By Brad Thomas, Editor, Intelligent Income Investor
Making just one change to your portfolio could mean the difference between pinching pennies to scrape by… or enjoying a nest egg that’s nearly 17X larger.
I’ve been saying it for years: investing in strong companies with growing dividends is the key to a rich retirement.
And Wall Street is finally catching on.
Research from Hartford Funds shows just how big of a difference dividends make. It illustrated how, over the past 50 years, $100 invested into companies that didn’t pay a dividend turned into just $843.
But that same $100 invested into dividend growers and initiators would have turned into over $14,118 today.
In an increasingly uncertain economy, it’s more important than ever to have reliable sources of income. And it’s better when that income regularly grows to offset the effects of inflation.
The cherry on top is that these are the same companies that have the power to compound your wealth over the long haul.
Here at Intelligent Income Daily, we’re focused on finding the safest income investments on the market. And we use our decades of investing experience to find the best ones. So we’re not surprised by the results of the Hartford study at all…
Some of our favorite companies have steadily grown and rewarded shareholders for decades. They’ve been through it all – from stagflation and double-digit interest rates… to financial crises and recessions.
Today, I’ll show you how investing in companies that pay and grow their dividends is the best strategy I’ve found. I’ll also give you the names of three brand-new dividend paying companies that could provide reliable income for decades to come.
The Value of Dividends
Would you be willing to give up 44% of your investment returns? That’s what you’d be missing out on without dividends.
Over the past 30 years, the S&P 500 has provided a total return of 1,827%. But the trading value of the index has only increased by 1,018%. The rest came from dividends.
According to Fidelity Investments, since 1930, about 40% of the stock market returns came from dividends.
Of course, there were ups and downs… During the 2010s, dividends accounted for just 17% of the S&P 500’s total returns. That was an era of easy money and rapidly climbing stock prices.
But stock prices don’t always go up. The early 2000s, for example, were a period known as the “Lost Decade” for stocks. During those 10 years, the S&P 500 had an average return of -1% per year. But it wasn’t a lost decade for dividends. The market’s payouts increased by over 50% during that time.
Without those dividends, the S&P’s total returns during the Lost Decade would have been 2.5X worse.
Right now, we’re all trying to deal with higher inflation. Historically, in decades when inflation was high, the percentage of market returns coming from dividends jumps up to 54%.
So dividends are likely to play a more important role in keeping your retirement on track. And if you don’t have a good amount of exposure to the best dividend stocks out there, this is your sign to add some now.
Three Dividend Growth Stocks That Can Help Fund Your Nest Egg
As Hartford’s study proved, dividend growers and initiators give the best total returns. They beat the market by an average of 2.5% each year. And they do it with 12% lower volatility, meaning their stock prices don’t bounce around as much.
These companies have wide moats and seasoned management that have been through all kinds of economic environments. That’s especially important during recessions, when the last thing you want to see is your income stream take a hit.
With reliable dividend growers in your portfolio, you could effectively be getting a raise right when you need it most.
Some people may think investing for dividends means buying boring companies like utilities. But they’re so much more than that. Some of the best dividend growers include high-flying tech companies like Apple and Microsoft.
And this year, we’ve seen three more strong tech companies join the dividend-paying club:
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Meta Platforms (META) is the company behind Facebook, Instagram, and WhatsApp. This leader in artificial intelligence announced its first dividend in February. Right now, it yields 0.4%.
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Booking Holdings (BKNG) runs travel and reservation sites like Booking.com, Priceline, Agoda, KAYAK, and OpenTable. It also announced its first dividend in February and yields 1%.
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Salesforce (CRM) provides software that helps businesses improve relationships with their customers. It paid its first dividend in March and yields 0.6%.
Though their yields may be low right now, analysts expect all these companies to grow their earnings at a rapid pace. That will give them the financial strength to keep increasing their dividends. So in a few years, they could be giving you a much higher income.
We’ll still need to wait to see if they can establish yearslong dividend growth streaks… But as the latest blue-chip companies to start paying a dividend on my radar, these initiators are gearing up to deliver even higher total returns.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily