We investors sure do make things difficult for ourselves. In the pursuit of market-crushing results we either get caught up in a wild guessing game as we try to time the market or seek out lottery-ticket investments sure to make us millionaires overnight -- or at least in the span of a couple of months. We jump onto momentum plays just as they peak and then lock in our losses a week before the stock rebounds. We spend the majority of earnings season clutching bottles of antacids as we pray that our stocks lived up to analysts' estimates. It's enough to make us wonder whether perhaps we wouldn't be better off keeping our money in a collection of coffee cans buried under the shed.
It's a shame, because it doesn't have to be this way. History has shown time and time again that an easy way to boost your returns is to pack your portfolio with high-quality dividends. They won't make you a millionaire overnight, but if you sign up for an automatic reinvestment plan and give them time, all those tiny checks can grow into seriously large returns.
Take two and call me in 30 years
One stock I want to look at is Johnson & Johnson (NYS: JNJ) . Consumers know the company best as the maker of Tylenol and Band-Aids, but consumer goods made up less than a quarter of its revenue last year. It derives the rest from pharmaceuticals and medical devices. This diversification provides a degree of stability to the J&J's earnings and has helped it reward investors with 49 years of consecutive dividend increases.
Now let's say you bought shares of J&J 30 years ago and did nothing else. Here's how you would have fared with and without reinvesting your dividends.
30-Year Return With Dividend Reinvestment
Return on Shares Without Dividend Reinvestment
Source: Yahoo! Finance.
That's not too shabby considering that it required absolutely no work after the initial purchase. And the truth is, Johnson & Johnson is still a great investment. It pays a generous 3.5% dividend yield, and thanks to a series of recalls over the past year and a half, the stock is trading at an attractive price.
Another reason I like investing in high-quality dividends is that you can find them fairly easily. Lots of companies you know well pay hefty yields and should continue to do so in the future. I have four such stocks on my watchlist.
PepsiCo (NYS: PEP) pays a yield of 3.1% and has an earnings payout ratio of 50%. I'm watching the stock because Frito-Lay's collection of brands dominates the snack category. Also, Pepsi's direct-to-store delivery system keeps competitors off the shelves.
Although Intel (NAS: INTC) has fallen behind in the mobile market, the company still has plenty of growth opportunities in emerging markets as well as in the buildout of cloud-computing infrastructure. It yields 3.5% -- a huge dividend for a tech stock -- and pays out only 32% of its earnings.
Philip Morris International (NYS: PM) is my current favorite tobacco stock. It focuses exclusively on international sales, and including Marlboro, it owns seven of the top-selling international cigarette brands. That, along with its 3.9% yield, makes me feel quite comfortable.
Lastly, even in a lousy housing market, the residential remodeling index continues to rise, which has pushed up Home Depot's (NYS: HD) comparable-store sales. I don't think the Internet will steal much business from hardware retailers.
Although I don't believe there are any true "set and forget" stocks, these five companies come as close as you can expect, which is why I consider them all candidates for my portfolio. If I decide to pull the trigger on any of them, I'll be sure to let you know. In the meantime, if you'd like more investing ideas, then you should check out the special report "Secure Your Future With 11 Rock-Solid Dividend Stocks." It's absolutely free, so download it today.
At the time thisarticle was published The Motley Fool owns shares of Johnson & Johnson, Intel, Philip Morris International, and PepsiCo, and has bought calls on Intel.Motley Fool newsletter serviceshave recommended buying shares of Johnson & Johnson, PepsiCo, Home Depot, Intel, and Philip Morris International, as well as creating diagonal call positions on PepsiCo and Johnson & Johnson and a bull call spread position in Intel. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors.Fool contributorPatrick Martinshares of Philip Morris International. You can follow him on Twitter, where he goes by @TMFpcmart03. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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