I love investing in dividend-paying stocks. I like to see the dividend payments flowing into my portfolio. That gives me more cash to buy dividend stocks, which allows more income to flow into my portfolio.
However, I don't solely invest in dividend stocks. I also invest in high-quality growth stocks, particularly those I believe can grow their cash flows at above-average rates. That strategy has paid big dividends over the years in the form of strong capital gains. Meanwhile, as some of my growth stocks have matured, they've started paying dividends. Because I got in early and held on, I'm earning some monster yields on my initial investments in Meta Platforms (META 2.33%), American Tower (AMT +0.63%), and Phillips 66 (PSX 0.29%).
A monster yield from Meta Platforms
NASDAQ: META
Key Data Points
I initially bought shares of Meta Platforms, then Facebook, not too long after its IPO in 2012. Shares had cratered nearly 50% from its IPO price to around $20 apiece when I bought them. I saw a lot of parallels between Facebook and Google (now Alphabet) and thought the social media company could cash in on the growing digital advertising market.
That investment has paid massive dividends over the years. Meta Platforms has grown into my third largest holding. In addition to the enormous capital gains, I will now start collecting dividends on my Meta stock investment.
While Meta's initial dividend is small compared to its current share price (the $0.50 per share quarterly payment puts its dividend yield at around 0.4%), it's much more meaningful for earlier investors. For example, at my initial cost basis of roughly $20 per share, the $2.00 annual payout works out to a massive 10% yield.
I expect Meta to grow its dividend in the future. Given its strong and growing cash flow, low dividend payout ratio, and cash-rich balance sheet, Meta could easily increase its payment at a 10% annual clip. At that rate, Meta would double its dividend every seven years. That would continue pushing my initial yield higher.
A towering dividend growth stock
NYSE: AMT
Key Data Points
I started buying shares of cell tower operator American Tower shortly before it converted to a real estate investment trust (REIT) in 2012. My initial purchase price was a little less than $50 per share. At the time of my initial investment, the company didn't pay dividends. However, it has since initiated one (a requirement of being a REIT).
Like Meta, that initial payment was rather small. The REIT's first quarterly dividend was $0.21 per share. That put its annualized dividend yield on my initial investment at around 1.8%.
However, American Tower has grown its payout tremendously over the years:
AMT Dividend data by YCharts
Today, the data infrastructure REIT pays investors $1.70 per share each quarter, or $6.80 annually. I now earn more than a 14% dividend yield on my initial investment, compared with its current yield of 3.5%. I expect that yield to continue growing in the future as American Tower expands its global data infrastructure portfolio and cash flow.
A high-octane dividend
NYSE: PSX
Key Data Points
I received shares of Phillips 66 as part of a stock spinoff from oil giant ConocoPhillips in 2012. I initially bought shares of ConocoPhillips during the Financial Crisis, which gave me a very low-cost basis for both stocks, with my initial starting point for Phillips 66 at less than $30 per share.
The refining company has since initiated a dividend that has grown rapidly. Phillips 66 has increased its dividend a dozen times since its spinoff, growing it at a 17% compound annual rate.
Thanks to my low initial cost basis and the rapid growth, I'm earning a monster yield from Phillips 66 of over 14% at the current payout rate. That's several times higher than its current yield of 2.9%.
That yield should also continue rising in the future. Phillips 66 is investing to grow its cash flow so that it can return more money to shareholders. The company has targeted to return $13 billion to $15 billion by the end of this year through dividends and share repurchases (it has distributed $8.3 billion since mid-2022). A falling share count should enable the company to grow its dividend per share faster in the future.
Buying to hold can pay big dividends
My highest dividend yields aren't coming from the stocks I bought with a high initial payout. Instead, the secret to earning high yields has been to own companies for years. That has allowed me to benefit from their growing earnings, which has enabled them to pay high dividends compared to my cost basis. As these and other stocks grow their earnings and dividends, I'll earn even more income, which should eventually allow me to retire more comfortably.
