When you're first starting to invest, there are certain kinds of stocks you should focus on. Specifically, you should seek relatively low-risk stocks, as it takes some experience to responsibly incorporate high-risk and speculative stocks into your portfolio. You should also invest in companies you understand, as it's easier to make informed investment decisions when you're familiar with a company's business model.
One great place to start is with high-quality dividend growth stocks, which tend to be less volatile than the rest of the market and deliver relatively consistent, solid performance. Quality dividend stocks will not only produce a growing stream of income but will allow you to sleep soundly at night.
We asked three of our analysts which dividend stocks they recommend for beginners, and here's what they had to say.
Beginning investors always do best with companies that they know and understand, but you shouldn't sacrifice growth prospects in order to pick household names. Fortunately, with health care conglomerate Johnson & Johnson (NYSE:JNJ), beginning investors get the best of both worlds. The iconic company stands behind well-known consumer products like its namesake baby shampoo and its Band-Aid bandages. Its stable of brands includes products that you'll find in nearly every household in the U.S. and in countless homes around the world.
Yet with J&J you don't have to give up hope for growth. Johnson & Johnson has seen huge success with its pharmaceutical division in recent years, with blockbuster results from arthritis drug Remicade and a host of up-and-coming treatments like blood-thinner Xarelto and psoriasis-fighter Stelara. More recently, diabetes treatment Invokana and prostate-cancer drug Zytiga have seen substantial growth, and many believe that they and other J&J drugs could eventually match the success the company has seen in the more established parts of its pipeline.
When you add in J&J's medical-device business, you get a blue-chip giant that supports the stock's 2.7% dividend yield and its 52-year streak of raising its annual dividend payout every year. For smart beginning investors, Johnson & Johnson is exactly what the doctor ordered.
It's important for beginning investors to buy companies that are not only easy to understand, as Dan mentioned, but also relatively safe from disruption by new rivals.
One stock that definitely fits this description is Coca-Cola (NYSE:KO). Coca-Cola raised its dividend for 52 consecutive years, and it has an excellent history of consistent performance.
Coke is especially ideal for new investors because the company is consumer-facing and easy to understand, and it will continue to grow and expand its product portfolio as time goes on. In addition to its signature carbonated soft drinks and its strong portfolio of noncarbonated beverages (such as Dasani water, Glaceau vitaminwater, and Honest Tea, to name just a few), Coca-Cola has a substantial interest in, and partnership with, Keurig Green Mountain (UNKNOWN:GMCR.DL). Therefore Coca-Cola stands to benefit tremendously when the new Keurig Cold is introduced later this year.
Coca-Cola uses the strength of its brands (it's ranked the fourth-most valuable brand name in the world), strong distribution system, and financial strength to grow its business year after year. Warren Buffett, who is a big Coca-Cola investor, once said that a "ham sandwich could run Coca-Cola," meaning that he expects the company to be successful no matter who is in charge or what the market does.
VF Corporation (NYSE:VFC) is a great investment for someone just getting started. It's a straightforward business that's easy to understand -- the company owns 17 major clothing and apparel brands like Timberland, Wrangler, and 7 For All Mankind -- and it has many of the characteristics that bode well for long-term returns and dividend growth.
VF Corp has increased its dividend every year for more than 40 years, and it paid out only 40% of earnings as dividends last year, indicating that there's plenty of room for the company to keep raising its payout.
Best yet, the company is still growing. Total sales for 2014 -- the company will report the fourth quarter on Feb. 13 -- will reach $12 billion, and management is expecting sales to top $17 billion in 2017, representing more than 40% growth from 2013.
Can the company meet those lofty growth expectations and continue growing thereafter? Here's some context: The global apparel market in 2012 was $1.1 trillion. By 2025, it's expected to nearly double in size as another 500 million people join the global middle class. VF Corp is preparing itself -- and its shareholders -- for a great future.