Editor's note: It's hard to find safe, steady income today. But that's where our friend and colleague Doc Eifrig comes in. Doc scours every corner of the market for the safest ways to generate income. This week, we're sharing some of his top ideas. Today, we're starting with the world's safest stocks…
If paying real cash to shareholders repeatedly is the sign of a strong business, paying more and more cash each year is perhaps the strongest sign of all…
Stock prices may go up or down. But if you invest in a special type of dividend stock, the income streams only go in one direction: up. And they go up year after year, no matter what crisis the news is talking about this week.
So… How do you find these stocks?
Luckily, all it takes is the simple click of a mouse. Below, I'll show you a simple dividend-investing shortcut that will help you find the world's greatest dividend stocks…
Let's get started…
Financial-services and research giant Standard and Poor's (S&P) maintains an index of companies that have not only paid consistent dividends but have also increased their dividend payment each year for the past 25 years. They are called the "Dividend Aristocrats."
For investors who reinvest dividends, the effect of growing dividends is even stronger. You are taking dividends to buy more shares of a company that is constantly paying bigger dividends… with which you can then buy even more shares.
As a result, the index outperforms the market handily…
All of the 52 Dividend Aristocrats are large and well-established members of the S&P 500, with average market caps of more than $60 billion. The index includes many names you may know from your daily life, like food company Hormel Foods (HRL), spice maker McCormick (MKC), and toolmaker Stanley Black & Decker (SWK).
You can gain quick exposure to all of the Dividend Aristocrats by purchasing the ProShares S&P 500 Dividend Aristocrats Fund (NOBL). The fund has low turnover, a relatively low expense ratio of around 0.35%, and currently yields about 1.5%.
If you're looking for individual stock ideas, the list of Dividend Aristocrats is a great place to start. While S&P itself won't give you the full list (it wants you to pay for it), the ProShares fund has to disclose all of its holdings. So you can find the current Dividend Aristocrats right here.
S&P also tracks a more aggressive index called the "High-Yield Dividend Aristocrats." This list tracks stocks that have raised their dividends for at least 20 years, and it expands its pool to include smaller companies that are in the S&P 1500.
That means the average market cap drops to around $40 billion, with some as small as $2.3 billion. You can use the SPDR S&P Dividend Fund (SDY) to invest in these stocks with a 0.35% expense ratio. With smaller stocks in play, this fund is riskier than the traditional Dividend Aristocrat fund, but it pays a higher yield at 2%.
Collecting dividends should be a central feature of your investment philosophy. Understanding how they work and how to evaluate them is the first step to becoming a successful investor.
If you're looking for a one-stop shop when it comes to dividend investing, the funds I mentioned above are a great place to start. And simply taking a look at their holdings is the ultimate "cheat sheet" for discovering the best dividend stocks in the world.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Editor's note: Dividend stocks are a great option for income investors. But Doc is even more bullish on another area of the market that sports yields of 8% or more. Learn more about this incredible, little-known opportunity by clicking here.