The Best Stock to Own

Do you have a very best stock? A stock that brings you closer to retirement year in and year out? One like Kraft, formerly American Dairy Products, which -- as tracked back by Dr. Jeremy Siegel -- turned $1,000 into more than $2 million over 53 years with dividend reinvestment? In terms of returns, Kraft has quite literally been the very best stock of the past half-century.

I pay special attention to this stuff: My job is to find companies with the same magic that's made Kraft such a dynamite stock.

A repeatable fortune
What's the secret of Kraft's phenomenal digits? Well-branded products that a lot of people use, for starters. While that may be the bulk of it, those products aren't its only source of juju. The rest comes from two magic words: dividend reinvestment.

Don't think these words are powerful? Take a ho-hum stock -- or at least one that appears that way -- paying 5% in dividends yearly and racking up a modest 5% in capital appreciation. Start with $1,000 and reinvest those dividends. After 30 years, you'll have amassed a whopping $18,700!

The other side of the coin is that you could get those returns -- or better -- from a strong growth stock, but the dividend stock above gives you the flexibility to switch from reinvestment to an income strategy. In that example, you'd get almost $900 a year. Besides, which one do you think is the safer bet?

A few ideas for you
Paying dividends to shareholders also forces companies to exercise fiscal discipline. That's great, because being flush with cash tempts managers -- let's face it, they tend to have big egos -- to bungle their loads. And even if they don't slip up, they tend to hoard that cash away from shareholders without putting it to any use. That's why Microsoft's long-anticipated one-time $3-per-share dividend payout meant so much to shareholders, and why cash hoarders like Oracle (Nasdaq: ORCL  ) are underserving their owners.

In a way, dividends encourage responsibility -- something that strikes a personal nerve with me. As co-advisor of The Motley Fool's dividend stock newsletter, Income Investor, I'm always on the lookout for corporations paying solid dividends, like the stocks I'll share with you now.

Like Kraft, Procter & Gamble (NYSE: PG  ) has an enormous portfolio of well-branded products that a lot of people use. Its brands include Pringles, Crest, Duracell, and Bounty. At 2.8%, its yield isn't enormous, but its ability to generate free cash flow is quite impressive.

Speaking of companies with strong brands, I'm taking a hard look at Mattel, which manufactures a portfolio of iconic toys, including Barbie, Hot Wheels, Fisher-Price, and Matchbox. The stock has been beaten down hard in the last year, unlike its competitor Hasbro (NYSE: HAS  ) . But I believe brighter days lie ahead as the company continues to work with A-list partners like DreamWorks (NYSE: DWA  ) . The 4.9% dividend yield should make the wait that much easier.  

But you needn't limit yourself to the world of consumer staples if you're thirsty for some action. Examine StatoilHydro (NYSE: STO  ) , a big-name in North Sea energy exploration and distribution. The company has been battered by declining energy prices across the world, but remains well-positioned to serve energy consumers in Norway, the U.S. and the rest of Europe. Like ExxonMobil (NYSE: XOM  ) , StatoilHydro should benefit from a long-term increase in fossil-fuel demand. Plus, you’ll be collecting a healthy dividend yield along the way.

The Foolish bottom line
These stocks aren't companies that are perfect for everyone; they're ideas to jump-start your research. The best stock for you might not be the best for another reader. The bottom line is that in seeking great stocks for your portfolio, I invite you to give a close look to dividend stocks. They're appropriate for just about everybody. They're closet performers, and they tend to do their jobs more safely than others.

Looking for more stock ideas? Income Investor is beating the market by more than seven percentage points -- and I'm offering a free guest pass. Simply click here to learn more.

This article was originally published Nov. 14, 2006. It has been updated.

James Early does not own shares of any company mentioned in this article. StatoilHydro is an Income Investor recommendation. Microsoft is an Inside Value pick. Kraft is an Income Investor recommendation. Hasbro and Dreamworks are Stock Advisor selections. The Motley Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (49)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 01, 2009, at 10:55 AM, wax wrote:

    I mean no disrespect, but when you say...

    "I pay special attention to this stuff: My job is to find companies with the same magic that's made Kraft such a dynamite stock."...

    What you should be saying is I may need to find another job.

    What has made Kraft such a "dynamite stock" is what you said at the start of your article...

    "---turned $1,000 into more than $2 million over 53 years with dividend reinvestment?"

    Perhaps if we are around 50 years from now, we will be able to say that James did indeed pick... "dynamite" stocks.

    Wax

  • Report this Comment On February 01, 2009, at 8:12 PM, skyraider33 wrote:

    The reality of so many of these articles from the Fool with the catchy titles, is that they are nothing more than advertisements for one of their newsletters. Very little, if any, meat. Like this one. Really nothing but looking back at something that is history and "suggesting" that they can predict the same thing again. The post from Wax is spot on.

