4 Income Boosters

The classic mistake when deciding to invest in dividends is to focus on yield. We review the stocks and choose those that pay the highest dividend-to-price ratio. The problem is that Stocks are not fixed income securitiesActing in this way therefore means exposing oneself to the risk that this dividend will be reduced or even eliminated altogether, especially since high yields are often the characteristic of companies in difficulty, whose share price has fallen sharply.

To avoid unpleasant surprises like this, It is better to choose lower yields but which progress regularly and substantially. Some of them even have particularly impressive growth rates. This is the case, for example, of CenturyLink (NYSE:CTL), which has seen an average annual increase in its distributions over the last four years of 90.13%. The problem with such rates is that they are impossible to maintain over time. The distribution ratio CTL's figure clearly exceeds what is reasonable, with 143.07%.

There are, however, other stocks whose dividends represent a reasonable share of profits and which are growing spectacularly:

• Novo Nordisk (NYSE:NVO): yield 1.68%, average annual dividend growth 33.83%, 14 consecutive years of increases, payout ratio 36.55%.
• International Business Machines (NYSE:IBM): yield 1.81%, average annual dividend growth 18.09%, 15 consecutive years of increases, payout ratio 22.74%.
• Rock (VTX:ROG): yield 3.32%, average annual dividend growth 17.86%, 16 consecutive years of increases, payout ratio 43.87%.
• Lowe's Companies (NYSE:LOW): yield 1.51%, average annual dividend growth 17.09%, 49 consecutive years of increases, payout ratio 32.24%.

The average annual progression of dividends of these four titles is 21.71% over the past four years. The average yield is certainly low, at 2,08%, but at this rate, it would be equivalent to 5,55% in five years, 14,83% in 10 years, 39,62% in 15 years, etc. Of course, past performance does not guarantee future performance. It is a safe bet that dividends will continue to increase, but at a slower pace. This is even desirable to ensure their sustainability.

However, it is noted that in a short time, a good growth rate of distributions manages to compensate and even sublimate a yield which is nevertheless relatively low. Even if dividend growth were to fall back to 15%, or even 10% in the coming years, the expected income would still be substantially higher than a stock with a high but stable yield (which is rare in itself).