One of the coolest things about stock dividends is that they can increase over time. It’s an interesting exercise that we can do, to get some perspective of just how much they increase, and how much those dividends contribute to our total return.
Look at Merck, the big pharmaceutical company. In 2012, the stock traded for roughly $40 a share and paid a 4% dividend. Merck has underperformed the S&P by quite a bit since then. So we might say that Merck isn’t that great an investment. But Merck has increased their dividend significantly since 2012. If you look at the dividend today versus the purchase price 10 years ago, the yield on Merck is 7.5%. There is no place on earth where currently you can earn anywhere near that without taking on significant risk. Boring Merck doesn’t look quite as boring any more.
It’s an interesting exercise to do with all our dividend paying stocks. Divide the dollar dividend by the purchase price of our stocks and see what yield is today versus that price. It can give you perspective, and respect, for the power of stock dividends.