound growth from DRIPing the dividends. If you don’t DRIP your dividends, you can’t expect the performance to be the same. Personally, I like to look for a good entry point and then I don’t manage the price of my DRIPs. I just let it DRIP and do its work for me.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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