Dividend Achievers are a great place for investors to start. They have a history of rewarding shareholders with a growing pile of cold, hard cash.
They have paid growing dividends over the last 10 years. That’s the minimum to make the list… but many companies blow that out of the water. General Mills, for example, has paid a dividend every year since 1928.
This consistency makes them a great play for income investors. That’s why I start my research with Dividend Achievers.
I’ve dedicated thousands of hours to uncovering the top dividend stocks. The strategy I use is a time-tested masterpiece. I’ve traded commodities, options and cryptocurrencies… but nothing compares to dividend investing.
A high quality dividend portfolio requires little work. You can sit back and collect big payouts. You’ll also pay less in taxes.
“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” – John D. Rockefeller
You’ve landed in the right spot to learn how to maximize your income. Below, I’ll show you why smart investors stick to dividend stocks.
Once you’ve uncovered this life-changing strategy, I’ll show you some of the best Dividend Achievers in the market.
Without further ado, let’s jump in…
Why Dividend Stocks Dominate
Some people believe that the stock market is a zero sum game…
In the short-term, that’s true. Anytime you buy or sell a stock, someone is on the other end of the trade. For every winner, there’s a loser. Although, short-term trading is even worse than zero sum. It’s a losing game after factoring in trading fees and taxes.
In the long-term, the stock market is not a zero sum game. Businesses that return profits to shareholders break the mold.
Here are a few examples…
- Wal-Mart: One share in 1990 cost about $4 and investors have collected $20.93 in dividends.
- Coca-Cola: One share in 1990 cost less than $3 and investors have collected $17.90 in dividends.
- Exxon Mobil: One share in 1990 cost about $5 and investors have collected $39.06 in dividends.
Investors that bought quality dividend stocks in the early 90s have collected more than their initial investment in dividends.
Dividend investors walk away with cold, hard cash. They can also realize big capital gains when selling their shares down the road. Shares of Wal-Mart, Microsoft and Exxon are all up over 600%.
Dividends play a sizable role in the total stock market returns. The chart below shows dividends’ contribution to total return by decade.
Dividends play a large role in total stock market returns. That’s one reason dividend investing dominates other strategies. And the best part is that anyone can grab a piece of the pie…
Level Playing Field to Automate Big Income
Investing isn’t only for the super-rich anymore.
Anyone with a few hundred dollars can generate the same percentage gains as Bill Gates. When you buy a share of Microsoft, you become a co-owner with Bill. He might have a few million shares more than you… but if they’re up 7% for the year, your one share will be up 7% too.
Technology has leveled the playing field. You can find apps like Robinhood that let you invest free of charge.
Setting up an investing account is as easy as setting up a bank account. Anyone can start and investing in dividend stocks is a hands-free approach. That’s hard to find in some other popular income investments like real-estate. A dividend portfolio doesn’t have 2 AM maintenance and repair calls.
Once you’ve filled your portfolio with blue-chip dividend stocks, you can sit back and relax. Brokers collect the dividends automatically for you.
You can use your steady stream of dividends to live off… or reinvest to compound your returns.
Reinvest to Boost Dividend Returns
Many brokers allow you to reinvest dividends automatically. It’s called a dividend reinvestment plan (DRIP).
When you reinvest your income, you supercharge your returns in the following years. The chart below is from the Hartford Funds and it shows the powerful strategy.
It’s a long-term approach but your returns compound. If you don’t need the income in the short-term, it pays to put it back to work.
Pay Less in Taxes
Uncle Sam taxes dividend income at a lower rate than regular income.
If your only income is from long-term dividends, you can collect $38,600 a year and pay zero in taxes. That compares to paying $4,441 if you earned the same amount working a regular job.
(This is a simple case and there’s a lot to consider with taxes…. every tax situation is unique.)
Here’s a breakdown of capital gains tax rates for single filers…
The long-term dividend tax rate maxes out at 20%. That’s much better than the regular income rate at 37%.
Investors should compare returns on an after-tax basis. There’s no need to pay the government any more than you’re legally required to pay. And you can plan for taxes in advance…
“Nothing is certain except death and taxes.” – Benjamin Franklin
Dividends simply dominate on an after-tax basis. The benefits are big and picking the right stocks is the next step.
Starting Point to Finding Top Dividend Stocks
You can invest in Dividend Achievers with funds like Invesco Dividend Achievers™ ETF (PFM). Although, there are two downsides to this approach…
First, you’ll pay a fund fee (≈0.5%). This reduces total returns over time. The second is the blanket approach.
PFM tracks all of the Achievers and market cap weights them. So the fund pays a premium for overvalued stocks and gives them a higher weighting.
To overcome these downsides, I use the Dividend Achievers list as a starting point. I then find which stocks are undervalued and invest in them directly.
The key is finding which stocks trade at the good values. You can have an outstanding business but paying too much for it is a losing game.
Here’s a powerful value quote from Warren Buffett…
“Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” – Warren Buffett
I use a similar value investing approach to Buffett. I’ve listed some of the metrics I look at below…
- Dividend Yield: It’s good to compare the current yield to its historical average. A higher current yield might indicate a better investing opportunity.
- Payout Ratio: The payout ratio helps determine if dividends are sustainable. This ratio normally uses net income but I swap it out with free cash flow (FCF). It’s a better indicator of money flowing into the business.
- Sales: Is the business growing or shrinking? Is it just a cyclical downturn? Improving sales and the operational efficiency is a sign of dividend safety.
- EV/EBITDA: This metric is an improved version of the popular price-to-earnings ratio. A lower number here can show a better value investing opportunity.
- Shares Outstanding: An increase in shares outstanding can show ownership dilution. Buybacks, on the other hand, will generally improve existing shareholder ownership.
- Debt Level: Some companies operate more efficiently with higher levels of debt. It’s important to compare a company’s debt level to its peers.
These metrics are the tip of the iceberg when I research a company. It takes a good deal of research before I buy any stock.
Best Dividend Achievers List
As the market moves, companies become under and overvalued. After a 10-year bull market, it’s hard to find worthwhile investments.
In the last few months I’ve only added one new dividend stock to my portfolio. You can find a short write up with the link below…
After the next downturn, you’ll find a larger list on this page.
You can find my recent income and investing research by clicking here.