Don't listen to anyone telling you that you need lots of money to start investing. It's simply not true. While some stocks are admittedly priced at levels that the average retail investor would find hard to afford, you can find plenty of great stocks trading for under $50 per share that have offered solid returns for years and showered their investors with dividends.
When building wealth with stocks, getting started is the most important thing. Compounding needs as much time as possible to do its thing and eventually manage the heavy financial lifting for you.
Build wealth brick by brick, share by share. Not sure where to begin? Here are three fabulous dividend stocks that can help jump-start a diversified long-term portfolio.
1. Altria Group
Dividends are central to tobacco companies like Altria Group (MO +0.25%). Despite smoking rates declining in America for decades, Altria, which sells the Marlboro brand of cigarettes in the United States, has managed to offset selling fewer units by increasing its prices. The company has also raised its dividend 58 times over the past 54 years. Today, the stock generates a massive 9.7% dividend yield.
NYSE: MO
Key Data Points
Exceptionally high yields can sometimes be a red flag, a signal that Wall Street doesn't believe the company can afford the payout. But its stable 79% dividend payout ratio offers evidence that investors shouldn't worry too much about a dividend cut from Altria (its payout ratio average over the past decade was 84.5%). Admittedly, you probably won't see much price appreciation from the stock. Analysts believe Altria will grow earnings by just 3% annually over the next three to five years. But with such a high yield, you don't need much else to have a solid investment.
Admittedly, Altria probably won't make you rich. Investors should consider taking Altria's massive dividends and reinvesting them, using them to buy shares of other companies or more shares of Altria if they want. Reinvesting dividends unlocks another level of compounding that can add up over time.
2. Hormel Foods
Stroll through your local grocery store, and you're likely to walk past several Hormel Foods (HRL 0.26%) products. The food company specializes in packaged protein brands, including SPAM, Hormel-branded meats, Applegate, Dinty Moore, Jennie-O, and more. Understandably, consumer staples like food make great dividend stocks because people need to eat.
NYSE: HRL
Key Data Points
Hormel has a long track record of growing its payout, not missing an annual dividend hike for 57 consecutive years and counting. A 76% payout ratio means the dividend remains financially intact and the company has enough available profits to continue funding (and increasing) the dividend. Combining reliable growth with a solid starting 3.5% dividend yield can add up to solid returns over time.
Analysts believe Hormel will grow earnings by an average of 4.7% annually. That's enough to manage a mid-single-digit dividend raise each year and give investors an average total return between 8% and 9%. You'll find that many dividend stocks like Hormel are slow and steady year in and year out. But don't underestimate long-term consistency. Going back to 1990, Hormel Foods stock has outperformed the S&P 500 when it comes to total returns.
3. Kinder Morgan
The modern economy runs on oil and gas. Whether generating electricity, manufacturing materials, fueling your vehicle, or heating your home, fossil fuels are crucial. Companies like Kinder Morgan (KMI +0.07%) help make these things possible. Kinder Morgan is a midstream oil and gas company. It operates 82,000 miles of pipelines transporting oil and gas throughout North America.
NYSE: KMI
Key Data Points
Midstream companies are like toll booths. They don't depend on commodity prices like other energy companies, just that materials flow through their pipes. Kinder Morgan has paid and raised its dividends for the past six years, and the stock yields 6.4% at its current share price. The company cut its dividend six years ago when it fell on hard times, but that's turned around. Today, the dividend payout ratio is an affordable 74%.
Kinder Morgan is another high-yield stock that can generate solid cash for reinvesting. Meanwhile, the medium-term outlook for earnings (and stock price) growth looks solid. Management believes that U.S. natural gas production will grow by 22% by 2030. All this gas will need to be moved to refineries and exports. As a leading gas pipeline, it potentially sets up Kinder Morgan and investors for success.
