It's truly a pleasure to see individual investors turn their money into a fortune. And more so when they're able to use their new-found wealth to engage in activities that provide them with deep meaning and purpose. That's the story behind Grace Groner, who accidentally became a multi-millionaire.
A rags-to-riches history
Grace Groner was a saver, like many people who managed to survive the Depression. But her fortune was not truly due to her ability to save.
Rather than drive, Grace walked around her town of Lake Forest, Ill., just outside Chicago. She bought second-hand clothes at yard sales, and owned a house that she had inherited from a friend. That one-bedroom place was stocked with the barest of possessions. But hers is not a story of disciplined privation in order to obtain wealth.
In fact, Grace loved to travel. She also enjoyed giving money to needy local residents, and many years ago she even established a scholarship program at Lake Forest College by donating $180,000.
The real surprise, however, came when Grace passed away in January. She left her estate of $7 million to the college to establish internship and study-abroad programs for its 1,300 students. The donation will generate more than $300,000 a year for the institution.
So how did Grace Groner, a secretary for 43 years at Abbott Labs
It certainly wasn't by playing the horses or winning the lottery. Instead, Grace purchased three $60 shares of specially issued Abbott stock in 1935 and never sold them. Thanks to decades of stock splits and Grace's practice of reinvesting dividends, her nest egg grew into millions.
You can do that
Grace's story shows the power of buy-and-hold investing, dividend compounding, and good old fashioned time. A back-of-the-envelope suggests that she must have managed to grow those initial three shares into nearly 130,000 shares. And she did it with a system so simple that anyone could follow it.
Now, of course, Grace was fortunate to buy one of the great businesses of the 20th century. But she had the good sense to compound her decision by allowing reinvestment and time to work their magic on a dividend portfolio, instead of selling after she made a double or a triple.
As you can see from Grace's example, selling a stock with a lot of potential could be throwing millions of dollars away. Surprisingly for a novice investor such as Grace, she had the fortitude and discipline to hold on to her stock during its ups and downs. According to superinvestor Warren Buffett, this ability to master your temperament is the most difficult but most vital skill an investor can have. With a disciplined temperament, you can turn hundreds into millions.
So it's absolutely key to hold on to high-quality dividend-paying companies that increase their payouts over time. But first you have to find those gems, like Grace did. Here are a few blue-chip stalwarts that have shown a remarkable ability to grow their payouts for years, and in some cases, for decades.
|
Company |
Current Dividend Yield |
5-Year Dividend Growth Rate |
|---|---|---|
|
Abbott |
3.7% |
9.2% |
|
PepsiCo |
3.1% |
15.9% |
|
Disney |
1.1% |
7.8% |
|
Procter & Gamble |
3.2% |
12% |
|
Microsoft |
2.1% |
10.2% |
|
Verizon |
7.1% |
4% |
Source: Capital IQ.
While Grace became an accidental multi-millionaire, dividend stocks give us the surest means to purposely become wealthy. Investing and holding a high-yield star with a massive cash-generating franchise, such as Procter & Gamble, PepsiCo, or Altria
The companies above are tried-and-true American brands with strong payouts and solid businesses. PepsiCo has enjoyed success for decades with its lucrative position in chips and drinks, while Disney comprises a media empire, from films and its ABC network to its namesake theme parks around the globe. Procter & Gamble's franchise rests solidly on products that consumers have to use day in and out, giving it resilience to poor economic conditions. The same holds for Altria, maker of the iconic cigarette brand Marlboro.
As for Microsoft and Verizon, their products are so ubiquitous that consumers almost take them for granted, yet they're absolutely vital. Turn on a computer and chances are you're using a Microsoft product.
Of course, unlike Grace, most of us don't want to wait 65 years for our money to compound into millions. (I'd be happy with next week.) But at the same time, we're not making just a one-time investment of $180, but rather more substantial regular contributions. And we have another advantage over Grace: a tax-advantaged account such as an IRA that allows us to leverage the power of dividends even more.
Dividends galore
If you want more dividend stocks -- including our list of Best Buys Now -- that could help you do what you love, click here to join Income Investor as our free guest for 30 days. Advisor James Early and his team are focused on companies that offer a yield of 3% or better. Our experts can provide skilled analysis on which dividends are sustainable -- and which are likely to be increased.
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Jim Royal, Ph.D. owns shares in Microsoft and Procter & Gamble. Disney and Microsoft are Inside Value picks. Disney is also a Stock Advisor recommendation. PepsiCo and Procter & Gamble are Income Investor picks. Motley Fool Options has recommended a diagonal call position on Microsoft and a diagonal call position on PepsiCo. The Fool owns shares of Procter & Gamble. The Fool has a disclosure policy.
