Recently my younger brother asked for some help getting started with dividend growth investing. He’s just starting out college and had some decent savings that he thought he could use to buy a few companies.
I started out by making sure he understood that this is not a get rich quick plan. Investing a few thousand dollars won’t allow you to start living the good life anytime soon. However, he can lay a solid foundation to build upon through the years that will allow him to one day live comfortably and financially free.
Good Stocks to Start Your Portfolio With
With a few thousand dollars ready to invest, I decided to pick 6 companies that I thought would make a good foundation for his investing lifetime. These are companies that I believe one can purchase to start their portfolio and will continue to purchase throughout their lifetime. All 6 of these companies have multiple decades worth of dividend growth. I have no reason to doubt that any of these companies won’t continue to increase their dividend payments to shareholders long into the future.
What I was looking for to start my brother’s portfolio were companies with long histories of earnings and dividend growth. Companies that are able to consistently grow their earnings year after year are the best types of companies to own. Following are the companies I chose for him:
- The Coca-Cola Company (KO) – Coca-Cola sells those drinks that almost everyone around the world loves to drink. Coca-Cola, Sprite, Diet Coke, Fanta, Dasani water, Powerade, VitaminWater and Minute Maid juices are just a few of their world famous brands. Over the past decade, KO has grown their EPS (earnings per share) every year except one. The 10 year compounded annual growth rate (CAGR) for Coca-Cola’s EPS was 9.03%. The 10 year CAGR for dividends was 9.79%. Coca-Cola Company has a dividend growth streak that goes back 51 years. You can read about my latest Coca-Cola purchase here. You can read my recent stock analysis of Coca-Cola here. Coca-Cola is the world’s leading beverage company and one of the most stable blue chip stocks for investors to own. This is exactly the type of stable company I’d like my brother to get his first experiences of investing with.
- Procter & Gamble (PG) – Procter & Gamble is a consumer goods company that sells products worldwide. They have 25 brands that each generate more than $1 billion in annual revenues. Brands such as Pampers and Luvs diapers, Charmin toilet paper, Bounty paper towels, Tide laundry detergent, Head & Shoulders shampoo, Nyquil cough medicine and many many more. PG has been growing dividends for 57 consecutive years. They have a 10 year CAGR for EPS of 7.9%. They have a 10 year CAGR for dividends of 11.38%. This is another solid blue chip company with a long history of earnings and dividend growth that would make a great first stock to own for any beginning investor.
- McDonald’s Corp. (MCD) – McDonald’s is a fast food giant operating and franchising hamburger restaurants throughout the world. Kids love their Happy Meals and adults love their Big Mac’s. Over the past decade, McDonald’s has grown their EPS every single year. That’s right! Not a single down year in the past decade for McDonald’s earnings per share. McDonald’s has also grown their dividend for 36 straight years. MCD has a 10 year CAGR for EPS of 15.04%. They have a 10 year CAGR for dividends of 22.64%. McDonald’s is one of those companies that should be a staple in most dividend growth portfolios.
- Wal-Mart Stores (WMT) – Wal-Mart is the world’s largest retailer operating both grocery and discount retail stores. They have stores throughout the United States as well as Canada, Asia, Latin America and the U.K. Wal-Mart has been paying out annually increasing dividends to shareholders for 39 years. Wal-Mart has a 10 year CAGR for EPS of 10.74%. They have a 10 year CAGR for dividends of 17.97%. While Wal-Mart may have many haters, the financial statements show that they also have many people spending their hard earned money in their stores.
- Aflac (AFL) - Aflac is the world’s largest underwriter of supplemental cancer insurance. They also sell life and health insurance. Aflac does most of it’s business in Japan but also sells insurance products in the United States. Aflac has increased their dividend annually for 30 years. Aflac has a 10 year CAGR for EPS of 14.15%. Aflac has a 10 year CAGR for dividends of 16.65%. Aflac made this list because right now I believe it is trading at one of the best valuations available (P/E ratio currently near 8) out of all solid dividend growth companies. Also Aflac’s historical performance has been phenomenal. This is one of those companies that is often overlooked but has turned itself into one of the top dividend growth stocks in my opinion.
- Chevron Corp. (CVX) - Chevron is the world’s fourth largest oil company. I believe every diversified dividend growth portfolio should have some exposure to the oil company industry and Chevron is a good choice. Chevron has been paying increasing dividends for 26 consecutive years. They have very strong growth in earnings and the dividend rate. Oil companies are cyclical so there will be some down years but overall I feel the trend is up. I chose Chevron for my brothers portfolio because it has a good current valuation (P/E of around 10) and a solid dividend yield of 3.35% (compared to ExxonMobil’s yield of 2.85%).
These were the picks for my brother’s beginning portfolio. These 6 great companies will create a solid foundation for my brother to start his investing journey.
The first 4 companies were chosen because they are some of the world’s strongest companies with a long history of earnings and dividend growth. These are the types of companies investors should want to own their entire lifetimes. While I generally look for lower valuations when making stock buys, these 4 companies should be considered even at fair or slightly higher valuations. Over the long term the investor will do just fine.
The last 2 companies I chose because they are trading at very good valuations now. They are solid companies that will do well in any long term portfolio. Based on current valuations I believe the investor buying shares in these 2 companies is getting a pretty decent deal. He is getting 2 wonderful companies at very good prices.
Build Your Foundation
What I set out to do when helping my brother create his beginning portfolio is to lay a strong foundation that he can build upon in the future. We were looking for stable, strong, solid, safe companies that will perform well over time. These companies most likely won’t make him short term riches. But by laying this foundation and building upon it over time he has the ability to set himself up for a bright financial future.
With this strong foundation, he can gradually expand into even more great dividend growth companies while continuing to pick up more shares of these companies through his lifetime.
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