The 'Rule of 72' is a quick tool which allows investors to determine the time it would take for an investment to double. Simply divide 72 by the assumed annual growth rate and you'll get the time (in years) it takes to double.
For example, an investment growing at 9% p.a. would take eight years to double (i.e. 72 / 9 = 8).
Years ago, investors believed companies who could grow their earnings per share at 7.2% per annum were 'growth stocks'.
However the same theory could be applied to dividend stocks trading on the market today. That is if a dividend stock yields 7.2% p.a. (or more) in a 10-year period, your initial investment will double in terms of returns received as long as the payout rises sufficiently to support a growing share price. This is definitely not guaranteed but it's till worth looking at some high-yield stocks.
When grossed-up, the forecast dividends of National Australia Bank Ltd. (ASX: NAB), Telstra Corporation Ltd (ASX: TLS) and Westpac Banking Corp (ASX: WBC) are 8.7%, 7.9% and 8.3%, respectively.
So what am I waiting for?
Of course, dividends are only part of the investing equation and any astute investor knows we need to look beyond the trailing or near-term dividend forecasts to get a true appreciation of a business. At current prices, I believe none of the three stocks above offer compelling value and those who choose to buy in now may be opening themselves up to more downside than they realise. So perhaps waiting for a lower entry point (and possibly a bigger dividend) mightn't be such a bad thing.
