So I read this article with interest from Forbes, titled “Forget Yield -- Dividend Growth Is The Metric That Matters For Retirement Income.” From the title, it sounded like a promising read, but even from the title I could tell I’d have a problem with the article. Read it yourself here, but the gist of it is that dividend growth is more important that current yield. That is a fair position to take, especially where the investor has a long time horizon.
But on reading the article, it becomes clear that the author is comparing dividend growth stocks (he uses O, JNJ, and WMT as examples) to the yield you would get from bonds! Again, not an unfair position to take, but as I have explained elsewhere, when evaluating dividend growth stocks, it is important to consider both the initial/current yield and the dividend growth rate. They are both very important factors, and how they are combined has a large effect on your ultimate returns. And in the best of cases, you can find strong dividend growers that have a healthy initial yield as well. (Though admittedly this is harder now than it was even 6 months ago.) All in all, a sloppy article from Forbes, in my opinion. A better title would be “Dividend Growth Stocks May Be Better Than Bonds,” but in no case can you “forget” yield!
But on reading the article, it becomes clear that the author is comparing dividend growth stocks (he uses O, JNJ, and WMT as examples) to the yield you would get from bonds! Again, not an unfair position to take, but as I have explained elsewhere, when evaluating dividend growth stocks, it is important to consider both the initial/current yield and the dividend growth rate. They are both very important factors, and how they are combined has a large effect on your ultimate returns. And in the best of cases, you can find strong dividend growers that have a healthy initial yield as well. (Though admittedly this is harder now than it was even 6 months ago.) All in all, a sloppy article from Forbes, in my opinion. A better title would be “Dividend Growth Stocks May Be Better Than Bonds,” but in no case can you “forget” yield!