See how you can combine dividend shares to double the performance of the S&P 500

See how you can combine dividend shares to double the performance of the S&P 500

Companies are constantly announcing dividend increases, but here is something that suggests a simple investment strategy that can reduce the risk and make you a lot of money over the years.

Maybe not so exciting on the surface: Kroger Co. KR,
+ 0.82%,
a supermarket operator, increased the quarterly dividend payment considerably, but the dividend return on the stock, based on the closing price of $ 47.34 on June 22, is a non-exciting 2.20%.

But what if you bought Kroger shares five years earlier?

  • The stock closed at $ 22.56 on June 22, 2017. At that time, Kroger’s annual dividend payment was 48 cents per share, for a dividend yield of 2.13%. This is slightly lower than the current yield of 2.20%.

  • For five years, through the just announced increase in annual payment to $ 1.04 per share, Kroger’s dividend increased at a compound annual interest rate of 16.7%. Its share has increased 110%, and the dividend yield of the shares held for five years is 4.61%. The total return on the stock for the five years with dividend reinvestment was 133%, compared to a return of 69% for the S&P 500 Index SPX,
    + 0.95%,
    according to FactSet. That’s almost double the return – and remember that Kroger is a grocer.

There are several ways and reasons to choose dividend stocks:

  • Here is an approach that favors quality companies that are expected to significantly increase dividends over time. Current yields can be mediocre.

  • The following is a screenshot of companies whose stocks have high current dividend returns and analysts expect to generate enough cash to pay more.

Now, let’s look back five years and see which S&P 500 companies had the best dividend rates.

The best dividend rates

For this benchmark display, we started with companies that had dividend returns of at least 2% on June 22, 2017. We compared these annual payments with the companies’ current annual dividend rates to calculate a compound annual growth rate (CAGR). That’s all, and Kroger entered the top 10.

The following are the 10 shares of the S&P 500 that had dividend yields of at least 2% five years ago and had the highest CAGR dividend since then:

Company

Heart

Five-year CAGR dividend

Dividend yield on shares purchased five years ago

Dividend yield – five years ago

Current dividend yield

Price change – 5 years

Overall yield – 5 years

Tractor Supply Co.

TSCO,
+ 3.53%

27.8%

7.01%

2.06%

1.92%

266%

292%

Best Buy Co. Inc.

BBY,
+ 2.02%

20.9%

6.37%

2.46%

5.04%

27%

46%

Lowe’s Cos. Inc.

LOW,
+ 1.57%

20.7%

5.36%

2.09%

2.42%

122%

142%

NetApp Inc.

NTAP,
+ 0.23%

20.1%

5.11%

2.05%

3.09%

65%

89%

Regions Financial Corp.

RF,
-3.41%

19.4%

4.91%

2.02%

3.57%

38%

63%

Texas Instruments Inc.

TXN,
-0.96%

18.1%

5.82%

2.53%

3.01%

93%

120%

Kinder Morgan Inc. Class P

KMI,
-0.61%

17.3%

5.97%

2.69%

6.79%

-12%

15%

AbbVie Inc.

ABBV,
+ 1.28%

17.1%

7.71%

3.50%

3.82%

102%

153%

Kroger Co.

KR,
+ 0.82%

16.7%

4.61%

2.13%

2.20%

110%

133%

Union Pacific Corp.

UNP,
+ 0.36%

16.5%

4.84%

2.25%

2.49%

95%

116%

Source: FactSet

Seven of the 10 shares have surpassed the five-year yield of the S&P 500.

Click on tickers to start your own research on any of the companies.

And read Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch bidding page – including dividend history.

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