Dividend reinvestment plans are a great way to build wealth over time. By taking the quarterly payouts that dividend-paying stocks make and reinvesting them into additional shares, dividend reinvestment plans, or Drips for short, use the power of compounding to accelerate the growth of your stock holdings. Many stocks offer Drips, but the best Drip stocks combine high levels of current income with steady growth in dividend payouts that will keep you happy for the long run. Below, we'll look at three of the most dependable Drip stocks that are shareholder-friendly while offering long-term growth potential.
Johnson & Johnson
Everyone knows Johnson & Johnson (JNJ -0.04%) and its key consumer brands, including Band-Aid bandages and pain reliever Tylenol. What many investors don't appreciate about J&J is just how strong a dividend-paying stock it has been over its history. The healthcare giant has a 54-year streak of annual dividend increases, and its current yield of 2.6% is above the current market average.
In addition, J&J has plenty of capacity for future growth. Recently, the company has focused on its pharmaceutical segment as its biggest growth driver, and blockbuster treatments like blood-cancer drug Imbruvica and type 2 diabetes fighter Invokana have plenty of promise for J&J going forward. J&J also has a sizable medical device business that is at the forefront of innovation, and consumer product releases continue to drive popular interest in the company's key brands.
J&J's dividend reinvestment plan is extremely friendly to investors, offering reinvestment of all or a portion of your dividends into additional shares of common stock without any fees or commissions. All it takes to participate is being a registered shareholder. Given its history of success and promising future, J&J makes an obvious candidate as a strong Drip stock.
3M (MMM -0.21%) is the company that brought you the Post-it Note, but the conglomerate's innovative history has helped produce the long-term profits that have made dividend investors extremely happy. 3M pays a 2.5% dividend right now, but more importantly, it has an impressive 58-year streak of giving its shareholders rising dividends each and every year. Moreover, 3M isn't stingy with its capital, having boosted its dividend by more than 8% earlier this year.
3M has also treated shareholders well with capital appreciation, with the company hitting all-time highs as investors look forward to further opportunities for growth. 3M's exposure to healthcare and consumer products helps give the company some insulation from the ups and downs of the business cycle, and that's been useful lately because of the sluggish conditions in its industrial-facing businesses over the past couple of years. In particular, a couple of promising areas include 3M's automotive products division and its production of renewable energy components, and a combination of strong auto sales and the potential for a rebound in the solar space could help push 3M higher still.
3M offers a dividend reinvestment plan that puts every penny of your dividend to work buying additional shares. No brokerage fees or service charges apply, and you can even send additional money to buy more 3M stock if you choose. That's a benefit that many Drips don't offer and can greatly enhance its value if 3M keeps performing well.
Supplemental insurance company Aflac (AFL 0.78%) also has a long dividend history, paying higher dividends for the past 33 years. Its 2.3% yield is the lowest of the three, but with the U.S. dollar starting to fall against the Japanese yen, Aflac's Japan exposure will turn from being a liability in recent years to being an asset in the near future.
Aflac has succeeded by offering unusual insurance products that have demonstrated value but aren't readily available from competitors. By working directly through employers, Aflac bypasses many of the restrictions that apply to major group health plan providers. At the same time, its provision of useful insurance products to Japanese customers has also been quite profitable. As demographics keep moving toward an older population, Aflac has plenty of growth potential ahead.
Aflac's Drip includes the option to purchase and sell shares through the plan, as well as allowing for the reinvestment of dividends. The plan covers the cost of administration, meaning that you avoid services charges or brokerage commissions. Aflac's track record of success has rewarded those who got into its Drip early and could continue to do so well into the future.
Reinvesting dividends can put you on the road to wealth, and these three stocks have a history of helping investors get the job done. By using Drips, you can make your investment capital work harder for you and put the power of compounding on your side.