Do you have an active portfolio growing your net worth, boosting your nest egg, and preparing you for the retirement you deserve? The world of financial investment is full of lofty decisions to be made by individuals. If you’ve heard of dividends, you may know the term “drip stocks.” When it comes to your money, investment in drip stocks might be the reliable investment solution you’re looking to make.
A DRIP is a Dividend Reinvestment Plan, in which the dividends paid out from a stock is put back into the company paying out the dividend. Payments are used in purchasing more shares automatically. Companies that regularly issue quarterly dividends without interruption make excellent selections for a DRIP.
In the investment world, you may hear the terms to have “stocks drip.” This is merely referring to the optimal companies to invest in if you are focused on the dividend reinvestment strategy.
Why Dividend Investment?
Have you considered dividend investment lately? In a recent study conducted by Ned Davis Research, it was found that dividends that are growing in payout amounts have a higher rate of return than steady profits and no dividend stocks.
Now more than ever, collecting your dividends on a quarterly basis is less expected than ever before. Technology companies take a lot of the news cycle, and these companies are known for keeping profits as retained earnings for reinvestment into growth.
There are organizations out there, even if they are the companies you depend on for everyday items, which have issued dividends for 25 years straight. Money most often made in the stock market is steady money, made with safe business decisions.
In short, the benefits of divided investment include watching your money grow steadily, a relatively predictable rate of return, and selecting a non-volatile investment solution.
What Are Drip Stocks?
Individual companies are referred to as DRIP stocks because they are notorious for paying out dividends quarter after a quarter which encourages the growth of your money as it is reinvested more rapidly.
If one investor wants to enroll individuals into a DRIP within a company, they can do so through the organization. For example, Costco Wholesale Corporation has a DRIP that requires a minimum investment of one share and has a no-fee structure. Whether you go through a broker or financial advisor for drip stock price purchasing or join individual DRIPs for yourself, watch your money grow with dividends.
Who Should Invest in Drip Stocks?
The number one individual that should be investing in drip stocks is the person looking to build wealth. This consistent method of money growth gets put back into the market, quarter after quarter. For high wealth individuals, reinvesting a dividend into the company, again and again, is only expanding wealth. In a few years, a few thousand dollars potentially grow more than you’d think!
Consider investing in drip stocks if you want a low-risk investment with a decent return. While drip stocks are not a get-rich-quick solution, they do grow well.
Why Invest in Drip Stocks?
There are companies in the stock market known for being drip stocks. As mentioned, this designation is based on the historical allocation of dividends quarterly rather than keeping retained earnings. For an individual, a drip stock comes with benefits like:
- Accruing minimal fees during stock purchases because the transaction is automatic and usually doesn’t involve broker intervention.
- Companies with DRIPs often allow investors to purchase stocks at a discounted rate or make a payment to the company for the purchase of whole shares. This works well in a situation when your dividends pay a few dollars less than the cost of one stock. An individual can add a cash payment to the DRIP for the purchase of full shares.
- Enjoy the perks of being a shareholder of record. This helps you invest in companies that deserve your money. Once becoming a shareholder of record, reach out to the group for the specific DRIP enrollment.
- Most commonly there are no fees for participating in a dividend reinvestment plan. You may be asked to join with a minimum number of shares but not to pay taxes.
- Taxes on dividends are lower than the taxes on the capital gains you’d pay on trading shares as a listed shareholder of record.
Which Stocks are Best for Investing?
Once you’ve decided to invest in a drip stock, it takes time to determine what shares to buy. The companies are known for paying out dividends and at growing rates are lovingly referred to as dividend aristocrats.
For many investors, there are reasons to purchase well-known drip stocks but also companies they prefer. For example, if you are a Ford purchaser and feel loyal to this American brand, select Ford over General Motors if looking for an automotive drip stock.
- ExxonMobil: With the stock symbol XOM, ExxonMobil is the most significant oil company in the world and has a market cap of $367 billion. They are a dividend aristocrat able to give investors a respectable dividend yield of 3.7%.
- 3M Company: With the stock symbol MMM, the 3M company (known for your favorite Scotch Tape) has paid out a dividend for 98 years straight. Its dividend yield is a little bit below 3%. This innovative company sells over 19,000 products in the United States alone.
- Johnson & Johnson: With the stock symbol JNJ, the company you support through your Tylenol and Neutrogena purchases has been paying out for 53 years straight with annual hikes as well. The yield on JNJ is also just below 3%.
Focus on Growing Your Money
Look no further than drip stocks if you want your money to grow in the long-term. With the right research or a financial professional on your side, drip stocks help you gain wealth.
Every quarter, the dividends you earn get put back into the companies you own shares of, and your money grows gradually. One day, you’ll log in to your brokerage account and discover that your total number of shares is much higher than you’d realized!