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If US Bancorp can grow dividends per share by just 10% this year and next -- that would be below the average annual 16% increase of the past five years -- by April 2010, an investor would be looking at a dividend of $2.06. That would represent a 6.3% yield for the investor who bought at $32.48.
That's not a bad return even if the stock price doesn't go up -- and I expect it will when investors eventually get over their justified fear of the entire financial sector. Think of buying a stock like this now as purchasing an option on increasing future dividends and higher yields.
Track records matter
Finding the shares of companies committed to raising their dividends and able to accomplish that year in and year out isn't simple. Screens tell you only what the company has done in the past.But I think 2008 could be the ideal year for finding this kind of unfixed-income star. Any company with a history of dividend increases that manages to keep its commitment to that policy during an economic slowdown of the sort we're seeing now is likely to be able to meet that commitment in the future.
I'll be looking for more stocks to join my unfixed-income portfolio as the year progresses. In the meantime, I'm adding US Bancorp to my existing dividend-stocks portfolio. I'll also be adding it to Jubak's Picks with this column.
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I'm not convinced the market decline is over -- I'm looking for one more leg to the downside -- but I think that 5% yield makes US Bancorp a good bet even in today's uncertainty.
Here's a chart of the complete dividend-stocks portfolio, including all buys and sells since its inception in October 2005:
| Security | Date purchased | Purchase price | Date sold | Total return as of 4/08/2008 |
|---|---|---|---|---|
10/24/2006 | 66.89 | 9/28/2007 | 42.30% | |
12/18/2007 | 49.76 | Open | 1.40% | |
9/28/2007 | $65.78 | Open | -9.47% | |
10/14/2005 | $51.03 | 4/21/2006 | -5.5% | |
5/1/2007 | $42.85 | Open | -24.6% | |
10/14/2005 | $32.62 | Open | 51.4% | |
10/14/2005 | $58.33 | Open | 24.6% | |
10/14/2005 | $45.90 | Open | 31.2% | |
10/14/2005 | $26.99 | Open | 16.9% | |
4/21/2006 | $39.14 | 10/24/2006 | -4.6% | |
12/6/2005 | $40.69 | Open | 20.7% | |
5/1/2007 | $38.51 | 12/18/2007 | 15.5% | |
12/6/2005 | $25.21 | 5/1/2007 | 3.9% | |
12/6/2005 | $101.58 | 5/1/2007 | -3.2% | |
4/11/2008 | $32.79 | Open | -- | |
Six-month certificate of deposit# | 12/6/2005 | $10,000 | 12/6/2006 | 4.5% |
Two-year Treasury note; yield 4.52% | 12/6/2006 | $10,000 | Open | 8.0% |
12-month CD; yield 4.77% | 12/6/2005 | $10,000 | 12/6/2006 | 4.8% |
Six-month CD; yield 5.25% | 12/6/2006 | $10,000 | 6/6/2007 | 5.3% |
Six-month CD; yield 5.45% | 9/28/2007 | $10,000 | 3/28/2008 | 2.7% |
Average annual total return (assumes equal initial dollar positions; income spent, not reinvested) | 13.5% |
*Northern Border Partners was renamed Oneok Partners on May 17, 2006.
#Six-month CD (yield 4.5%) rolled over on 6/6/2006 (yield 5%).
Continued: An update to Jubak's Picks
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