Don't let anyone tell you that finding worthwhile stocks is impossible to do on your own. It's not. While it can be tricky, you can get a head start by remembering two simple lessons:
- Great earnings growth is often preceded by great dividend growth.
- Research shows that 97% (!) of the stock market's return from 1871 to 2003 was due to reinvested dividends.
A simple strategy reveals itself
Could investing really be as simple as picking the best dividend payers and then reinvesting the proceeds for decades? Well, no. And yes.
Certainly, stock picking is well-suited to those who trick out Excel spreadsheets like they're the Monster Garage crew vamping up a 1975 John Deere tractor. Many expert stock pickers speak math-a-nese as a second language. And they hold secret monthly meetings in a basement at a sublevel duplex somewhere in suburban D.C.
But you don't need to be a member of that group to make money in the stock market. Some of us need a more relaxed route. By building a portfolio of high-yielding dividend stocks with a history of increasing payouts, you can do well. Where can you find such a list of stocks? Consider Standard & Poor's Dividend Aristocrats.
Eat with the rich
What's so special about the companies that make up this royal family of the S&P 500? They've all increased their dividend payouts for at least 25 consecutive years. Here are the top five by yield:
|
Company |
3-Year Div. Growth |
Yield |
|---|---|---|
|
U.S. Bancorp |
17.6% |
4.6% |
|
First Horizon National |
11.5% |
4.5% |
|
Pfizer |
17.0% |
4.5% |
|
Bank of America |
13.8% |
4.4% |
|
Fifth Third Bancorp |
11.8% |
4.3% |
Suggesting that you merely buy stock in these giants would be irresponsible. Every investment decision is a process that begins with what you, as an investor, want to accomplish, weighed against how much risk you're willing to take.
But, beyond that, these five stocks are backed by outstanding companies with long histories of paying profits to shareholders and little chance of going out of business. With secure dividends, they're more likely to protect your portfolio when a bear market bites. (And it always does.)
Doesn't that sound like a stock worth owning? It does to me. That's why my portfolio is loaded with dividend-paying tech blue chips like Taiwan Semiconductor
Follow the money
For most investors, the market-matching returns of index funds are the way to go. For those who want a little more, championship managed funds are a great choice. But for those who savor the thought of rocking their Roth with decades of market-crushing returns, Dividend Aristocrats -- that is, the market's most proven performers -- are by far the best starter stocks money can buy.
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Fool contributor Tim Beyers owns shares of Taiwan Semiconductor. Bank of America and First Horizon are Income Investor picks. Pfizer is an Inside Value recommendation. The Motley Fool has a disclosure policy.
