Fund Manager Says Focus on Dividend Growth, Not Current Yield

Posted by Adam Sharp - Wednesday, June 1st, 2011

Tom Cameron, co-manager of the 5-star rated Rising Dividend Growth Trust (ICRIX), says long-term investors shouldn't focus on pure dividend yield. To find the best dividend opportunities, investors should focus on the history, reliability, and growth prospects of that dividend payment.

After all, anything paying higher than 6% or so is either a great opportunity, a value trap, or a disaster waiting to happen.

In the clip below, Cameron explains what he looks for in a growing dividend stock (excerpts below):

Few things in life drive me crazier than the velvet rope. You may have experienced it yourself, but for those who haven't, it works like this: A muscle-bound doorman prevents you from entering a particular establishment and instead has you wait, often shivering or wet, in a long line of people behind a velvet rope.

At the same time, a steady stream of people is inexplicably allowed to go inside, their laughter, glee and smooches serving as a proverbial thumb in the eye to those stuck behind the rope. It is much the same for stocks trying to gain entry into the 5-star rated Rising Dividend Growth Trust (ICRIX). The main difference here is that they tell everyone what it takes to get by their velvet rope: You have to pass the 10-10 test. That's short-hand for a dividend increase of at least 10 percent a year for 10 consecutive years, or as fund manager Tom Cameron likes to say, "a minimum of 10 percent." He points out that half of their current portfolio would be able to pass a 20-10 test.

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