Dividends are one of the most powerful instruments available to an investor. Sure, most dividend stocks pay out less than 4%, which at first glance seems like a small number. One could pay hundreds of dollars for a share and only receive a few dollars or cents per year as a repayment. So what is the problem?
First of all, dividends are part of the total return on a stock. The S&P gains an average of 8% per year. If a stock wins 6% over the course of a year, but also pays 3% dividends, it has effectively earned 9% return this year.
Second, dividends are free money that is paid directly into your account. You can spend your newly won money for whatever you want. In the past, some investors used to send their money by mail directly to their door. Nowadays the dividends end up in the brokerage account you use.
Many investors want to reinvest the dividends to further increase their holdings. For example, imagine that you own a $100 stock that pays a dividend of 2% (or $2). If you automatically reinvest this dividend, you buy another $2 of that stock. This way you buy only 0.02 of a stock, but compound interest can increase that number significantly over time.
You then own more of a share, which means you receive more dividends. If the share price increases, the 0.02 you hold in a share will also increase. Compound interest is a great way for you to increase your holdings over a long period of time.
Now is the time to take a look at the dividend aristocrats – stocks in the S&P 500 that have continuously increased dividends over the last 25 years. These are proven companies that have proven themselves over time and continue to attract investors.
|3M Co.||MMM||3M provides over 90,000 jobs and operates in over 70 countries. 3M is most famous for its safety gear including masks, adhesives, and protective equipment.|
|McDonald’s||MCD||McDonald’s is perhaps the world’s most famous restaurant. They have over 37,000 outlets and serve over 69 million people each day. While its food isn’t known for being healthy, the company has tried rebranding itself by adding salads, fruits, and other items.|
|Clorox Co.||CLX||Clorox is nearly synonymous with cleaning products thanks to its multitude of sprays and wipes. The company also owns Burt’s Bees, Formula 409, Pine-Sol, and many other notable brands.|
|Johnson & Johnson||JNJ||Johnson & Johnson has over 250 subsidiary companies and sells goods in over 175 different countries. Some of its notable brands include Tylonel, Neutrogena, and Band-Aids.|
|Procter & Gamble||PG||As one of America’s oldest consumer staples companies, Procter & Gamble seems to have its foothold in nearly every area. Some of its most famous brands include Febreze, Gillette, Vicks, Dawn, Tide, Bounty, and Crest.|
|Coca-Cola||KO||Coca-Cola is one of America’s most recognizable soda brands and one of Warren Buffett’s favorite stocks. As people’s eating habits have shifted towards healthier foods, Coca-Cola kept up by introducing sugarless alternatives to its classic formula.|
|PepsiCo||PEP||As Coca-Cola’s most prominent rival, PepsiCo remains a strong contender in the food world. In fact, PepsiCo is the world’s second largest food and beverage company, second only to Nestle. Fortunately, PepsiCo doesn’t rely solely on soda as it’s acquires Gatorade, Quaker Oats, Tropicana, and more.|
|A. O. Smith||AOS||A. O. Smith Corporation manufactures water heaters and boilers in North America and supplies some water products for Asian markets. It might not sound interesting, but the company has been around since 1874 and makes over $2.5 billion in revenue each year.|
|Walmart Stores||WMT||f anything proves the power of dividends, it’s the Walmart stock. In 2019, Bernie Sanders claimed that each Walton Family member earns more a minute than a Walmart employee earns in a year. The Washington Post ran the numbers and while there’s no need to go into full detail, just know this: The Walton Family earns about $3.1 billion annually in dividends alone. That’s a lot of money!|
|Walgreens Boots||WBA||Walgreens is another one of America’s favorite retail chains. It seems as if you can find one of its 9,277 stores on nearly every street corner. Walgreens also doubles as a pharmacy and is the second-largest U.S. pharmacy chain behind CVS Health.|
|Medtronic||MDT||This medical device company makes most of its profits in the U.S., but headquarters in Ireland for tax purposes. They produce devices and therapies for everything from Parkinson disease to chronic pain.|
|AT&T||T||AT&T might be most well-known as a mobile provider, but it’s made big moves in the television market due to its 2018 acquisition of Time Warner. Investors should look out for its future foray into the 5G space.|
|Caterpillar Inc.||CAT||Caterpillar has been manufacturing heavy machinery for nearly 100 years. They make on-road trucks, gas turbines, agricultural machinery, and much more.|
|Chevron||CVX||Chevron is mostly known for its oil and gas, but the company has delved into alternative energy as well. The company has over 30 years of paying dividends and shows no signs of slowing down.|
|General Mills||GIS||One of the world’s leading consumer goods companies, General Mills produces everything from Pillsbury to Cheerios. It’s impossible to walk down a grocery store aisle without seeing at least one of their products.|
Dividend-dependent aristocrat shares are a good buy for anyone interested in increasing their income. These companies are always finding new ways to remain relevant in an ever-changing market and are showing no signs of stopping or slowing down. Filling your portfolio with dividend aristocrats is a great way to make sure you’re ready for your life.