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10 Dividend Stocks You Should Hold Forever

Imagine having your money work for you. Wise investments can spell financial freedom and one way of doing this is getting into stocks. Stock investments have far reaching gains. Today many people are already investing in dividend paying stocks.



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Imagine having your money work for you. Wise investments can spell financial freedom and one way of doing this is getting into stocks. Stock investments have far reaching gains. Today many people are already investing in dividend paying stocks.

Dividends are payments made by a corporation to its shareholders as a distribution of profits. Profits can be distributed through cash or through the issue of further shares or share repurchase.

Many dividend-paying stocks represent companies that are considered financially stable and mature. The stock prices of these companies steadily increase over time while shareholders enjoy periodic dividend payments. These well-established companies often raise dividends over time. A company who has a reputation of delivering reliably dividends that increase over time is going to work hard not to disappoint its investors.

A company that pays consistent, rising dividends is likely a financially healthy firm that generates consistent cash flow (this cash, after all is where the dividends come from). These companies are often stable, and their stock prices tend to be less volatile than the market in general. As such, they may be lower risk than companies that do not pay dividends and that have more volatile price movements.

Because many dividend-paying stocks are lower risk, the stocks are an appealing investment for the public. For both younger people looking for a way to generate income over the long haul, and for people approaching retirement- or who are in retirement- who want a source of retirement income.

Contributing further to investor confidence is the relationship between share price and dividend yield. If share prices drop, the yield will rise correspondingly.

The Power of Compounding

Dividends often provide investors with the opportunity to take advantage of the power of compounding. Compounding happens when we generate earnings and reinvest the earnings, eventually generating earnings from the earnings. Dividend compounding occurs when dividends are reinvested to purchase additional shares of stock, thereby resulting in greater dividends.

To illustrate the power of compounding, let’s assume that someone asks you if you would rather be given $1,000,000 today, or be given one penny, that would double in value every day for 30 days. At first thought, it seems logical that $1,000,000 would be a better choice. After some number crunching, however, we determine that it would be better to take the penny and watch it grow for 30 days as illustrated in the following figure:

Figure 3: This figure provides an exaggerated illustration of the power of compounding. If you start with a penny on day one and double your “account” each day, you would be a millionaire within 28 days.

As the figure shows, the first couple of weeks are pretty uneventful and it may seem impossible that one penny can grow much. Eventually, however, our “earnings” really start to take off, and by day 28 we would already have more than $1,000,000. Is this example realistic? No, not at all. While we might be able to double our money every day for the first couple of weeks, it is unrealistic to assume we could earn (or otherwise contribute) tens or hundreds of thousands of dollars each day after the first three weeks.

While this is not an example of how your money can actually grow, it serves to illustrate that, given time; money can grow, especially if earnings are reinvested. This is the power of compounding, called by Albert Einstein “the eighth wonder of the world.”

With dividend investing, the more often you receive and reinvest your dividends, the higher your eventual rate of return. To illustrate a more realistic example of compounding, assume you buy 100 shares of stock XYZ at $50 per share, for a total investment of $5,000. The first year that you own the stock, the company pays one 2.5% dividend, earning you $125 in dividend income. If the dividend increases by 5% each year (5% of the previous dividend; not 5% of the stock’s value), your $5,000 investment would be valued at $11,226 dollars after 20 years (assuming there’s no change in the stock price and that you reinvested all of the dividends).

Now, imagine the situation is the same, but that company pays a quarterly dividend (instead of the annual dividends in the previous example). Your $5,000 investment would grow a bit more to $11,650 over the next 20 years, for a total gain of 133.01%. Bump up your initial investment to $50,000, however, and you will end up with $116,502 after 20 years because of the power of compounding.

To take advantage of the power of compounding, you need:

  • An initial investment
  • Earnings (dividends, interest, etc.)
  • Reinvest of earnings
  • Time

Buying more stock shares

If you want to invest more deeply in a company and buy more shares of stocks DRIPs is for you. DRIPs or dividend reinvestment plan is offered by a company that allows investors to automatically reinvest cash dividends by purchasing more shares. This can be an excellent way for investors to take advantage of the compounding potential. Instead of receiving your quarterly dividend check, the entity managing the DRIP (which could be the company, a transfer agent or a brokerage firm) puts the money, on your behalf, directly towards the purchase of additional shares.

Many DRIPs allow you to purchase the additional shares commission-free and even at a discount for the current share price. DRIPs that are operated by the company itself, for example, are commission-free since no broker is involved. Certain DRIPs extend the offer to shareholders to purchase additional shares in cash, directly from the company, at a discount that can be anywhere from 1 to 10%. Because of the discount and commission-free structure, the cost basis of shares acquired in this manner can be significantly lower than if bought outside of the DRIP.

From the company’s standpoint, DRIPs may be attractive because the DRIP shares can be sold directly by the company- and not through an exchange. This means that the proceeds from the stock sale can be reinvested into the company. DRIPs can also allow companies to raise new equity capital over time while reducing cash outflows that would otherwise be required by dividend payments. Additionally, DRIPs tend to attract shareholders with long-term investment strategies; as such, these investors may be more willing to “ride out” any rough periods.

From the investor’s perspective, DRIPs offer a convenient method of reinvesting. The primary disadvantage to shareholders, however, is taxes. They must pay taxes on the cash dividends reinvested in the company even though they never receive any cash.

10 Dividend Stocks You Should Hold Forever

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This Popular Retirement Advice Will Leave You 76.2% Broke



How much money do you need to retire on dividends alone?

This is a better question to ask than the typical “magic number” formula that most “first-level” thinking firms tout. Let’s review why their approach is fatally flawed, so that we can derive a more reliable method of our own based in actual reality (and funded by actual dividend payments.)

Fidelity Says What?

You should aim to have 10 times your final salary in savings.

But why? I suppose they are claiming that, if you earned $100,000 in your final year working, that you’ll want to earn this much in income every year for the rest of your life.

So, Fidelity says save a million bucks and you’re in good shape.

But how exactly is $1,000,000 supposed to throw off $100,000 in excess income annually?

Fidelity’s Strategic Dividend & Income Fund (FSDIX) pays 2.38% today. Which means, if you follow their advice to a tee, and buy their flagship income fund, you are earning $23,800 per year in income from your million-dollar stake.

That’s a start. But where exactly is the other 76.2% of you income supposed to come from?

Apparently this is up to us to figure out, because we’ve run out of sage advice from this respected investment firm. So let’s see if we can piece together a full retirement ourselves.

Shall We Also Withdraw 4% Annually?

We saved a million like they said, and we’re earning less than our neighborhood coffee barista. I presume we’re now supposed to sell shares to make up the difference. Most mainstream-following financial advisors say that we can sell 4% of our portfolio annually for income, so let’s try this.

FSDIX has returned 7.54% annually since inception, so a 4% yearly drawdown appears sustainable. However, we see three glaring pitfalls.

First, another 4% means another $40,000 per million for a total of $63,800. Still not what we are looking for.

Second, this particular fund has underperformed the S&P 500 over the last year, three years, five years and ten years. It’s also underperformed the broader market since inception (2003).

So what exactly was the point of buying a dividend fund when we were going to have to sell shares anyway? And see them appreciate less than a dumber, cheaper index fund?

FSDIX (Purple Bar) Underperforms – Always

More concerning than mere mediocrity, however, is the threat of “reverse dollar cost averaging.” Peak to trough in 2008, FSDIX lost 59% of its value. If you’re selling stock for income, you’re selling more and more at lower and lower levels:

You Don’t Want to Be Selling Here

By July 2012, FSDIX investors who bought at the 2007 peak – and held 100% of their shares – had grinded their way back to even.

Buy who actually buys and holds? In reality, there are two types of investors:

  • Those who bought during 2008, 2009, and 2010. They made money much sooner, because they were able to buy low.
  • Those who sold during the downturn. Whether they had to sell for income, or simply got scared – many of these portfolios have still not recovered.

Back to Even (But Most Did Much Better, or Much Worse)

Dollar cost averaging is a powerful force. Make sure it’s working for you, rather than against you. Here’s how.

Fade the 4% Fallacy for a Smarter “Magic Dividend Number”

Our retirement approach is grounded in reality versus fantasy and false math. So, let’s begin with the value of your actual portfolio.

Back to the $1 million example. Let’s say we saved that money like Fidelity said to, and we still want $100,000 per year.

We’ll ditch the flawed notion of selling capital for income, and live on dividends alone. This means our portfolio’s “magic yield” is 10% annually.

But today, there’s only one safe 10% yield left on the board. And I wouldn’t recommend putting your entire portfolio in only one issue, no matter how sound its payout seems.

So, we’re faced with a decision. We can:

  1. Settle for less income, or
  2. Save (or make) more money.

While I wouldn’t recommend an entire portfolio of double-digit payers, I do like seven stocks (and funds) yielding an average of 8.3% today.

Their dividends are safe, and believe it or not, their prices are a bit undervalued to boot. This means we should enjoy price upside as well, and achieve 10%+ annual returns on these dividend machines.

