Wanna make your money grow?
How about also earning streams of passive income?
Well, I believe that dividend growth stocks are an amazing way to do both things; they’ll grow your money exponentially and will also pay you growing income.
You see, when you buy stocks, you’re buying a piece of a company…
A slice of the pie.
You become a part-owner, which entitles you to a piece of the profits - even if it’s a tiny one!
This is key.
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 3 stocks which I believe will make great long-term investments for anyone who’s looking for extra streams of passive income.
*Disclaimer: None of this is actual investing advice. Always do your own due diligence before investing.
When The Price is Right
As you go through this list, I’m sure you’ll recognize - 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.
Take a look at this apple…
That price tag says $5… But you know an apple is not worth $5.
What it’s worth - or its value - should be less than $1.
And if it’s more than that, change where you buy your groceries because you might be getting ripped off! 😉
When it comes to the companies I’m about to reveal, the same principle applies: 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 and looks like it’ll grow nicely in the future.
You’ve done your due diligence, worked out all the important numbers and decided that this is a stock 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.
This is something that you must understand if you want to become an awesome dividend investor. More on this below…
3 Dividend Growth Stocks I Would Buy In a Heartbeat
Now, I’ll be using 3 really important metrics when talking about these 3 stocks:
- Dividend increase streak
- Payout Ratio
- Dividend Yield
If you already know what they all mean, you’re good - keep reading 🙂
If you don’t, I recommend my free guide on dividend growth investing.
It will teach you the basics so that you can make use of this article (as well as the freebie at the end of the article!).
Now let’s get on with what you came here for! 👇
Johnson & Johnson - NYSE: JNJ
Johnson & Johnson; so good, they had to name it twice! 😜
I would bet anything that you’ve used one of their products before. They manufacture all sorts of healthcare retail products; from baby oil to face cream.
They also manufacture medical devices, pharmaceuticals, and consumer packaged goods. Some of their famous brands include Johnson’s Baby, Nutraderm, Aveeno, and Clean & Clear.
Now onto the good stuff (the stuff that will make you money!)
JNJ has been increasing its dividend for 56 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.
But if you fast forward to today…
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% of 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 on 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 on making the business grow, which is important in making the share price increase.
With companies like JNJ, you’re probably going to pay a premium due to their quality. In my opinion, that’s fine, as you know you’re buying a piece of a great company.
At the time of writing, shares are fairly expensive, and you’re only getting a 2.5% yield. This is on the low end of what I consider to be acceptable dividend yields, but it’s OK.
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 recently been working on new cloud and AI technologies which should keep them at the top of the tech industry for many years to come.
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.
Nice!
T. Rowe Price - NASDAQ: TROW
T. Rowe Price may not be as recognizable 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 money advice that people will always have a need for - as long as money and societies keep existing!
They have increased their dividend for 33 years - since 1987, the year the very first Final Fantasy game came out!
If you bought 100 shares of TROW in 1987, 33 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 insanely good 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 I’d like. That’s why I would wait for another dip so that the yield increases over the 3% mark.
The Next Steps You Should Take…
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.
A great place to start is the guide I showed you earlier (scroll back up!)
But what if you’ve really enjoyed this article and would like nothing better than MORE stock ideas?
Well, I’ve got you covered 😎.
Here are 19 more stocks that I personally really like. This makes it a total of 22 stocks.
For free.
Just let me know which email I should send the PDF to and you’ll be set.
Happy investing!
Please share this article on social media if you’ve found it helpful 🙂
Interesting blog. As I read it I found myself thinking of how I got to where I am today (retired and debt free) and how I see many younger people (in their 20’s to 40’s) struggling to get by in jobs that just barely cover their routine expenses.
I am seriously thinking about starting a blog in which I could offer advice and techniques by which people in their situation could be encouraged to take charge of their lives and prepare for their own future. The advice you provided may just Geeta me to move forward with this idea.
Hello Richard,
That sounds like a great idea! In my experience, it’s a great feeling to be able to share your knowledge and help others at the same time. Plus, it’s great fun!
If you need any help, let me know 🙂