Several months ago, I opened an account with Loyal3, which is a commission free stock brokerage. The nice part about this brokerage was that one could buy shares in companies with as little as $10 per transaction, and not pay any commissions. In addition, one can use a credit card to purchase shares in some of America’s greatest brands. The issue was that there are only 50 or so companies that are available to be purchased directly using Loyal3. On the bright side however, there are several world-class dividend champions, which are core holdings for many dividend growth investors. Those strong brands will likely grow dividends and enhance shareholder value for decades to come.
Once I signed up for the service, I decided to put about $50/month in several of those companies, which had increased dividends for a set number of years and met some basic valuation guidelines. The appeal of not paying commissions, and obtaining a 1% credit card rebate was attractive. For one of the companies, Target (TGT), I put more than $50 using Loyal3. For a few others, I played around and increased or decreased contributions. In one case, I stopped contributions to Wal-Mart Stores (WMT) after they announced the lowest dividend increase in their history. Currently, I am putting $50/month in the following companies:
The Coca-Cola Company (KO), a beverage company, engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide. This dividend champion has consistently raised distributions for 52 years in a row. Over the past decade, the company as managed to boost dividends by 9.80%/year. Currently, the stock is trading at 19.50 times forward earnings and yields 3%. Check my analysis of Coca-Cola for more details.
Dr Pepper Snapple Group, Inc. (DPS) operates as a brand owner, manufacturer, and distributor of non-alcoholic beverages in the United States, Canada, Mexico, and the Caribbean. This dividend stock initiated dividends in 2009 and has been raising them annually ever since. Currently, the stock is trading at 16.70 times forward earnings and yields 2.80%. Check my analysis of Dr Pepper for more details.
Kellogg Company (K), together with its subsidiaries, manufactures and markets ready-to-eat cereal and convenience food products primarily in North America, Europe, Latin America, and the Asia Pacific. This dividend stock has managed to raise distributions for ten years in a row. Over the past decade, the company has managed to boost dividends by 5.90%/year. Currently, the stock is trading at 17.30 times forward earnings and yields 2.70%. Check my analysis of Kellogg for more details.
McDonald'’s Corporation (MCD) franchises and operates McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. This dividend champion has consistently raised distributions for 38 years in a row. Over the past decade, it has managed to boost dividends by 22.80%/year. Currently, the stock is trading at 17.80 times forward earnings and yields 3.20%. Check my analysis of McDonald's for more details.
PepsiCo, Inc. (PEP) operates as a food and beverage company worldwide. This dividend champion has consistently raised distributions for 42 years in a row. Over the past decade, it has managed to boost dividends by 13.70%/year. Currently, the stock is trading at 19.30 times forward earnings and yields 3%. Check my analysis of PepsiCo for more details.
Target Corporation (TGT) operates general merchandise stores in the United States. This dividend champion has consistently raised distributions for 46 years in a row. Over the past decade, it has managed to boost dividends by 19.80%/year. Currently, the stock is trading at 15.50 times forward earnings and yields 3%. Check my analysis of Target for more details.
Unilever PLC (UL) operates as a fast-moving consumer goods company in Asia, Africa, the Middle East, Turkey, Europe, and the Americas. This international dividend achiever has consistently raised distributions for over 19 years in a row. Over the past decade, Unilever has managed to boost dividends by 9.90%/year. Currently, the stock is trading at 19.90 times forward earnings and yields 3.50%. Check my analysis of Unilever for more details.
If any of those companies sell for more than 20 times forward earnings 1 - 2 days prior to purchase date, I would cancel the recurring transaction however. Several of the companies on that list are interesting, but I would only consider them at better valuations. Hershey (HSY), Yum! Brands (YUM) and Starbucks (SBUX) are examples of such ideas.
I view this as an experiment than anything else. If you put $50/month in several individual dividend paying stocks, and you do this for a long period of time, you could end up with a lot of money in the future. This mass of enterprises could deliver tens of thousands of dollars in annual dividend income decades down the road. The only things you need to do is make sure to not overpay, diversify and then let the capital compound over long periods of time. If you think that $400 is nothing, you definitely need to spend more time learning about investments, time value of money, and the power of compounding. There are plenty of examples of successful dividend investors, who have turned small amounts of capital into multi-million dollar bequests to their favorite charities after their death. Therefore, do not despise the days of small beginnings.
The one thing that surprised me is how effortless automatic dividend investment could be. Over the course of 5 – 6 months, regularly putting money in several companies has resulted in a balance of several thousand dollars without much effort. The annual dividend income from this portfolio is now in the hundreds of dollars per year. This income will keep increasing over the next 30 – 40 years. This growth would be further compounded by selective dividend reinvestment.
The other lesson to learn is to start investing as early as possible, and try to put as much capital to work as possible. Consumption today is expensive from the lens of what the capital could generate if you let it compound for 30 – 40 years. For those who say that they do not have money to invest today, there is no absolutely no excuse to avoid investing, given that Loyal3 allows commission free investing with as little as $10.
Full Disclosure: Long KO, DPS, K, MCD, PEP, TGT, UL, WMT, YUM and short HSY puts
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- The Most Successful Dividend Investors of all time
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