With Americans beginning to receive their COVID-19 stimulus checks, many may be eager to take some of that money -- even if it's just $100 -- and invest it in stocks. But many of the most popular stocks trade at more than $100 per share, which would understandably lead some to think that those pricey stocks are out of their reach.
But it's important to remember that what counts is how much money you are investing and the quality of the companies you are investing in, not how many shares of stock you are purchasing. The idea that it is better to buy more shares of a lower-priced stock than to buy fewer shares of a higher-priced stock is simply wrong. And with many online brokerages offering the ability to buy fractional shares, investors can pick up $100 worth of a stock that trades for far more.
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So, what's someone interested in investing a relatively small amount of money to do? First, make sure you've set enough money aside in an easily accessible emergency fund. The stock market is not the place to keep that cash cushion. And in these unpredictable and challenging times, it's even more important to be able to lay your hands on cash quickly should the need arise.
Once that's covered, though, it's time to start picking investments -- share price notwithstanding. And I'd recommend investors consider Air Products and Chemicals (APD +1.37%), American Water Works (AWK +2.18%) -- both of which are trading well above that $100 a share mark -- and the WisdomTree U.S. High Dividend Fund (DHS +0.14%).
This dividend payer is in noble company
For nearly 80 years, Air Products and Chemicals has provided customers with industrial gases, including equipment and services. It now serves more than 30 industries and operates in 50 countries. The combination of geographic diversity and market diversity mitigates the risks from downturns in any one country or industry. It's also a Dividend Aristocrat, having rewarded its shareholders with annual dividend payment increases for 38 consecutive years.
And, on the company's recent fiscal second-quarter conference call, management emphasized that the dividend remains one of the company's priorities. How much it will be increased in 2020 is unclear due to the economic uncertainty stemming from COVID-19, but management is strongly opposed to decreasing the payout.
Investors who are looking to invest smaller sums may have lower thresholds for risk, and therefore be eager to find companies that tend to be more conservative. In the case of Air Products and Chemicals, the company has averaged an annual payout ratio of 53.6% over the past 10 years -- a conservative distribution. Furthermore, as of the end of its fiscal Q2 2020, the company had a net debt-to-EBITDA ratio of 0.29, further indicating management's conservative approach to leverage.
Dip your toes into this water stock
With all of the hand-washing we've been doing to lower our risk of contracting the coronavirus, it's easy to recognize the value of water service, and, by extension, the value of the utilities that provide it. For more than 14 million people in 46 states and Ontario, Canada, that utility is American Water Works. Water utilities may not be the most exhilarating of investments, but because they operate in regulated markets, they tend to be steady growers, and they're less susceptible to market volatility than other stocks. For example, while the S&P 500 remains down by more than 12% year to date, American Water Works is only about 2% lower.
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Another attractive feature of the stock is its dividend, which provides a forward yield of around 1.7%. The company has expressed a commitment to anchoring dividend increases to earnings growth; moreover, management is targeting a compound annual growth rate for earnings per share -- and the dividend -- of 7% to 10% through 2024, which would have the additional benefit of maintaining a conservative payout ratio in the 50% to 60% range.
A wise option to consider
For investors who would prefer to get broader exposure to the stock market, an exchange-traded fund such as the WisdomTree U.S. High Dividend Fund represents a good option. The ETF's fact sheet states that it offers investors the ability to "gain targeted exposure to U.S. equity from high dividend yielding companies." Healthcare stocks such as Pfizer -- the single largest holding -- make up more than 17% of the ETF's portfolio -- the largest segment. Information technology (14%) is its second-largest sector, with holdings that include IBM and Cisco Systems.
In total, the ETF holds 324 stocks that span more than 11 sectors. It currently yields 2.74%, and has a moderate expense ratio of 0.38%
What's especially alluring about the WisdomTree U.S. High Dividend Fund is that it makes its distributions on a monthly basis. Those who are investing through an online brokerage that offers DRIPs can use those payouts to acquire a steadily larger position in the fund each month without having to provide an additional outlay of capital. And taking full advantage of the power of compounding on a regular basis can potentially help your initial $100 investment grow all the quicker.
