I firmly believe that today’s best investment for tomorrow is a focus on that old stalwart of long-term investing: dividend stocks.
Don Schreiber over at Financial Advisor appears to agree, and gave some key data points that show not only the benefits of dividend investing, but just how good we as income investors have had it over the past few years:
- From 1947 to 2011, the inflation rate as measured by the Consumer Price Index (CPI) was 3.95%. The average dividend increase in the Dow Jones Industrial Average of 6.29% over the same period more than offset the level of inflation.
- Dow Jones Industrial Average, S&P 500 Index and Nasdaq companies have increased dividends annually by an average of 7.07%, 5.46% and 45.38%, respectively, in the past decade.
And here are a couple other points I’ve scrounged up that should really warm your cash-loving hearts:
- Nearly $1 trillion in cash and equivalents sits on the books of S&P 500 companies today.
- The S&P dividend payout ratio today stands at around 30% of earnings — well below the 48% found in the 1990s and the historical 54% rate.
So what do all those figures mean for you and me?
Again, that dividend investing is in our best interests, and that the kitty should only get prettier as the years go buy.
Tactically, however, while we obviously should make sure we’re entrenched in already high-yielding names, we also should consider some less flashy dividend payers that have the potential — thanks to piles of cash, steady cash flow and low payout ratios — to sweeten the pot down the road. Not to mention the possible impetus for doing so.
With that in mind, here are three dividend stocks I believe will pay off in the long term as you usher in this “golden age” of dividend investing:
Dividend Yield: 1.2%
Disney (NYSE:DIS) has been hitting on all cylinders for years now. And that’s a lot of cylinders. We’re talking theme parks, cruise liners, the ABC family of networks (which includes ESPN), movie and TV content — think Pixar, Marvel and LucasFilms — and of course the licensing rights to its huge stable of characters.
All of that has helped fill the vault — in the past four years, Disney’s cash and short-term equivalent balances at year-end have never dropped below $5.4 billion (2010), and its free cash flow never dropped below $5 billion (2009). Needless to say, DIS has plenty in the coffers to throw at shareholders.
Last November, I highlighted a nice 25% hike in Disney’s annual dividend. That latest payout stood at 75 cents, representing a 114% dividend boost in just five years! And DIS isn’t even making a dent with that payout, only shelling out 20% of its earnings in dividends.
While it’s not a discount, and probably won’t be for some time at this rate, InvestorPlace’s Lawrence Meyers loves it for his retirement IRA, and so do I.
Dividend Yield: 0.7%
Oracle (NASDAQ:ORCL), which is a more recent entry into dividend-paying status, also can be a long-term player in the Golden Age of Dividends.
Oracle finally joined technology compatriots like Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC) in making regular payouts back in October 2009. It has quickly added to its initial 5-cent payout, currently doling out 18 cents per share.
The developer and manufacturer of enterprise software hardware and storage products is coming off a bit of a quarterly stumble, having missed analysts’ top and bottom line numbers in its fiscal third quarter, with revenues of $9 billion and earnings of $2.5 billion both in the ballpark of the year-ago figures. (And both would’ve been marginally higher had it not been for a strengthening U.S. dollar.)