Creating a Lot of Wealth the Safer Way
On the continuing theme of blue chip investing and saving for retirement, I want to highlight a couple of dividend paying stocks that I think are worth considering in any savings plan that has an equity component. Mutual funds are useful tools and so are exchange-traded funds (ETFs). Both give you the ability to diversify your holdings and save for retirement passively. But, as part of an overall strategy, I do think it’s wise to consider building long-term positions in select dividend paying stocks, and employ dividend reinvestment to build your wealth.
One blue chip that’s been a real standout in terms of its wealth generation for shareholders is International Business Machines Corporation (NYSE/IBM), otherwise referred to as IBM. Especially over the last 20 years, IBM has made a ton of money for its shareholders. It’s done so fairly consistently and hasn’t fallen as much as the stock market during corrections.
This blue chip (pardon the pun; IBM is often referred to as “big blue”) hasn’t had the biggest dividend yield in the marketplace, but even over the last two and a half years, the company’s dividend per share has grown to $0.85 from $0.55 on a quarterly basis. That’s significant and, if you were to enroll in the company’s dividend reinvestment program, you’d amplify your returns by quite a bit.
Another blue chip that has proven to generate a lot of wealth for blue chip investors is Colgate-Palmolive Company (NYSE/CL). You might never think of the toothpaste and dish soap business as being exciting, but when you look at the returns this company has generated, all that goes out the window. The company’s stock chart is below:
Colgate-Palmolive is an extremely well-managed business and it has one of the best long-term track records among blue chips the marketplace has to offer. Similar to IBM, its correlation to the rest of the stock market, or beta, is very low. According to the company, Colgate-Palmolive’s current quarterly dividend is $0.62 a share. This time three years ago, it was $0.44 a share; and, this time six years ago, it was $0.32. All you have to do is go to the company’s web site to look up its dividend history. It really is very impressive.
Both IBM and Colgate-Palmolive are the kind of blue chip, dividend paying stocks that you can build a position in over time. If you’re saving for retirement or some other goal and you don’t require the quarterly dividend income, the best thing you can do is reinvest this cash into additional shares of these companies. This is one of the best ways to really create wealth for yourself from the stock market.
We all know that the stock market is a fickle place and you can lose your shirt pretty quickly. But if you invest in good-quality, dividend paying blue chips over time, you’re likely going to make money with some diligence. The key is investing in the best companies when their share prices are down and reinvesting the dividends they produce. It doesn’t have to be complicated. Good investing is often just good common sense.