Increase Your Annual Income Each Year With Dividend Stocks
No Other Asset Class Provides the Long-Term Returns of High Quality Equities
Going through Federal Reserve and securities industry data detailing the investing habits of the average American family, I found it shocking that roughly 7 out of 8 households hold no stocks directly. Not a single share of anything. Several years later, I still can't get it out of my head. This makes no sense to me given that equities, as a class, are the highest performing investment over long periods of time readily available to the general public.
While you have to endure price fluctuations that can be 30% to 50% each year, if you focus on owning profitable businesses that can raise prices as pages of the calendar fall to the floor, and pick management teams that are dedicated to sending this windfall out to you, the owner, in the form of a dividend, you can sit at home and ignore the stock market entirely.
Real World Examples of Increasing Dividend Stocks
Consider some of the stocks my own household holds directly. Many of these I bought awhile ago, when stocks were much cheaper. I intend to hold them, all present known factors considered, for a very long time. When I originally wrote this article in late February, 2014:
- The Nestlé board of directors proposed a cash dividend increase to 2.15 CHF from the 2.05 CHF it paid out to the owners the previous year, a jump of 4.8%.
- The Coca-Cola Company announced it was increasing its dividend to $1.22 per annum from $1.12, a jump of 9.0%.
- The Walt Disney Company raised its dividend to $0.86 from $0.75, a hike of 15.0%.
- Dr. Pepper Snapple Group increased its dividend to $1.64 from $1.52, a pay raise of 7.8%.
- McCormick & Company raised its dividend to $1.48 from $1.36, an increase of 8.8%.
- United Technologies raised its dividend to $2.36 from $2.14, an increase of 10.3%.
The list goes on and on, across multiple industries, and dozens of companies. My siblings, parents, in-laws; I've carefully and patiently helped them construct portfolios of high quality assets, blue chip stocks included, that should deliver ever-rising gushers of cash income for them to spend, save, donate, or reinvest, even if we were to go into another Great Depression. Over many weeks, months, years, and, again, decades, we've built up a collection of ownership in mining stocks, gilt-edged bonds, pharmaceutical giants, banks, and conglomerates.
Some of the securities in my portfolio have been there for more than a dozen years. To illustrate: One of the oldest positions I still hold in a joint brokerage account with my spouse is a gasket and sealant company I received as a spin-off from an aerospace engineering firm I was buying as a freshman in college, using my savings and part-time earnings to fund the transactions. The latter split into two and I kept the distribution before ultimately selling the original holding. It's worth roughly 1,000% more than I paid for it despite two major stock market crashes, multiple wars, and a housing bubble. When I bought it, YouTube hadn't been invented and Bill Clinton had barely left office.
I've watched it skyrocket, and crash, multiple times, yet the underlying firm is still profitable, and has a unique position in its industry, so I have no plans on selling my stake to anyone else. I like owning it. This behavior is extremely rare for most investors, yet it's the secret to my success. Pick your stocks like a lifelong spouse, not a one-night stand.
Dividend Stocks Are For Everyone
There is nothing unique, or special, about my family that makes it any different from yours. Why aren't other people taking advantage of an asset that delivers streams of passive income, that allow you to collect checks from your share of the profit? Coca-Cola, for example, has raised its dividend every year for fifty years. Half a century! I'm young - in my early 30's - yet when I was born the cash dividend was a split-adjusted $0.01291.
Yes, as in, barely over 1¢ a share. It's now at $1.22 a share because the soda, water, tea, and coffee giant can raise prices with inflation across the planet in more than 200 countries and roughly 90 effective currencies. Its distribution and marketing power are unparalleled.
If the price of ownership is attractive - namely, if the earnings yield relative to treasury bond yields is good - how can someone not be attracted to it? Who cares that the stock is like a roller coaster? How is that relevant to living off the stream of checks they mail you? All you need is a good initial price. It does not take a mathematical genius to calculate that a single share bought today for $37.77 should distribute pre-tax cumulative cash dividends of $77.16 to $119.98 over the next 25 years and you'll still own the firm at the end of that period short of some unforeseen event. Even if you pick a dud that eventually goes bankrupt, it can still make a lot of money - see my Eastman Kodak case study as a real world illustration.
Learn all you can about valuing common stocks or, if you aren't up to that, investing in low-cost index funds. Historically, a recipe of dollar cost averaging into them for decades, combined with reinvested dividends and a good tax strategy has been a winner that could turn even the most ordinary of households into a bastion of wealth. The country is full of secret "Millionaire Next Door" types who have done precisely that.