Lets Buy a Company Today!
You know, there’s never one around when you need them! I have an important appointment to day and all my tried and true sitters are out of commission! I called and called and called. No use! What to do? Do I miss the meeting? Finally, at the midnight hour, another angel came through! Phew! It kinda makes me want to buy a company so I have a ‘go-to’ list when I need one!
Last Tuesday I talked about how we all can retire millionaires through the buy-and-hold, investing-on-a-shoestring, carefree and painless investing strategy of Dividend Reinvestment Plans. I talked about what they are and some of their advantages. But I know ths is scarey stuff to some people that are new to investing. “Am I doing this right?” “What if I pick the wrong company?” And so on.
Today I want to help you pick a great company or two to buy for your retirement by giving you a few criteria to look for and some good examples. First understand not all great companies pay dividends to shareholders. Many tech driven companies on the NASDAQ are such companies. In the ever evolving tech world, some great tech companies would rather reinvest their profits into their Research and Development instead of rewarding their shareholders. Thats OK.
An example is Apple, Inc. (AAPL). Apple is one of the most sought after companies today. Their stock’s price is over $400 per share. Few people would argue their edge in Iphones, Ipods, and other great toys would put them ahead of their competition without reinvesting in their great ideas, thus leading the charge instead of following it. Yet Apple doesn’t pay out one penny in dividends to their shareholders. Based on Apple’s cool stock performance not many are complaining either.
Dividend paying companies are super cool for their own reasons though. The Motley Fools point out, “dividend-paying stocks historically outperform non-payers over the long term. According to Ned Davis Research, publicly traded companies paying a dividend returned 10.1% compared with just 4.1% for non-dividend companies between 1972 and 2006.What’s more, during periods when the market declined between 1970 and 2000, dividend stocks outperformed non-dividend-paying stocks by a 1.5% margin every month.” Why? Because dividend paying stocks have part of their performance built in in the form of dividends.
Investing in DriPs, we reinvest those dividends, year after year to let our savings snowball into owning a share of the comapany’s empire. So how can we know which companies to DRIP with? Let’s take a look:
WHAT TO LOOK FOR:
The prime indicator in finding a great company, paying a sizable return, big enough that you want to retire with, is the measure called ‘Dividend Yield’. Simply, this number is a measure of the dividend paid to shareholders compared to the stock’s selling price. A good paying company has a dividend yield of at least 2%, meaning it is paying you back 2% of your stock’s purchase price; every 3 months. This ratio is not a stationary number. Understand, since this is a working ratio (dividend / stock price) as the stock’s price goes up the yield goes down. As the stock drops, the yield goes up. Simple math. We’re looking for yields of at least 2% so don’t let the math concern you ~ its actually done for you at most financial web sites. Just believe the Dividend Yield is an ‘indicator’ of a company that pays a significant dividend.
PICK A WINNER ~ THE BASICS:
First, So you know what to look for in a DRIP company you want to own, now what? Here we go back to good investing basics, “find a company that you know, you know how they make money, and you know will be around for at least as long as you are. ~ for better or worse, we want to grow old with this company!
Second, you find a few companies that meet your criteria so far, before you say, “I do” take a look at their DRIP plans to be sure they have all the features we want, as some do not. You can find the specifics for DRIP companies at their transfer agent sites, like Computershare. The checklist of features we want our DRIPS to have include:
• little to no fees for purchase and reinvestment. To me a $2 fee is OK for a $50 transaction. It is a lot better than brokerage firm commissions.
• be sure the DRIP can make automated bank drafts. We want this long term investing to be easy and painless. There is nothing easier than an automated bank draft that we only have to confirm, but not be a party to its occurrence. ~easy-peasy!
• be sure it has a feature for optional cash payments. We do this if we get a big tax return some time, or take advantage of a price while it is low to buy more shares, etc. Its just a nice feature to have.
Does this seem easy enough yet? Are you a little uneasy about researching great companies and picking the right one(s)? Let me do some of the homework for you! The following is a list of some of my favorite great companies to purchase for DRIP investing. ~sorry about the table, WordPress seemed to eat it, how embarrasing..
Company Symbol Price (1/16) Dividend Div. Yield
McDonalds MCD $100.35 $2.80 2.79%
Proctor & Gamble PG $65.81 $2.10 3.19%
Merck MRK $38.32 $1.68 4.35%
3M MMM $83.60 $2.20 2.63%
Walmart WMT $59.54 $1.46 2.45%
Coke KO $66.99 $1.88 2.81%
Intel INTC $25.14 $0.84 3.34%
Johnson & Johnson JNJ $65.26 $2.28 3.49%
Phillip Morris PM $77.32 $3.08 5.70%
Eastman Kodak EK $0.52 0 0%
So what do you think? Which companies would you like to buy right now? Why?
Some more tidbits about this list to consider:
McDonalds is entering into China for increased sale PLUS McDonald’s operational performance is top notch. That’s why it’s been able to pay and increase dividends for decades. The restaurant titan just upped its dividend, making for an annual $2.80 per share — or 2.9% — more than triple the amount it paid out five years ago. (it actually increases its dividend paid!)
Procter & Gamble has raised its dividend each year for the past 50 years. More importantly, it boasts a strong stable of products that people use and rely on. That doesn’t mean you can blindly buy and forget about it, but you don’t necessarily have to keep an eye on it as much as you might with less established companies.
Merck: An aging population will need more health care, which supports not only obvious picks like high-yielding dividends but increasing sales (demand) as well.
Johnson & Johnson: see Merck and Proctor and Gamble above .
3M: has a 52 year history of raising its dividend EVERY year.
Coke, Walmart and Intel speak for them self as far as brand recognition and staying power.
I think this discussion has you thinking a little bit about smart investing and logical thought processes based on your own business education. So I want to leave you with why investing in the last two companies would NOT be good ideas ~ the one speaks for itself. I’ll get back to these ideas next Monday on considering owning companies for the long, long term.
As always, if you have any questions or comments please ask or email me. I want to help you retire with a million almost as much as you do!
I left some links in the articles to do some more reading on the subject if and when you want to learn some more. Or send me an email. I love to help!
: ( I tried to dumb it down. Personal finance is a passion of mine it is easy for me to discuss. Don’t let the material be harder than it is or intimidate you. You know how McDonald’s make money. So if they had an opportunity to make lots more money, like opening up stores in China, it would be more valuable right? IF you have any interest in learning more about personal finance or even some basic investing, the Motley Fool website makes it as easy as possible to understand in an amusing way (like I tried to do). It is where I got my start in this topic. Thanks for reading my blog! Its not always this serious stuff, so you know….
I enjoyed the analytical mathematics in econ, when I understood it, similar to the finance. I think they do go hand in hand. You would do well in this area!
This whole idea is still intriguing, but I do need to actually take time to look at it some more. Good information, though.
Wow, stock advice on a blog. Even if you dumbed this down I wouldn’t understand it.
Thanks for your nice comments on my blog. The Mac is a brilliant band and I’ve always loved them. Go your own way was on Glee, so hopefully a new generation of teens will hear what great music is 🙂
What a great read, especially fun right as I come off of my studies in economics!