It is never too early, and no one is too young, to begin investing. I know, since 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 . And each day I would check the stock prices, which way back then 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 today, so my choices were more about what to buy and own. That meant that I had to have a high level of confidence to overcome the costs of buying and selling.
Why Dividends Are Important
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 through to today, as I remain firmly in favor of focusing on stocks that pay you (and pay you well) through good and rising dividend distributions.
This is an important lesson for young and older investors alike. 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 Index over the trailing 20 years.
The Index gained in price by 122.3%, but with dividends the return swells to 226.3%, which is 85% more than the price movement alone.
S&P 500 Index Total Return Source 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 younger investors, remember, it’s not just about dividends. It’s also about learning more about 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, you will learn more about how business works.
I’ve put together a small collection of five stocks that pay dividends that range from close to the average of the S&P 500 Index to quite a bit more. They are in varied segments ranging from industrial and consumer products, technology, utilities, real estate investment trusts (REITs) and the energy market.
Dividend Stocks to Own
Compass Diversified Holdings Total Return Source Bloomberg
I start with Compass Diversified Holdings (NYSE:). This is a holding company which owns a collection of industrial and consumer products companies which it buys, owns and sometimes sells. And along the way, the company collects lots of cashflows from its underlying companies. It in turn pays a lion’s share of the profits in the form of a big dividend — currently yielding 7.6%.
Hercules Capital Total Return Source Bloomberg
Next is Hercules Capital (NYSE:). This is a Silicon-Valley-headquartered company which seeks out new and developing technology companies in its neighborhood and beyond. It works to finance their developments and takes equity participation, 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 9.9%.
Kinder Morgan Total Return Source Bloomberg
Let’s move on to the energy market — in the reliable dividend-paying segment of oil and gas pipelines — with Kinder Morgan (NYSE:). Kinder Morgan owns and operates a massive network of pipeline 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, and in turn pays a dividend yielding 4.9%.
NextEra Energy Total Return Source Bloomberg
Next is one of the most impressive of U.S. power utility provides — NextEra Energy (NYSE:). This company provides regulated power to customers in Florida. It also provides unregulated wind and solar generated power throughout North America and beyond. This combination of reliable cashflows from its regulated business and growth from the unregulated wind and solar has been generating ample growth in the stock price, along with a modest dividend yielding 2.4%.
American Campus Communities Total Return Source Bloomberg
Last up is a favorite REIT that owns and manages college campus facilities and dorms around the U.S. American Campus Communities (NYSE:) is the leading publicly traded college dorm REIT in the U.S. And it continues to be a very reliable source for dividend income and growth in the underlying property values. It yields 4% with a dividend payment that continues to rise by an average of 4.85% per year over the past five years.
These have been some of my favorite dividend stocks. Perhaps next you might like to see more of my market research and recommendations. For more, check out my Profitable Investing.
Neil George is the editor of and does not have any holdings in the securities mentioned above.
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