/biz/ - Business & Finance

I’m a dividend growth investor. That means I focus on companies that grow their dividend instead of going for the largest starting yield I can find. I’ll use Costco as an example. It has a low starting yield of .72% but a five year CAGR (dividend growth annually) of 13% and a payout ratio of only 26%. This means that Costco only pays out a quarter of its earnings to the dividend leaving them plenty of room to grow their business and dividend well into the future.

Why is dividend growth so important? Well check out this chart. If you were to buy Costco today and hold it for 20 years you could expect a yield on cost of 12%. Say you made a $100,000 initial investment and never reinvested dividends. That investment would be earning $12,000 annually in 2 decades. Pretty incredible