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A Reliable Wealth-Building Dividend Strategy 10/22/15

A Reliable Wealth-Building Dividend Strategy

 

Some seemingly smart people are calling for a collapse of the dollar… and the markets with it.  Others are saying to ride the cycles… And still others say to fully commit as we are on the cusp of a historic bull market.

 

It’s hard to be rational in such an irrational environment. It’s not surprising that people are pulling out of the market. Yet, waiting on the sideline is rarely a worthwhile option.

 

An investor’s objective is to find a way to reliably compound wealth over the long term, which is not as difficult as it might seem.

 

Dividends are credited with contributing nearly a third of total equity returns since 1926. What’s more, they account for nearly half (46%) of the total return for the S&P 500 Index between 1989 and 2014.

 

With this in mind, it should come as no surprise that investing in America’s finest dividend-paying companies and sticking with them has provided inflation-beating returns over the long term.

 

To confront the concerns about entering a volatile market at what might turn out to be the wrong time, you might utilize a strategy of dollar-cost averaging into a diversified group of high-quality, dividend-paying companies. An easy way--and probably the best way--to implement this strategy would be to invest directly through company-sponsored dividend reinvestment plans (DRIPs).

          
DRIPs allow you to make (or set up a schedule for) dollar amount investments that go directly into your own account at the company transfer agent. Dividends can be automatically applied to that account to purchase additional shares. Shares are purchased on the next scheduled investment date.

 

Everyone using DRIPs to accumulate shares through dollar-cost averaging can appreciate the joy of watching their share count grow over time.

 

But did you realize that when you make your regular investments makes a difference in what you will eventually accumulate?

 

No, we're not talking about "market timing," which involves guessing when the price will be at a low point. We are talking about the "Extra Dividend Strategy," which can help you increase the amount of dividends that get reinvested each quarter.

 

While capturing the next dividend may seem like a minor concern. When you consider the implications over the long term, missing out on this strategy means that you lose in two ways:

 

First, the dividend that you would have earned will not be invested this quarter... and will not compound for the next 20, 30, or however many years you own the stock.

 

Second, if you set up a quarterly investment program on the wrong schedule, you'll miss out on that "extra" dividend each and every quarter, and each and every one of those "lost" dividends will also fail to compound over the life of your investment.

 

Let’s back up for a minute and define some terms:

 

What does the Ex-Dividend Date mean?


The Ex-Dividend Date is the day on which all shares bought no longer come with the right to be paid the most recently declared (next paid) dividend. It is important for investors, since you must own a stock beforethe ex-dividend date in order to receive the next scheduled dividend.

 

The ex-dividend date generally precedes the record date by two business days (to allow time for any transactions to settle).

 

What does the Record Date mean?


Shareholders whose ownership is properly registered on or before the Record Date will receive the dividend. Shareholders who are not registered as of this date will not receive the dividend.

 

For DRIP investors, the two key dates to focus on are the Ex-Dividend Date and the last DRIP purchase date (Next Investment Date) prior to the Ex-Dividend Date.  You can quickly get these dates by entering the ticker symbol of your favorite stocks into our handy Ex-Dividend Date Calculator.


For the past several months, we’ve featured companies that tend to raise their dividends on an annual basis. This achievement is testament to the company’s stability and value. And, by making regular quarterly investments into such companies just before the ex-dividend date you will routinely be adding extra amounts that will compound over the long term to enhance your returns.

 

There are currently more than 300 companies that have raised their dividend for at least five straight years and offer company-sponsored DRIPs. Below is a sampling of those with ex-dividend dates that are coming up soon. Should you decide to enroll in the company DRIP, keep in mind that it may take several weeks to complete the enrollment process. Click the company name for more information about the company and/or its DRIP.

 

Once your account has been established, you should set up a quarterly pattern of investing before the next ex-dividend date.  For instance, for a company with an ex-dividend date of Nov 15 and a next investment date of Nov 10, your schedule might be February 1, May 1, August 1, and November 1.

 

Company Name

Symbol

No. Yrs.

Div. Yield

MR% Inc.

LY Ex-Div

Ann. Div.

DGR 5-yr

* Tompkins Financial

TMP

28

3.15

5

10/31/14

1.68

5.6

* American Electric Power

AEP

5

3.73

6

11/6/14

2.12

4.4

* Parker-Hannifin

PH

59

2.59

31.25

11/6/14

2.52

15.7

Starbucks Corp.

SBUX

5

1.13

23.08

11/11/14

0.64

n/a

* Emerson Electric

EMR

58

4.26

9.3

11/12/14

1.88

5.8

Gorman-Rupp Company

GRC

42

1.67

11.11

11/12/14

0.4

7.4

* International Paper Co.

IP

5

4.23

14.29

11/13/14

1.6

34.6

Rockwell Automation Inc.

ROK

5

2.56

12.07

11/13/14

2.6

15.6

* AFLAC Inc.

AFL

32

2.68

5.41

11/17/14

1.56

5.7

* Snap-on Inc.

SNA

5

1.4

20.45

11/20/14

2.12

9

Hubbell Inc. B

HUB-B

7

2.64

12

11/25/14

2.24

8

Estee Lauder Companies

EL

5

1.19

20

11/25/14

0.96

25

McDonald's Corp.

MCD

39

3.45

4.94

11/26/14

3.4

9.9

Brown-Forman Class B

BF-B

31

1.3

8.62

12/2/14

1.26

9

* Lancaster Colony Corp.

LANC

52

1.89

4.55

12/4/14

1.84

9

Valspar Corp.

VAL

37

1.67

15.38

12/4/14

1.2

12.5

VF Corp.

VFC

42

1.88

21.9

12/5/14

1.28

13.3

Becton Dickinson & Co.

BDX

43

1.81

10.09

12/8/14

2.4

11.1

Johnson Controls Inc.

JCI

5

2.51

18.18

12/10/14

1.04

11.1

Automated Data Proc.

ADP

40

2.44

16.27

12/10/14

1.96

7.9

Eastman Chemical Co.

EMN

5

2.47

14.29

12/11/14

1.6

9.7

Nike Inc.

NKE

13

0.91

16.67

12/11/14

1.12

13.5

* Ecolab Inc.

ECL

23

1.2

20

12/12/14

1.32

14.5

* South Jersey Industries

SJI

16

3.98

6.35

12/18/14

1.01

9.7

* Toro Company

TTC

6

1.42

25

12/19/14

1

21.7

* Dow Chemical

DOW

5

3.96

13.51

12/26/14

1.68

10.4

 

*=Companies that do not charge fees for investing (or reinvesting dividends) through their DRIP.
No. Yrs=Consecutive years of higher dividends; MR%Inc=Most Recent % increase; LY Ex-Div=Last year ex-dividend dates; Ann Div=Annual dividend; DGR=Dividend Growth Rate.

 

Here is a complete list of all U.S. companies that offer "No Fee DRIPs." (Use the ex-dividend calculator to determine the best time to make your regular investments.)