Investors can take different investment approaches. One proven strategy is to buy dividend-paying stocks. These can provide regular income, lower volatility, and higher total returns.
Naturally, individual stock selection matters. It's not merely picking those with a history of dividend payments. You should make sure the company can continue making payouts. Once you find strong buying candidates, you don't have to start with large investments. It's more important to get started on your long-term investing journey.
For instance, you can buy a few shares in McDonald's (MCD -0.63%) and Procter & Gamble (PG 0.46%), with $3,000.
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1. McDonald's
Most people around the world recognize McDonald's (MCD -0.63%) ubiquitous golden arches. It had over 44,000 restaurants in more than 100 countries as of June 30.
However, about 95% of its locations operate under franchises. It has a couple of different arrangements, but generally, the franchisee pays McDonald's a royalty based on its percentage of sales. It also collects rent for those properties it owns.
These agreements mean that the company doesn't invest capital to maintain restaurants, helping McDonald's maximize free cash flow (FCF). That's an important consideration for dividend-seeking investors. The company generated $3.1 billion in FCF during the first half of the year, compared with $2.5 billion in dividends.
McDonald's remains firmly committed to dividends, too. A year ago, the board of directors raised quarterly dividends by 6% to $1.77, making it 48 straight years of increased payments. The stock's 2.3% dividend yield bests the S&P 500 index's 1.2%.
McDonald's share price gained 8.2% this year (through Aug. 29), trailing the S&P 500's 9.8%. Investors have been concerned about sluggish sales, due in part to a stressed consumer base dealing with high prices. But second-quarter same-store sales reversed course, growing 3.8%.
All this could create some momentum and allow shareholders to also experience price appreciation along with dividends.
2. Procter & Gamble
Procter & Gamble sells everyday basic items like shampoo, deodorant, toothpaste, and diapers that often command a high market share. It has a stable of popular brands like Head & Shoulders, Old Spice, Crest, Tide, and Pampers.
Fortunately, people need these items no matter what's going on with their personal economic situation. After all, people will cut back on discretionary items like vacations and eating out if they lose their jobs, but not on necessary items like shampoo or diapers.
It's no wonder that Procter & Gamble has paid dividends for 135 years and raised them for the last 69 straight years. That includes a 5% increase in May's payment to bring it to about $1.06 a share. This streak means that the company belongs to the elite group of Dividend Kings.
Procter & Gamble has the resources to continue paying dividends. In the latest fiscal year, which ended on June 30, it produced FCF of $14 billion, which gave it plenty of cushion to pay the $9.9 billion in dividends. The stock has a 2.7% dividend yield, besting the S&P 500 index's yield by 1.5 percentage points.
Procter & Gamble's stock price has fallen 6.3% this year. That's likely in response to the company's tepid sales growth. In the latest quarter, adjusted sales increased 2%, driven entirely by price and mix, while volume was flat. I'm unconcerned as investors can confidently collect the above-average dividend yield.
Undoubtedly, consumers will return to their normal purchasing habits, and they'll likely buy Procter & Gamble's leading products.
