Dividend Stocks for both Young & Older Investors
July 12, 2019
It is never too early to begin investing. As a small child, I began learning the basics of how companies issue stock and how stocks are bought and sold on exchanges. I then built a model portfolio that I would paper trade.
I would go on to open a small brokerage account and begin to work with my own money—all supporting my learning experience. And, of course, I would gain and lose along the way.
Back then, commissions were a lot steeper than the discounted rates of today. So my choices were more about what to buy and own for the long term, which meant that I had to have a high level of confidence to overcome the costs of buying and selling.
I would later learn and appreciate the power of dividends, which worked to bolster my portfolio as they were credited to my account. And this continues through to today, as I remain firmly in favor of focusing on stocks that pay you well through rising dividend distributions.
This is an important lesson for all investors. Dividends continue to be one of the biggest sources of overall total return in the stock market. Take, for example, the performance of the S&P 500 Index over the trailing 20 years.
The index has gained 114.22% over that period. But with dividends, the return swells to 214.63%, which is 87.91% more than the price movement alone.
S&P 500 Index Total Return—Source: Bloomberg Finance, L.P.
That’s a big premium over just investing for price growth. And those dividends worked to cushion returns during bear markets as well.
For younger investors, investing is a great way to learn more about the underlying businesses behind the stocks. And by investing in the right dividend-paying stocks in distinct industries and markets, younger investors will learn more about those businesses and various sectors of the economy.
The following are five stocks in diverse segments that pay strong dividends beyond what you can get from the S&P 500 Index. Let’s take a look…
Compass Diversified Holdings Total Return—Source: Bloomberg Finance, L.P.
Compass Diversified Holdings (CODI) is a holding company that buys, owns and sells industrial and consumer products companies. Along the way, Compass collects lots of cashflows from those underlying companies. In turn, it pays a lion’s share of the profits in the form of a big dividend, currently yielding 7.26%.
Hercules Capital Total Return—Source: Bloomberg Finance, L.P.
Next is Hercules Capital (HTGC). This Silicon Valley headquartered company seeks out new and developing tech companies. It then works to finance their development and takes equity participation. It also provides guidance in their development, including eventual exit strategies through company sales and initial public offerings. It too pays a big dividend, which currently yields 9.87%.
Kinder Morgan Total Return—Source: Bloomberg Finance, L.P.
In the energy market, I like the reliable dividend-paying segment of oil and gas pipelines. Among them, Kinder Morgan (KMI) is my favorite. The company owns and operates a massive network of pipeline and related oil and gas infrastructure that is crucial to the growing petroleum industry in the US. It generates an increasing amount of revenues and profits and pays out a portion of that as dividends. It currently yields a solid 4.69%.
NextEra Energy Total Return—Source: Bloomberg Finance, L.P.
Next is one of the most impressive US power utility providers. NextEra Energy (NEE) delivers regulated power to customers in Florida, and it also provides unregulated wind and solar generated power across North America and beyond. This combination of reliable cashflow from its regulated business and growth from the unregulated wind and solar business has been generating ample growth in the stock price, along with a modest dividend of 2.40%.
American Campus Communities Total Return—Source: Bloomberg Finance, L.P.
Finally, take a look at this real estate investment trust (REIT) that owns and manages college campus facilities and dorms around the US. American Campus Communities (ACC) continues to be a very reliable source for dividend income and growth. It yields 3.85%, with a dividend payment that has risen by an average of 4.85% per year over the past five years.
All My Best,
PS—While I’ve made the case for investing in a diversified collection of stocks with higher dividend yields in this Digest, I have even more opportunities for higher dividend payments and income-generating bonds in my Profitable Investing advisory.