Top Dividend Stocks
What are Dividend Stocks?
Dividend stocks are stocks that pay out a portion of their earnings or profits to shareholders. These payouts are usually done quarterly, and there are a few stocks that will pay their dividends monthly, but are they top dividend stocks?
Dividends give shareholders an added incentive to own or hold the stock even when the stock price is not rising or even dropping. The amount of the dividend is done as a percentage of the share price.
Typically, the dividend percentage runs in the 1% – 10% range with some stocks paying less, and some stocks a bit more.
Dividends can be raised, lowered, or even done away with by the company, although the outright elimination of a company’s dividend is somewhat rare.
What are Top Dividend Stocks?
So, how does one define top dividend stocks? There could easily be many definitions of top dividend stocks. They could be stocks that have a high dividend yield.
Or stocks that have increased their dividend over the years. They could be stocks that have a high dividend yield, and have increased their dividend over the years.
They could be top performing stocks that have recently decided to include a dividend. They could just be solid, stable companies that pay a dividend, no matter how small or large the dividend yield or payout. In my humble opinion, top dividend stocks are also DRIP stocks.
What are DRIP Stocks?
I am glad you asked. DRIP stocks are dividend reinvestment plans, or dividend reinvestment programs. Some companies that pay dividends allow for the reinvestment of the dividend payout to shareholders into the purchase of more stock in their company.
Many of these companies also allow for the direct purchase of their stock initially with no fees. They also allow for the reinvestment and additional purchase of shares with no fees. Did you catch the no fees part? Stock investing simply doesn’t get any better than this.
DRIP investing is more of a long term strategy or play than a short term one. By having the dividend reinvested in more stock, instead of taking the dividend payout, you are harnessing the power of compound interest.
Over time this can accumulate into a substantial number of shares which can provide a significant source of income, while maintaining, and even growing the principal, which in the case of DRIPs is stocks.
This can all be accomplished over time even if you don’t invest more in the program. If, however, you want to speed up the process, and increase the number of shares, as well as the corresponding amount of the total dividend payout, you can invest more money into it with periodic purchases.
These periodic purchases are also no fee, in a no fee DRIP. Some even incorporate dollar cost averaging, which can provide a much healthier long term outlook for you.
Albert Einstein once said about compound interest: “Compound interest is the eighth wonder of the world. He who understands it, earns it, he who doesn’t pays it.”
This combination of no fees, and dividend reinvestment, make DRIPs are very attractive long term investment strategy, and separate DRIP stocks from other types of long term investing such as mutual funds, index funds, etc.
Another great benefit of investing in DRIPs is the option of reinvesting part of the dividend in more stock, all of the dividend in more stock, or none of the dividend in more stock.
This could become very important once you have enough stock accumulated to start taking some dividend payouts, such as for retirement. or if you just need some extra cash.
You can take say a 75% payout of the dividend, and leave 25% in for reinvestment, keeping your stock principal growing. You can take more or less, or all or none, it is entirely up to you.
Which DRIP Stocks Should I Choose?
The DRIP investing strategy that I suggest is one where you invest in strictly NO FEE DRIPs in different sectors of the market to give you some diversification.
You should pick stocks that have at least a 2% dividend yield, and ideally you want companies that have shown great stability, and increased their dividend consistently over at least the last 20 years.
Some sectors to consider are Health Care, Energy, Insurance, Real Estate (REITs), Pharmaceuticals, Manufacturing, and Automotive.
Some NO FEE DRIPs within these sectors to consider owning are: AFLAC, AbbVie, Emerson Electric, Exxon/Mobil, HCP, Genuine Parts Company, 3M, and Johnson and Johnson.
The only real risk with DRIPs is a reduction or an elimination of the dividend, and of course with the company itself. If you invest in solid companies stocks though, you will have minimal risk in the underlying company eliminating their dividend, or going out of business.
It is possible that the dividend could be reduced. If this happens, you may want to consider selling, and buying another DRIP for your portfolio, but I would only sell if the dividend reduction was substantial, and if it happened more than once within a relatively short period of time.
Also, if there was a significant problem with the company’s business, you should consider selling the stock. These scenarios are somewhat rare, but you should monitor your DRIP stocks on a consistent basis to make sure that everything is hunky dorey with your investment.
Even if there is a drop in the stock price, as long as the dividend remains the same or only slightly lower, and there aren’t any serious problems with the company’s business, I would hold the stock.
Remember this is a long term strategy. It is likely that there will be some price swings during the time that you own it.
It is very easy to check on your DRIPs online anytime you would like, day or night.
I believe DRIP stocks are an excellent way to set yourself up for the future. You can buy these NO FEE DRIPs without up front fees, or fees for the reinvestment of the stock dividend.
You are harnessing the powerful principal of compound interest by utilizing DRIPs. You can add to your position without fees of course, to accelerate the process.
A good way to add to your position is with dollar cost averaging. Buying these DRIPs in different market sectors will provide you some diversification, but if you buy solid companies with good businesses, and a track record of earnings/dividend increases, you will have little worry about negative developments down the road.
Another great feature of DRIPs is that you can take none of the dividend, and reinvest it all, or take some of the dividend, and reinvest the difference, or you take take all of the dividend. It is entirely up to you.
By reinvesting some or all of the dividend, you continually increase the number of shares that you own, ensuring in almost every case that your principal will always be there when you need it.
Time is truly of the essence with this long term strategy. The sooner you get started, the more you will have in later years. If you do you will never have to say, ‘we didn’t plan to fail, we just failed to plan.’