Riddle me this, my fellow contrarian. This company’s dividend grew 160% in three years. Yet, its stock went nowhere!
Dead money?
Or a dividend grower that was due for a pop?
Let’s discuss the special stocks with the exact same setup today. You may even own one! Is it time to sell? Or back up the truck?
Wall Street suits would take one look at this comatose stock and say it’s “dead money.” That’s how they played it in March 2025 when this “dirty” dividend grower was hiking its payout on deaf ears.
ConocoPhillips (COP) boasted 3-year dividend growth of 160% and 3-year stock growth of -1.7%. Something had to give. Its payout ratio—the percentage of profits it paid as dividend—was 39% and declining (we like under 50%). This meant that earnings were rising, so the stock was about to become even cheaper on a P/E (price-to-earnings) basis.
The company was caught between two different energy policies. A political whipsaw forced Conoco to cut costs, benefitting its bottom line. Here’s what I wrote to my Hidden Yields subscribers in March 2025:
As Trump 1.0 cut permit processing times, COP took advantage. The company increased production and profits followed. The Biden administration reversed this bullish trend with its 2022 regulatory changes, but COP then focused on cutting costs, increasing profitability and bringing the company’s payout ratio back to safer 39%. This is actually a positive catalyst because the payout ratio represents the percentage of profits that COP is paying as a dividend (generally we want to see 50% or less for energy producers):
COP’s Payout Ratio Drops as Profitability Increases
A lower payout ratio means more cash can be paid comfortably.
And believe it or not, that 160% dividend increase over the past three years includes no raise in the last six quarters. This felt like an eternity to the impatient Wall Street suits!
We had a payout pop but a price left basically flat. A big gap opened between the price and the payout—a chasm likely to be filled, thanks to the law of the Dividend Magnet: When a company boosts its dividend, its stock follows sooner or later.
Because COP has not raised its dividend in the last six quarters, it is “due” for a payout pop thanks to plump profits. And talk about due, check out the stock, which has gone absolutely nowhere for the last three years!
COP’s Dividend Magnet is Due
As contrarian investors we love dividend dumpster diving for deals. When mainstream financial suits label a stock “dead money,” well, that is often the time it revives! With nobody left to sell, and a permit catalyst on the way, COP is a potential power payout play here.
And that’s exactly how it played out. My Hidden Yields subscribers enjoyed 27% total returns on this trade (including dividends), which is good for 19% annualized. This was a nifty and very simple way to make superior returns. We bought the “dead money” that was just waiting for the inevitable force of…the Dividend Magnet!
We are simply betting that the gap between the dividend line and the price line will close. And waiting for the Dividend Magnet to do its job.
Is this magic? You’d think so, given that the mainstream considers this only with overpriced stocks! But here’s the reason it works. A stock selling for $20 has a $1 dividend. That’s a 5% yield. On average, buyers want a 5% dividend yield to own the stock. Fine.
Then, the company’s green river of cash allows it to boost the dividend. Let’s say that over the next couple of years, the dividend rises to $1.05, $1.10, and eventually to $1.25. If the stock stagnates at $20, new buyers snag a 6.25% yield—25% higher than before! Believe me, sooner or later, investors will flock to the stock. If they liked it at 5%, they love it at 6.25%.
What happens? Eventually, and assuming no big shift in the business performance, buyers will outnumber sellers and the stock price will rise.
How much? Well, if buyers drive it up 25% to $25, the dividend yield returns to the prior 5%.
Unless investors fear poor business performance or a dividend cut, the stock price follows the dividend, as if pulled by a magnet.
Okay. We made the magnet money on COP. But somewhere out there in the yield universe, a Dividend Magnet is just starting to work for another stock. We can find it.
Here’s another example. Let’s consider Texas Instruments (TXN), whose soaring dividend pulled its price along for the ride.
130% Payout Growth Powers 117% Price Gains
That 130% payout hike dragged the price 117% higher. Add the dividends we collected and reinvested along the way and we banked a 148% total return.
A well-known Wall Street research firm is often quoted on this phenomenon. Ned Davis verified that the best way to make money in stocks is to buy those that are growing their dividends annually. Here are the returns Ned found from 1973 to 2025:
Source: Ned Davis Research and Hartford Funds
So, the second-best thing in life is a dividend payer, and the only thing outperforming a dividend payer is a dividend grower at 10.2% per year! Using the Rule of 72, we divide 72 by 10.2 to see that our money doubles about every seven years, where at 9.2% it takes another nine months! (The Rule accounts for compounding.)
Note that Ned Davis only counts a stock that raises its dividend in a calendar year, not where a stock price lags dividends that were raised in years past. We can turbocharge ol’ Ned’s advice simply by finding and minding the gaps!
Now, my fellow contrarian, do you see any dividend gaps like these? Here’s a three-step process for finding them:
- Check a stock’s dividend growth over the last three to five years.
- Compare the payout with the stock’s price gains over the last three to five years.
- Circle any gaps you see. Consider buying them now. (After proper due diligence, of course!) Then rinse and repeat with the next dividend grower.
Sound tedious? Let me do the Dividend Magnet picking and screening for you! I’d hate to have you miss the next 19% yearly gainer. Please subscribe here so that I can send you my 5 favorite Dividend Magnet stocks to buy right now and my new Hidden Yields pick, coming up in our August edition of HY this Friday.