Dividend stocks are often an overlooked investment by many Main Street Americans. It isn’t hard to see why. A 3 percent yield on a $5,000 investment isn’t all that impressive, a mere $150 per year, or so. When you are thinking about turning a lifetime of 401k contributions into a retirement plan, that isn’t really the kind of number that gets your mind racing about possibilities.
However, the more investable assets you actually have, the more dividend stocks start to look interesting. Consider that many dividend stocks are fairly safe from anything but the most catastrophic downturns. Stocks like McDonalds, and Coca Cola, for example. Those stocks can, and will, trade up and down, but if you don’t really plan on selling them anytime soon, they are sort of like corporate bonds where if you hold them until retirement (or just several years) chances are you will at least get all of your original investment back.
What makes dividend stocks like Coca Cola so interesting in a growing portfolio is that they offer potential growth, plus the ability to outpace inflation, all while kicking off real income.
Asset Allocation and Dividend Stocks
As always, you shouldn’t be thinking about investing in individual stocks until your retirement accounts are fully funded based on your plan and investment allocation. In other words, if you aren’t dumping 10% to 15% into your 401k, stop fooling around with individual stocks and load up your long-term investments.
From an asset allocation standpoint, dividend stocks are often represented within the mutual fund and ETF world as “value stocks” even though that isn’t exactly accurate. (You can be a value stock without paying a dividend, for example.) There are some dividend focused mutual funds and ETFs out there of course. These are the best way to fill up any long-term, asset allocation needs.
Coca Cola Dividend
To invest in a dividend stock for its dividend, you need to do your research and feel comfortable in the long-term prospects of the company to at least stay even. That is, for a company like Coca Cola, you don’t need growth, but you don’t want to feel like there is a long-term decline coming in the company’s fortunes either. Short-term fluctuations, and even those over a few years, are immaterial if you are investing for the dividend, but the minimum goal is to at least get back your original investment. Of course, the better goal is to get some capital appreciation in addition to your dividends.
Now, to Coca Cola stock. Coca-Cola raised its quarterly dividend to 35 cents per share from 33 cents per share. The isn’t a lot, but the dividend was already pretty good, so this is extra icing. At the recent closing price of $43.49 that works out to about 3.2 percent annual yield.
My mouth starts to water at the idea of a good, strong company AND a 3+ percent dividend.
Now, Coca-Cola is no super-growth company. It’s stock chart basically moves sideways with a lot of bumps for the last two years. But, it’s five year chart shows some fun growth. Plus, it’s Coke, do you really think it’s going anywhere for the next decade?
We talked about Apple’s stock drifting down into 2% dividend territory. There is probably a lot more upside potential there over the next 5 to 7 years, but Coke has a 3% dividend. Maybe a mix?
It’s a fun time to be investing for the long-term in the stock market. While everyone else wrings their hands over volatility, Coke and Apple shareholders can bide their time and collect their dividends.
This is not an investment recommendation, nor an offer to buy or sell securities. This article if for general information only and is not financial or investing advice. Consult your financial and tax professionals for advice specific to your individual situation.