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Sanibel Capitva Investment Advisors President Pat Dorsey on how investors should pick dividend stocks for their portfolios.
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-- you would you buy stock with the dividend yields is very hot right now of about 6% right now.
Or one would think yield of just 3.5 percent.
The answer is not as obvious as it may seem pat Dorsey is the president -- -- about -- -- investment advisors and he's here to tell us why.
I love your strategy about it takes -- strong -- had a lot of people are looking for yield we want yield yield yield so they.
They sort of instinctively go further the stock that's giving a dividend of five or 6% you say that current and current dividend payments.
Are not as good an indicators as future growth but how can you tell -- a company's gonna have good future growth.
It's a good question sometimes they -- -- and tell -- That's always the easiest way I know and they'll give -- a great example so Williams Cos.
know they on spun -- there.
Exploration production unit and -- -- pipelines right now.
The company has publicly been saying for a year now and they made good on their promises.
They'll be raising the dividend 20% the next couple of years they're right on track to do that.
Stock yields about 4%.
So you can 4% stock with 20% growth in the dividend.
Or Verizon with a four and a half percent yield with a 4% growth in dividend.
It's not rocket science so you're saying pick Williams just to be clear.
Thank you Liz yes I am -- weekly and I just it.
Yet just doesn't examples so assuming yields stays constant if you -- by Verizon today you would make about 7% per year.
Buying Williams today again assuming a constant 4% yield you make 20% from here.
Even though -- you haven't even though right now.
That the yield is less so this is important to certainly point out that it is the growth in the -- not necessarily they feel that matters correct.
Eight exactly right and that's the case where as you mentioned earlier people want that instant gratification and they wanna give -- that -- now.
But the reality is that if you can defer gratification a little bit.
Be patient and wait for the dividend growth you'll wind up making a lot more money.
Let's just talk about patients and and a viral like this when there is these huge ups and downs.
As we just discuss some of the ups may be because of how hot air being pumped in by central banks.
-- it's it's hard is it not to stay in the sidelines focus intently on the companies and avoid all us white now noise around it.
It it absolutely is and that's one thing -- that's one reason why I like companies that are growing their dividends because you simply focus on.
Is that growth rate still there is the company making good on its problems -- to growth that payments that they are sending me every quarter.
And as long as they're doing that.
What the share price doesn't stay.
Shouldn't concern me a whole -- you got two more names that kind of fit into the strategy category kindred Morgan and check point software can you talk about the ups.
Sure so you know Morgan is very similar to Williamson that it's a pipe business in the pipeline owner.
Yields about the same as Williams about 4% right now.
Has a longer term growth rate for its dividend through 2016.
At about 12%.
So that's about 12% plus for -- about -- 16% total return.
Very very attractive in the low yielding environment right now.
Checkpoint Systems a little bit different they don't pay dividend but they generate tremendous amounts of cash and just does dividend growth is undervalued.
I think that cash flow growth is undervalued -- -- -- run to safety stocks like Colgate.
Checkpoint Systems provide security for networks.
I don't see demand going down for that -- -- hacking that's going on them about an 8% free cash yield which is tremendously cheap on an equity basis.
By the grad guide got to point this out they're given -- -- -- Commodities you have no commodities and you were in Chicago -- I thought it was against the law to be in Chicago and activity about why no commodity.
Because commodity companies are price takers they have to sell their goods at the price of that commodity.
I prefer companies and control their own destiny news you can use for pat Dorsey -- -- the smartest guys in the business great to have you -- thank you thank you.
