His Dividends Are Bigger Than Mine

The article "My Dividends Are Bigger Than Yours" always makes me smile. Unlike many of my articles, which review the boneheaded blunders I've made in my investing life, that article reviews something I did right: Buying a healthy, growing, dividend-paying company -- and hanging on.

The stock in question is Johnson & Johnson (NYSE: JNJ  ) , which I bought for about $43 in 2002. The stock has since climbed to around $63 per share, offering today's investors a respectable dividend yield of around 2.6%. As I explained, though, my dividend yield for Johnson & Johnson is approximately 3.9%. Better yet, I suspect it might be 13% or more in just 10 years.

What's going on? Well, here's how I figure it: Since I paid $43 per share and I now receive $1.66 per share in annual dividends, my yield is 3.86% (which you get by dividing $1.66 by $43). Better still, as the dividend grows over time, my effective yield will also grow.

The power of time
I'm not the only investing genius around, though. Plenty of investors -- like Bob W., who emailed me after reading my article -- figured out the power of dividends long before my own light bulb went on.

Remember how I got my shares of J&J back in 2002? Well, Bob bought shares of General Electric (NYSE: GE  ) in 1987, a full 15 years earlier. What's his effective yield today? Roughly 30%! (I bought General Electric, too ... in 2006. At 3.3%, my yield is respectable ... but it's no 30%!)

Want more? Well, good, because Bob shared more. His Wells Fargo (NYSE: WFC  ) shares, bought in 1986, now bring in a yield of 61% in relation to his original purchase price. Around the same time, he bought into a major bank and today reaps an effective yield of 45%, along with a 79% yield on a telecommunications company.

What's his secret? Well, like I did with Johnson & Johnson, he bought into healthy, growing, dividend-paying companies -- and hung on. Note that most of the purchases he mentioned to me were from 1986 and 1987. He didn't specify exact dates, but I wouldn't be surprised if he managed to snag shares of great companies soon after the "Black Monday" crash of October 1987.

Start yesterday, start today, start now
If you're feeling any pangs of jealousy right now, go research companies that interest you. The first months of 2008 haven't been too kind, and many great companies have seen prices plummet.

When prices fall, yields rise -- making this a particularly attractive time to find some great dividend payers. (Look also for companies that have been hiking their dividends regularly and significantly.)

Here are a few companies from a screen I ran for firms with yields above 2%, P/E ratios of 20 or less, net profit margins above 10%, and five-year earnings growth rates above 10%:

Company

Net Profit Margin

Dividend Yield

Earnings Growth

P/E

Norfolk Southern (NYSE: NSC  )

16%

2.2%

31%

15

Allstate (NYSE: ALL  )

13%

3.5%

19%

6

Procter & Gamble (NYSE: PG  )

14%

2.1%

11%

20

AT&T (NYSE: T  )

10%

4.4%

13%

19

Those aren't necessarily companies you should buy right now -- at least until you do some further research.

If you'd rather let someone else do some of the heavy lifting, I encourage you to check out our Motley Fool Income Investor service free for 30 days. Advisors James Early and Andy Cross' picks are beating the market by nearly six percentage points, and their average yield of more than 5% will help you position your portfolio well for the next down market.

Find some great dividend-paying investments today, and in 15 or 20 years, your dividends may be better than mine, too!

Longtime Fool contributor Selena Maranjian owns shares of Johnson & Johnson and General Electric. Johnson & Johnson is a Motley Fool Income Investor recommendation. The Motley Fool has a disclosure policy with awesome yields.


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