We’re all about the dividends here at Contrarian Outlook. Often we take it for granted that we’re not looking to lose 17% in just a few weeks while we collect income!
BAC Reaches (and Reaches!) for a Bottom …
The share-price chart for Bank of America (BAC) may appeal to dividend dumpster divers. And heck, it may work, as BAC stands to gain as more people pull their savings from regional banks and plunk them into “too big to fail.”
Why deal with this nonsense? This is exactly why we’re fading “cardiac” price charts like BAC’s and shifting toward the smooth and steady growth of dividends:
… While We Climb the “Dividend Staircase”
That’s more like it! What you’re looking at is the strong upward growth (nearly 500% in a decade!) of dividends from health insurer UnitedHealth Group (UNH), a stock I’ve recommended in my Hidden Yields dividend-growth service (more on UNH below).
Record-Setting Year for Dividends = A Rich Hunting Ground for Us
The good news is that it’s never been easier to shift your return to dividends: according to S&P Global Indices, S&P 500 payouts jumped 10.8% last year–despite the manic market. Payouts are poised to set another record this year, which would mark the 12th in a row.
Find me a stock that rises every year for 12 straight years. Impossible, right?
That’s another reason why we put dividend growth at the top of our list when picking stocks. And as we’ll see below, when you buy dividends that grow at UNH-like speeds, they tend to send share-prices into the stratosphere, too.
You’ll go one better if you add share buybacks to the mix. Repurchases get a bad rap from the press, but the truth is, when a company’s shares are cheap, there are few better ways for management to create value for us!
There’s also a nice knock-on effect for us here, as buybacks leave fewer shares on which to pay out, setting the stage for bigger dividend hikes in the future.
Our play here, then, is pretty simple: buy companies with fast dividend growth and smartly executed buybacks. When we do, we can set ourselves up for some truly outsized returns indeed.
How Surging Payouts–and Buybacks–Sent Our TXN Buy Soaring
We’ve benefited from this trend many times at Hidden Yields. One of my favorites came in June 2017, when we bought semiconductor giant Texas Instruments (TXN).
The stock popped onto our radar thanks to CEO Rich Templeton, whose brilliant 13-year reign at the company had driven free cash flow (FCF) per share up an astounding 586%.
That translated straight into a dividend that had nearly tripled in just the preceding five years. Meantime, Rich and friends took advantage of the company’s reasonable price-to-FCF ratio, which averaged around 16 over this period, to buy back 12% of TXN’s shares.
Check out what happened next. The dividend/share price link couldn’t be clearer:
Dividend/Buyback “Twofer” Drove TXN’s Gains Before Our Buy …
So we climbed aboard Rich’s dividend (and buyback) train and happily enjoyed 130% dividend growth over the next four-and-a-half years, plus 120% share-price growth, for a 148% total return!
… And After
TXN is just one case of a company’s “Dividend Magnet” delivering the goods. Our buy of aforementioned UNH for Hidden Yields back in January 2020 is another.
During our nearly three-year holding period, UNH’s share price rode its rising payout higher (with a buyback assist!)–straight through COVID lockdowns, soaring inflation, rising rates and, of course, last year’s stock-market mess.
The end result? A 73% price gain and 53% dividend growth, which combined for a quick (and low-drama) 83% total return:
UNH Rides Its Dividend Through Market Madness–to 83% Total Returns
The nice thing about this strategy is that it can tell you when to sell, too. With UNH’s share price getting a bit too far ahead of its payout, we sold the stock on December 16, 2022, sidestepping a 4.7% decline before taking another swing at UNH in February of this year–essentially buying back in for 95 cents on the dollar.
UNH’s Dividend Told Us to Sell High–and We Stepped Back in at 5% Off
These are just a couple examples of the Dividend Magnet’s power. Sad thing is, most investors only pay attention to share prices when they invest. That’s too bad, because share prices tell (at best) half the story. But we’ll leave these folks to it and happily pick up the cheap–and accelerating–payouts they’re leaving on the table.
5 Urgent “Recession-Resistant” Buys With Accelerating Dividends
As I said a second ago, we’ve seen this pattern hand us big profits (and dividends!) time and time again at Hidden Yields.
And lightning is about to strike not twice but 5 more times, with the 5 “recession-resistant” dividend growers I’ve recently uncovered. All 5 of these stocks are returning piles of cash to shareholders and have share prices that march higher with every (massive!) dividend hike.
I want to share the names of these outsized payers with you now. Click here and I’ll tell you all about my “recession-resistant” dividend-growth strategy and give you access to a Special Report naming all 5 of these outstanding dividend growers.
Also see:
Warren Buffett Dividend Stocks
Dividend Growth Stocks: 25 Aristocrats
Future Dividend Aristocrats: Close Contenders
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
