5 Ideal Dividend Stocks for New Investors

The best dividend stocks combine price appreciation and cash returns

7 Top-Tier Dividend Stocks for 2020

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It is never too early or too late, and no one is too young to begin investing. I know this as I began to learn as a small child. I started by learning the basics of how companies issue stock and how stocks are bought and sold on the exchanges. And my learning commenced with building a model portfolio that I would paper trade. And each day I would check the stock prices which way back when were still listed in the daily papers.

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 as my stocks’ prices would rise and fall day by day.

Back then, commissions were a lot steeper than the discounted and even free rates of today. So, my choices were more about buying and owning, which meant that I had to have a high level of confidence to overcome the costs of buying and selling.

I would later come to appreciate the power of dividends which worked to bolster my portfolio as they were credited to my account. And this continues today as I remain firmly in favor of focusing on stocks that pay you — and pay you well through good and rising dividend distributions.

Why Dividends Matter

This is an important lesson for young and older 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 over the trailing 20 years.

The index gained in price by 150.4%, but with dividends the return swells to 269.3%. That is 79% more than the price movement alone.

Source: Chart by Bloomberg

That’s a big premium over just investing for price growth. And those dividends worked to cushion returns during bear markets over those same 20 years.

For beginner investors, it’s not just about dividends. It’s also about learning to understand the underlying businesses of the companies behind the stocks. By investing in the right dividend-paying stocks that also are in distinct industries and markets, beginner investors will learn more about how business works.

I’ve put together a small collection of five stocks that pay dividends. And they are in varied segments ranging from industrial and consumer products, to technology, utilities, real estate investment trusts (REITs) and the energy market.

Dividend Stocks: Compass Diversified Holdings (CODI)

Source: Chart by Bloomberg

Compass Diversified Holdings Total Return

Dividend Yield: 6.4%

I start with Compass Diversified Holdings (NYSE:CODI). This is a holding company which owns a collection of industrial and consumer products companies. And along the way, Compass collects lots of cash flows from its underlying companies. It then in turn pays out a lion’s share of the profits in the form of its dividend, currently yielding 6.4%.

Hercules Capital (HTGC)

Source: Chart by Bloomberg

Hercules Capital Total Return

Dividend Yield: 8.4%

Next is Hercules Capital (NYSE:HTGC). This is a Silicon Valley-headquartered company which seeks out new and developing technology companies in its neighborhood and beyond. It then works to finance their developments and takes equity participation. Hercules then provides guidance in their development including eventual exit strategies through company sales and initial public offerings (IPOs). It too pays a bigger dividend which currently yields 8.4%.

Kinder Morgan (KMI)

Source: Chart by Bloomberg

Kinder Morgan Total Return

Dividend Yield: 4.6%

Then on to the energy market — and particularly its reliable, dividend-paying segment of oil and gas pipelines. There we find Kinder Morgan (NYSE:KMI). Kinder Morgan owns and operates a massive network of pipelines and related oil and gas infrastructure that is crucial to the growing petroleum industry in the U.S. It generates an increasing amount of revenues and profits, which in turn it uses to pay its 4.6% dividend.

NextEra Energy (NEE)

Source: Chart by Bloomberg

NextEra Energy Total Return

Dividend Yield: 2%

Next is one of the most impressive U.S. utility providers, NextEra Energy (NYSE:NEE). This company provides regulated power to customers in Florida. And it also provides unregulated wind and solar-generated power throughout North America and beyond. This combination of reliable cash flows from its regulated business and growth from the unregulated business has been generating ample gains in the stock price. It also brings a modest dividend yielding 2%.

American Campus Communities (ACC)

Source: Chart by Bloomberg

American Campus Communities Total Return

Dividend Yield: 3.9%

Last up is one of my favorite REITs that owns and manages college campus facilities and dorms around the U.S. American Campus Communities (NYSE:ACC) is the leading publicly traded college dorm REIT in the U.S. This should be easily understood by younger investors. And it continues to be a very reliable source for dividend income and growth in the underlying property values. It yields 3.9% with a dividend payment that continues to rise by an average of 4.3% per year over the past five years.

Neil George was once an all-star bond trader, but now he works morning and night to steer readers away from traps — and into safe, top-performing income investments. Neil’s new income program is a cash-generating machine … one that can help you collect $208 every day the market’s open. Neil does not have any holdings in the securities mentioned above.


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