Also in Today's Issue...

I needn't remind you that buying stocks based strictly on current yield is usually an unwise idea -- like judging books by their covers. Just ask anyone who was lured by the rich, but untenable double-digit payouts of companies like Citigroup (NYSE: C) or General Electric (NYSE: GE).

Instead, your time would be much better spent evaluating where future distributions are headed -- based on historical patterns, stated dividend policy, cash flow projections, payout ratios and other key factors. After all, one quarter's dividend isn't nearly as important as the cumulative income that will be thrown off over the next five years.

Take Hasbro (NYSE: HAS), for example. The toy maker bottomed out with the rest of the market in October 2002, falling to $9.87 per share. At that point, the company was paying out quarterly dividends of $0.03 per share -- for a pedestrian yield of 1.2%. You can bet that many income seekers scoffed at that rate and didn't give the stock a second glance.

However, forward-looking investors saw a very different story unfolding. Strategic initiatives implemented two years earlier had just erased $684 million in debt and left the firm with nearly $500 million in cash. At the same time, investments made on the product development front were beginning to pay off -- core brands like GI Joe, Transformers and Playskool were all seeing strong momentum.

With a healthier balance sheet and optimistic earnings outlook, it seemed that Hasbro could afford to be far more generous. And just a few months later, management doubled the firm's distributions to $0.06 per share. As you can see from the graph below, they have done nothing but rise ever since.

Through all the market's bends and twists, Hasbro shareholders have seen their dividends grow more than six-fold. Thanks to that impressive +30% annual growth rate, the company is currently making yearly payments of $0.80 per share.

So investors that looked past the meager 1.2% yield and bought the shares in October 2002 are now raking in a sizeable +8.1% on their original investment ($0.80/$9.87).

Making your Money Work for You
It's easy to see how dividend growers like Hasbro (hardly an isolated example) can greatly enrich their owners over time.

The company has dished out cumulative dividends of $3.00 per share since 2002, so an investor who picked up 1,000 shares would have collected a cool $3,000 so far. But keep in mind that all that cash could have been reinvested in more shares, which would throw off dividends of their own, which could then be reinvested in more shares, and so on...

For the sake of simplicity, if we assume the $3,000 was reinvested at an average price of $17.50, the proceeds would have paid for another 170 shares. And today, the stake of 1,170 shares would be generating an income stream of $936 per year -- representing a yield of about 9.4% on the initial outlay.

Even if future growth slacks off dramatically, we'll still be looking at double-digit territory in a year or two. I should also point out that in addition to all those quarterly payments, the shares themselves have climbed from below $10.00 to $25.80 -- a gain of more than +160%.

If you crave 10% or better rates, you don't need to roll the dice on a speculative REIT or mortgage lender -- you just need to be patient. The companies below might not have stratospheric yields today, but investors that stand behind them should be showered with heavier and heavier payments over the next few years.

Now, out of the list of picks above, one in particular stands out to me for the most potential. In fact, I just added this pick to the "Yield Doublers" portfolio of my Half-Priced Stocks advisory 12 days ago.

It's my ninth addition to this unique portfolio since its inception less than four months ago. To see how the other eight "Yield Doublers" have fared since I've recommended my readers to buy, check out the table below...

If you want access to my top "Yield Doublers" stocks -- each of which have plenty of double- and triple-digit upside potential left in them before reaching my estimated fair value price -- simply visit this link.

Good Investing,

-- Nathan Slaughter
Editor
Half-Priced Stocks

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