Dividend stocks can make great investments. Investors often focus exclusively on the dividend yield when looking to capture the best returns. In some cases -- for instance, if you're looking to generate income for now -- that makes sense.
But for investors simply looking for the best total returns, this strategy can cause them to overlook incredible businesses. On Motley Fool Live on Oct. 29, "The Wrap" host Jason Hall discussed Activision Blizzard (ATVI). It's the dividend stock he's owned the longest and an excellent example of how a stock with a low dividend yield but great record of dividend growth can deliver enormous returns over time.
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Jason Hall: The stock that I've held the longest that pays a dividend is Activision Blizzard. I need to see what is Activision Blizzard's current yield. Let's see if I can figure what this is.
Danny Vena: I can actually help out with that, let me just pull a picture.
Jason Hall: Zero point five percent, it's a pretty low return or pretty low yield dividend stock. But let's see, I've owned the stock since about 2010 or so, somewhere around there, 2010. It's done pretty well for me. I'm going to throw up a chart here. I'm going to go back to the beginning of 2010. I'm going to do a screen share here, Danny. Let's see here. Can you see that? I'm going to pull the yield off and I'm going to go back to 2010.
Danny Vena: Here we go.
Jason Hall: I'm going to go back to the beginning of 2010. Now, the stock has done great. The stock is up, essentially, 600% since 2010. That's pretty good. Now, let's throw in the total return. Let's look at the return when you factor the dividend in. Again, this is a stock that almost never really yields very much, it does a yield close to 1%.
But over the past decade, that little tiny dividend, and here's the big thing too, the ability to grow that payout, they've grown the dividend about 170% over that period. But it's added an extra 100% in total returns on top of the stock price appreciation.
So there's a big important lesson here, and you hit on it a little bit with Apple. But that lesson is you don't have to buy a stock that's paying a big 3, 4, 5, 6% yield to capture return, to get the best return. We'll talk about dividend traps here, I'm going to get out of the screen share. Sometimes the stocks that pay the highest yields are companies that might be troubled.
