Dividend-Paying Stocks: The Gift That Keeps On Giving

Dividend-paying stocks might just be the best investment available right now, if you can afford them. This morning, Inquisitr covered the well-above-expectations earnings reports from Michael Kors Holdings, commenting on the range of Wall Street analysis in the matter and on the feasibility of buying a stock that is, by most reliable accounts, nearing its targeted price.

In that piece, dividend-paying stocks were hailed as being somewhat less risky for small investors, due to their regular rate of return offering a solid long-term option for recovering the purchase price.

To follow up on that article with some examples and some context, here are a few dividend-paying stocks that might be worth consideration for the individual investor looking to manage a portfolio over a long period of time instead of gambling speculative day trading.

First of all, from Money Morning, we find a list of 18 dividend-paying stocks that just raised their yields for investors:

“Altisource Residential Corp. (NYSE: RESI) raised its quarterly dividend a nickel to $0.45 a share for a 5.74% yield. The enrichment marks the third consecutive quarter in which RESI has raised its payout.”

So okay, it’s not the sexiest thing in the world to think about buying a stock as if it’s a bond and holding on to it, but like birthday checks from Grandma, those $0.45/share dividends add up. Unlike birthday checks from Grandma, they come four times per year. The percentage yield speaks for itself. Across all four quarterly payments this year (barring the dividend getting lowered), the stock will yield a 5.74% return on the share price.

For investors used to money market accounts that top out at below one percent, CD rates that hover in the same vicinity, and bond rates that can’t seem to find a floor, 5.74% should be plenty exciting. They lack the wheel-and-deal, high glamour allure that comes with throwing down your life savings on a jury-rigged roulette wheel as with speculation in either commodities or stock prices, it’s true.

What it lacks in allure, though, the dividend-paying stock market more than makes up for in stability and income earning potential. Sure, all investors dream of striking it big and finally being able to afford to ride out of their day job and into a glamorous retirement filled with white sand beaches and the flat-roofed bungalows that pop up across them, leading to the accelerated erosion of international coastlines, but most are willing to admit that such a conspicuously expensive lifestyle is just a dream.

While we allow the romantics in the crowd to sign into the online trading systems that they use to manage their fantasy football impulses during the off season, let’s take a look at what a good, consistent dividend-paying stock can do for an investor who wants to see a steadily growing portfolio.

To use Altisource as an example here, if the annual yield this stock is paying is 5.74%, then for every 1742 shares of the stock owned, the dividend will be enough to purchase 100 shares. At the current market price of $27.84/share, that means that an investor would need to have $48,497 tied up in the company in order to achieve this.

If we’re buying 100 shares at a time, though, and we reinvest the dividend into that, then the cost of investment becomes something fairly manageable with a solid savings plan (only $2784 to buy in), and further purchases can be made (with a rapidly dwindling out-of-pocket expense each time) every six months to a year.

Within 17 investment cycles, that stock is paying for 100 shares of itself or a similarly-priced dividend-paying stock in another sector of business (if one wanted to diversify). And if the company should slash the dividend or stop offering it? The stock still retains enough value that it can be sold and the proceeds simply re-invested in another company offering a similarly-sized dividend.

As long as the stock is watched fairly carefully and there are no calamitous events, investors who choose to walk away at the announcement of an unfavorable move in dividends will weather out fluctuations in price without losing actual value in their portfolios during times when the dividend is undisturbed, and the clever ones will figure out how to use those periods to accelerate the compounding of their dividends (and the growth of their portfolio sizes).

Image Credit: Bing and Ned Davis Research