The Battle Of The Dividend Stocks

A quick stroll through The Juice archives reveals extensive coverage of dividend stocks. Today, we take this coverage to the next level. 

Most recently, we looked at How To Choose Dividend Stocks: 

As much as we love dividend payers here at The Juice, we’re not fools. We’re not blind loyalists to one style of investing. Check out some of the dividend investor forums online and you’ll find people who are. 

These people live and die by dividend stocks. They literally won’t invest in a company that doesn’t pay a dividend. And they’ll only buy the names with the longest increase streaks and other (seemingly) impressive metrics. This makes no sense.

True. It doesn’t. 

But you still have to wade through the noise when the time comes to pick dividend stocks. When you do, you might be making the decision between stocks that have a high dividend yield and stocks with long streaks of annual dividend increases. 

Dividend yield tells you how much a company pays out in dividends relative to its stock price (dividend divided by stock price, multiplied by 100 to get a percentage). 

For example, if a stock trades for $50 and pays a $2 annual dividend, its dividend yield is 4%. 

A high yield means more income. If you own 100 shares of that $50 stock that yields 4%, you can expect to receive $200 in annual income (all else, such dividend reinvestment, equal). You can also get to this number by multiplying the dividend ($2.00) by the number of shares you own (100). 

Of course, as a stock price fluctuates, so will its dividend yield. Holding the annual dividend constant, as the share price decreases, dividend yield increases. The inverse holds true. Therefore, a high yield can be — and often is — the function of a falling stock price. 

Ideally, you want a rising stock price alongside regular dividend increases. To this end, investors often look for companies with a track record of dividend increases, such as dividend achievers (at least a 10-year dividend increase streak) and dividend aristocrats (at least a 25-year dividend increase streak). 

Because most long-term investors choosing between dividend stocks will be faced with the choice between these two types of stocks, we decided to look at the historical performance of some of the market’s highest-yield names versus the historical performance of stocks with long or otherwise impressive dividend increase streaks. 

The battle of the dividend stocks. 

We’ll likely make this a regular feature. Feel free to use the feedback link at the bottom of the page to suggest names you’d like us to put up against one another. 

To do this, we looked at a list of some of the highest-yielding dividend stocks published by one of our financial media partners, Insider Monkey. 

With a 13.74% dividend yield, NextEra Energy Partners (NEP), which is actually the 5th most-searched utility stock in our Trackstar database. 

Sounds amazing. 

A nearly 14% yield on what is, as we write this, $26.35 stock with a $3.62 annual dividend that has been increased for ten consecutive years. 

But, not so fast, NEP stock is down almost 15% YTD and off nearly 52% over the last year amid talk that the dividend might not be safe. But we don’t care about that. All we care about is that the 14% yield might cause some investors to ignore the flat out awful stock price. Believe it or not, this happens. 

Because, you might look at, say, Microsoft’s (MSFT) 0.71% yield or even Procter & Gamble’s (PG) 2.5% yield and feel like they’re not worth your time, especially if your focus is on generating portfolio income. 

But then you run the numbers. 

$1,000 invested in each stock in August, 2022, with subsequent $100 monthly contributions. Factor in dividend reinvestment and here’s how your $1,000 plus $100-a-month looks in each name in 2024. 

So, yeah, speaks for itself. 

In NEP, you’re down more than 40% (remember, you have to factor in the $100 monthly investments after the initial $1,000) even when accounting for dividend reinvestment. NEP stock started August 2022 at around $80 a share. 

Who in their right mind would buy a stock like this because it yields 14%?

The Bottom Line: That’s a rhetorical question. But people do it. And they justify it. The Juice can find no justification for doing something like this. Not even in our wildest dreams. 

Next week, we’ll dig deeper with more battles of the dividend stocks. Except we’ll make it a fairer fight with high, though not quite as outrageous yields on the high-yield side against some seemingly more boring dividend payers.

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