What Happens With Low-Yield High-DGR Stocks

The context of the original 10 by 10 concept relates to achieving a target: 10% yield on cost in 10 years from dividend increases alone. In other words, given a particular starting yield, how long does it take to get to the target for various rates of dividend growth? (Dividend reinvestment, which speeds up the process, is ignored.) After seeing a lot of comments expressing interest in high-DGR stocks with lower initial yields, I decided to revisit the original concept with more focus on those kinds of stocks.

A lot of seemingly attractive candidates appear among high-DGR stocks, worthy of more due diligence. That said, be very cautious about thinking that a company with, say, a 10-year DGR of 15% will be able to maintain that pace for very long. It just does not happen often. In contrast to the unknown future DGR, a stock's initial yield is locked in. Therefore, absent a dividend cut, the dividend payout either rises (in which case yield on cost goes up) or stays the same (in which case yield on cost stays the same).

Source: Seeking Alpha

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