Let’s talk more about these income plays, because you should be tuning out the “first-level” pundits – those who do little or no original thinking – and replacing your underperforming payers with these meaningful (and safe) 8.3% yields.

3 Ways to Safely Bank 8.3% Dividends

Most of the stocks you read about in the mainstream media that pay 5% or better are train wrecks. They have big stated yields for the wrong reason – namely, because their prices have been axed in half or worse over the past year!

For example, retailer Macy’s (M) pays 7.2% on paper. But its business model is toast. Next quarter’s payment may happen, but that’s a risky game I’m not willing to play.

Instead, I’d rather look in corners of the income world that aren’t combed over as regularly. There are three in particular that I like today. You won’t hear about them on CNBC, or read about them in the Wall Street Journal, because they don’t buy advertising like Fidelity and other firms.

Their relative obscurity is great news for us 8.3% dividend seekers.

Play #1: Closed-End Funds

If you feel trapped “grinding out” dividend income with classic 3% payers (like dividend aristocrats), you can double or even triple your payouts immediately by moving to closed-end funds, or CEFs. In fact, you can often make the switch without actually switching investments.

I’ll discuss my favorite CEFs in a minute.

Play #2: Preferred Shares

Not familiar with preferred shares? You’re not alone – most investors only consider “common” shares of stock when they look for income.

But preferreds are a great way to earn 7% and even 8% yields from the same blue chips that only pay 2% or 3% on their “common shares.”

I’ll explain preferreds – and my favorite tickers to buy – after we finish our high yield hat trick.

Play #3: Recession-Proof REITs

The IRS lets real estate investment trusts, or REITs, avoid paying income taxes if they pay out most of their earnings to shareholders. As a result these firms tend to collect rent checks, pay their bills and send most of the rest to us as a dividend. It’s a sweet deal.

Not all REITs are buys today, however – landlords with exposure to retail space should be avoided.

That’s easy enough to do. I prefer to focus on REITs that operate in recession-proof industries only. I want to receive my rent check powered dividends no matter what happens in the broader economy.

Now let’s discuss how you can get a hold of my complete “8.3% No Withdrawal Portfolio” research today, along with stock names, tickers and buy prices. Click here and I’ll share the specifics – and all of my research – with you right now.

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5 Dividend Stocks for Anxious Investors

For income-oriented investors five stocks, in particular, stand out right now…



Original Link | Investopedia

For income-oriented investors, especially those seeking to bolster their portfolios with high-yielding stocks that also have the resources to maintain or even augment their dividend payouts going forwards, five stocks in particular stand out right now, according to Barron’s. These are: semiconductor manufacturer Texas Instruments Inc. (TXN); drugstore chain CVS Health Corp. (CVS); regional bank PNC Financial Services Group Inc. (PNC); food service supplier Sysco Corp. (SYY); and medical device maker Medtronic PLC (MDT).

The Methodology

Barron’s utilized research by Reality Shares Inc., an investment management firm and ETF sponsor in San Diego that focuses on identifying stocks with the potential to increase their dividends over the long term. Reality Shares uses seven principal criteria to evaluate stocks, including forecast payout growth, the ratio of free cash flow to dividends, and the ratio of share repurchases to dividends. The latter measure indicates whether the company could raise dividends by reducing share buybacks. (For more, see also: Bull or Bear, 5 Stocks With Rising Dividends.)

From 900 companies analyzed by Reality Shares, Barron’s took those with the firm’s top dividend safety rating which also have market caps or at least $25 billion and dividend yields of at least 2%. The five stocks listed above passed all these tests. Barron’s analysis of each follows.

Texas Instruments

Texas Instruments is the leading analog chipmaker, with rising sales for automotive and industrial applications. EPS has been growing at double-digit annual rates in recent years, with an 18% increase projected for full year 2017. The company has strong cash flow and has a history of using it to fund dividend increases and share repurchases. Analysts project that the dividend per share, currently $2.00, will rise to $2.21 in 2018. (For more, see also: Gartner Raises 2017 Semiconductor Market Outlook.)

Read more: 5 Dividend Stocks for Anxious Investors | Investopedia
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Stocks Going Ex-Div Next Week



As a dividend growth investor, I am always trying to track both stocks that I own and those on my watchlist. I’m mostly interested in companies that have a historical record growing their payments over time. One particular angle of interest is knowing when these companies pay their dividends (and if they are set to increase).

This data is provided by analyzing the “U.S. Dividend Champion” spreadsheet compiled by David Fish hosted here. That data is cross-referenced with upcoming dividend information from the NASDAQ.

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