    If there were a way for me to exclude "news" from the Fool posts on my Yahoo stock news items I certainly would. The titles are catchy and sure enough they are from the Fool. Worthless in my book.

    skyraider

  • Report this Comment On February 11, 2009, at 9:36 PM, ibujean wrote:

    I too am getting really tired of all the catchy titles and get rich themes if only you order one more newsletter! Stop with all this spam disguised as investment information. I feel swamped and only have signed up for two of your newsletters. while they are great, the rest is making me think about canceling everything. And suddenly my spam folder is full after years of being empty. what happened?? IbuJean

  • Report this Comment On February 12, 2009, at 9:23 AM, donn101 wrote:

    I agree, to many sales pitches and little substance!!!!

  • Report this Comment On February 13, 2009, at 4:52 PM, nad4533 wrote:

    I feel swamped by all the info advertised but available by "signing up now". I am a new investor and just want to invest a little each month, ie $50.00 to $100.00. I am 75, retired, and don't want a plan to make a million in 20 years. I just want a reasonable return on my investment. nad4533

  • Report this Comment On February 13, 2009, at 4:57 PM, Phantom4VNvet wrote:

    I have gotten to the point I just delete most of the Fool stuff because of the spam. Too bad! I paid money for the education and I did get educated! Just send more money, Sucker!

  • Report this Comment On February 14, 2009, at 2:30 PM, Tusk87 wrote:

    I must agree with most of the posts on this current forum. Way too much "Sign Up Now" hype and precious little actual detail. That I could have become a millionaire If I had just had the presence of mind to begin investing 20 years before I was born and continued with the expectation that I will live to be 100 years old makes the advise is "spot on"!

    The assumption is simply not realistic and is totally "stock advice trash talk". It's Cramer and his electronic noises vs the Motley Fool organization that prefers to ship one "outstanding..make a million $'s offer after another. Both have become tired worn-out sales pitches offering the same ancient news.

    The fact is that I need to be working in the here and now. By that I mean 3, 5, maybe 10 years out maximum. What good is advice that provides a ROI that covers my funeral expenses?

    With about 10-12 years in the stock market I have made money. Somehow it certainly has not produced the 100-500% claims that are so liberally scattered throughout the various sales pitches flooding my in box on a daily basis.. Some of the stocks the Motley Fool have touted did find a place in my portfolio. What is generally lacking and seldom discussed is where the stocks are headed near-term! The advice too often seems to be "Day-Trader" oriented (Get in Now! to make a fortune tomorrow...) with no actual in-depth information regarding real life time frames. Profound intelligence is not needed to determine what a particular stock has done in the past. As our country is quickly learning is that the past does not predict the future. What used to be a valuable source of information has indeed become a "Make us rich by buying our just released report on whatever." Everything is free for X # of days...just don't forget to cancel or you will soon need a much larger mailbox.

  • Report this Comment On February 18, 2009, at 7:33 PM, britpick wrote:

    Tusk

    Whilst I agree with much of what you have to say, ie the constant marketing barrage is just that, marketing, and it distracts and diminishes the true value of Fool membership, I have to disagree with your contention that it is Day Trader oriented. Indeed your opening comments are much more accurate "buy this stock in 1972 and hold on to it until 2025 and you'll be a millionaire!" - hardly day trading methinks.

    Also, to an earlier point in this post, owning more than two memberships would be impossible to keep up with. I have neither the time to review all of the opportunities, new recs, BBN's etc let alone the funds to invest in them every month.

    The true value - mentioned above - comes from the guidance and wisdom that can be gleaned from the boards and fool communities, and for that I think a minimum of one membership is worthwhile.

    Best regards

    Chris

  • Report this Comment On February 26, 2009, at 11:46 PM, nicko168 wrote:

    Based on the past weeks of observation, in order to avoid these turmoil crisis, I would suggest the readers to avoid the following companies at the moment:

    1. Banks.

    2. Auto.

    3. Retails.

    4. Casino.

    5. Insurance.

    6. Builders.

    7. Advertising.

    8. Energy.

    9. Healthcare.

    10 Loan.

    11. Chemical.

    12. Credit.

    13. Electric.

    14. Communications.

    15. Semiconductors.

    16. Rental.

    17. Electronics.

    18. Computers.

    19. Software.

    Blah..Blah..Blah."what can I buy?" Ha..Ha....Don't listen to analyst's prediction which does not work in this turmoil but there's an old saying "listen from the horse's mouth"

    After listening to the speech that day which caused the whole stock market to slid to its lowest..."what the heck"..I realised that there's a shift in position to .....just playback the speech & the clue is what's not mentioned & who's already awarded the technology & millitary contract ....Ha...Ha..Catch it?

Add your comment.

DocumentId: 821433, ~/Articles/ArticleHandler.aspx, 7/29/2014 7:42:08 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement