Thursday, November 18, 2010

How to Get a 41% Effective Yield on a Blue Chip Stock

Although there are always exceptions to the rule, good long term track records are important. And when you look at dividend increasing stocks, that can be very true, especially those that have raised their dividends for many years, such as 3M Company (MMM), Stanley Works (SWK) and Abbott Laboratories (ABT).

One of the stocks that shows up on the list of dividend increasing stocks is Clorox (CLX), which has increased its dividend for 33 years in a row, and provides a current yield of 3.5%. But the interesting feature about dividend raisers is that the effective yield based on cost basis is much higher.

Let's not go back 33 years or even 30 years, as that is a long time for any investment. But looking back twenty years, if you had bought the stock at that time, the initial yield would have been only 1.7%. If you held onto the stock, taking into consideration the stock splits and dividend reinvestments, the current yield based on original cost would be an incredible 41%.

So maybe twenty years is still too long of a time frame. Let's look back just ten years. Based on a purchase ten years ago, the current effective yield based on cost basis would be 6.1%, which is still pretty substantial, compared to the current yields on other large cap blue chip stocks.

Clorox recently posted a 37.6% increase in earnings on a slight drop in revenues. Operating cash flow of $873 million is way more than enough to cover the $ 306.77 million in dividend payouts. The company held its shareholder meeting yesterday and reported that it anticipates stronger growth in the second half of its fiscal year.

There are plenty of other dividend increasers that investors can choose from which can be found at, all with dividend increases for over 30 years and yields ranging from 0.9% to 5.0%.

Disclosure: Author did not own the above at the time the article was written.


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