When you buy stocks, you’re buying a piece of a company. You become a part owner, which entitles you to a piece of the profits – even if it’s a tiny one! great and established company, you can expect long-term growth – both in the money you invest and the dividends you receive.
If the stocks you pick are from great and established companies, you can expect long-term growth – both in the money you invest and the dividends you receive.
Today I’ll share 5 companies which I think will make great long-term investments for anyone who’s looking for extra streams of passive income.
When The Price is Right
As you go through this list, I’m sure you’ll recognise – and probably use – a lot of the products these companies produce. What better way to know that a company is doing things right than being one of their customers?!
Another point to take into consideration is the difference between price and value.
Price is what you pay for a share. Value is what you get out of it. These are all great companies, but I would not buy them at any price.
The price has to be right for you to get sufficient value from your stock purchases!
Imagine you’ve set your eye on a great company that has a long history of paying dividends. You’ve done your due diligence, worked out all the important numbers and decided that this is a company that you want to fund your early retirement.
Great news, right?
Well, not necessarily. The stock could be overpriced, which means you could be paying $100 for a stock that was really only worth $70.
If you paid the higher price and the stock dipped and struggled for a couple of years, you’d be looking at a pretty average investment.
However, if you waited for the price to dip nearer to what you calculated as the fair price, you’d be making a significant profit.
I’ll get deeper into this in future posts, as this is something that you must understand if you want to become an awesome dividend investor! 😉
3 Dividend Growth Stocks I Would Buy In a Heartbeat
Johnson & Johnson – NYSE: JNJ
Johnson & Johnson; so good, they had to name it twice! 😛
They also manufacture medical devices, pharmaceutical, and consumer packaged goods. I bet you’ve used JNJ’s famous products: Johnson’s Baby, Nutraderm, Aveeno, or Clean & Clear.
JNJ has been increasing its dividend for 54 consecutive years – ever since 1963, the year the Beatles released their first studio album!
Their site lets you work out how your investments would’ve fared had you invested in the past. Let’s say you bought 100 shares of JNJ in 1987, 30 years ago. They would have cost you $6,987 and you’d receive $10 that year in dividends.
Fast forward to today, and those same shares would be worth over $350,000 with a yearly dividend income of $8,736. That means that every year, you’d earn more than 100% what you invested initially just with dividends!
That’s insane! Even if JNJ doesn’t grow as much as it has in the past few decades, I’m confident that it’s a stock that’s worth having in any long-term portfolio.
Over the last 10 years, they’ve increased their dividend by an average of 8% each year. Their payout ratio (how much of their profits are spent in paying dividends to their shareholders) is only at 57%, which means two things:
- They can endure tougher years and still increase the dividends they pay out.
- They can spend plenty of money in making the business grow, which is important in making the share price increase.
With companies like JNJ, you’re going to pay a premium due to their quality. In my opinion, that’s fine, as you know you’re buying a chunk of a great company.
At the moment, shares are pretty expensive, and you’re only getting a 2.5% yield (dividends as a percentage of the share price). I’d wait until the yield gets up to around 3% to buy.
International Business Machines – NYSE: IBM
If you’ve ever used a computer – and the fact that you’re even reading this tells me you know a thing or two about electronic devices 😉 – you’ve used IBM’s products. They’ve been one of the strongest tech companies over the last couple of decades, and it doesn’t seem like this will be different for the coming ones.
They’ve been paying a rising dividend ever since the year when Goldeneye hit theaters, 1995. That’s 22 years of consecutive dividend increases, and they aren’t small either! The average yearly dividend increase over the last 10 years is 17.5%.
That’s phenomenal, and not something you see in every company!
That means that if you bought shares of IBM today, at its appealing yield of 4.15%, and the dividend increase rate stayed like this, you’d have an 8% yield on cost in 4 years!!
Quick rule of thumb: If you wanna find out how long something will take to double, use the Rule of 72. Divide 72 by the yearly rate of increase, and you’ll get the number of years it’ll take.
Lastly, the payout ratio sits just under 50%, which gives IBM plenty of room to grow its business and keep increasing its dividend.
T. Rowe Price – NASDAQ: TROW
T. Rowe Price may not be as recognisable as the previous two companies, but it’s definitely as good.
TROW is an asset management firm, which offers funds, advisory services, and retirement plans. Basically a lot of good stuff that people will always have a need for – as long as money and society keep existing!
They have increased their dividend for 30 years – since 1987, the year the very first Final Fantasy game came out.
If you bought 100 shares of TROW in 1987, 30 years ago, they would have cost you $4,375.
That investment would now be worth a whopping $386,000 with a yearly dividend income of $10,531. Again, another insane track record.
Over the last 10 years, they’ve grown their dividend at a rate of 14.5%, with a payout ratio of only 39%. Really, this company is just spectacular almost everywhere you look, and it’s one that I always try to pick up when its price dips.
The current yield is 2.76%, which is a little lower than the 3% that I recommend. That’s why I would wait for another dip so that the yield increases over the 3% mark.
Learning how to pick stocks for long-term investment takes some skill and knowledge, which is something you should absolutely have before you even consider investing.
At the same time, it’s way more accessible than most people think. Once you grasp a few concepts and arm yourself with a couple of tools, you’re all set to build a passive-income-producing portfolio of awesome stocks.
That’s why I’ve decided to create a course on Dividend Growth Investing.
This will teach you the exact system I used to analyse, select and track stocks. I want this to be a step-by-step solution that all of you can easily pick up and put to use with confidence.
I really believe that investing in dividend growth stocks is the best way to build an ever-growing stream of work-free passive income that will let you become financially independent.
At that point, your time – and what you do with it – is truly yours.