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The power of growing dividends over time continues to be underestimated by many investors. Many are concerned with another decade of slow growth and low to negative equity returns. However, one way to prepare for another decade of slow economic growth is to invest in high dividend yield stocks that have shown they can weather tough economic times and even increase their dividends while it happens.

One such company is Johnson & Johnson (NYSE:JNJ). With a dividend yield of 4.4% and a history of increasing dividends over time, Johnson & Johnson is one of my favorite high dividend stocks.

Johnson & Johnson:

Div Yield

1 Yr Div

Growth Rate

Annualized 3 Yr Div

Growth Rate

3.5%

5.6%

8.9%

Payout Ratio

Last Year in Which

Div Did Not Increase

54.0%

Never

Johnson & Johnson has a solid history of growing dividends over time. The company has been public since 1970 and they have never failed to increase their dividend in any year. The growth rate of the dividend over the past 3 years has also been solid at almost 9%, although it has slowed to 5.6% in the last year. Also, Johnson & Johnson has a relatively low payout ratio, which means there is still room for the dividend to grow even if they hit an earnings slump.

It is not necessarily obvious how investors will fare if they hold onto Johnson & Johnson for the next 10 years, receiving not only the dividend, but a growing dividend over time. It's important to analyze scenarios for such a company where we look at the dividend yield and growing dividends. I ran the following scenario on our publicly available calculator called Total Returns- Dividends Vs. Price Appreciation. If we buy 100 shares today, apply the 1 year growth rate of 5.6% over the next 10 years, reinvest dividends, and assume the price of the stock does not change, we get the following:

Inputs:

Investment

Dividend Yield

Growth of

Dividend (Annual)

$6,500

3.50%

5.6%

Outputs:

Total Return

Annual Return

FV Dividends

FV Investment

54%

4.40%

$3,506

$6,500

An annual return of 4.4% when the stock price hasn't moved is definitely a victory. I also included the future value of the dividend income stream compared to the future value of the initial investment. The dividends accumulated to more than $3,500 over the 10 year period. Looked at another way, the price of this stock could fall by 50% during this period and the investor would still break even. Now let's take a look at what happens over 20 years:

Total Return

Annual Return

FV Dividends

FV Investment

185%

5.40%

$12,033

$6,500

The annual return jumps to more than 5% even with no growth in the stock price. Again, the key here is the growing dividend payments over time. Also notice that the total dollar value of the dividend payments is nearly double the value of the initial investment. That is the beauty of high dividend paying stocks over time. The initial investment becomes less and less important.

Scenarios such as the ones I've run here can help investors understand the power of dividends over time, especially when those dividends are growing.

Disclosure: I am long JNJ.

Source: Johnson & Johnson: Dividend Total Return Analysis