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How To Get Rich on Dividends: Time Loves a Hero Stock

Dana Blankenhorn

Last week’s Apple Inc. (NASDAQ:AAPL) dividend increase highlighted the dangers and opportunities that dividend investors face when choosing where to place their bets.

The quarterly dividend rate is going up, to 73 cents per share, which still looks like a paltry “yield” of 1.6% to new shareholders. 

But Apple is a dividend stock that younger investors need to have in their portfolios because there is more to a dividend than the current yield.

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Apple has been paying dividends since 2012, before its famous 7-for-1 stock split in 2014. The first dividend was 18 cents per share, and shares traded at the equivalent of $88 each. If you bought then, you’re still getting the 73 cents of new shareholders. But multiply that by 4 (for the whole year), divide by what you paid for the shares, $88, and your yield is 3.3%.

Dividends Are Flexible

Dividend investors get rich by buying growing companies and letting the investments ride.

Take Home Depot Inc (NYSE:HD) for example. It went public the same year I moved to Atlanta, in 1981. The stock paid its first dividend in 1987.

The present yield on Home Depot shares is 2.36%, based on a rate of $1.03 per quarter and the May 8 opening price of $183.56 per share. But if you bought back in 1981, those shares cost the equivalent of 3 cents each, when accounting for its many splits over the years. You’re getting $1.03 each quarter for shares that cost you 3 cents.

Buy good companies when they start paying dividends, and you’ll prosper in old age. A $100 investment is now delivering $4.12 in dividends per share on over 616,000 shares. That’s over $1.6 million in income, without touching the principal.

But you can’t completely ignore a dividend investment. General Electric Co. (NYSE:GE) made your grandfather rich, with a steady stream of dividends going back decades. GE was one of the great investments of the 20th Century, constantly reinventing itself with each new CEO.

Then came Jeff Immelt. His vision, of an industrial infrastructure giant heavily involved in energy, has proven disastrous. Not only are GE shares worth one-fourth of what they were in 2000, but their dividend has been cut in half. New shareholders are paying $14.07 today for a 12-cent-per-share dividend, yielding 3.48%. But retirees who expected GE to have them on cruises by now are eating cat food.

The Best Dividends Today

If you’re an investor under 30, don’t look just to yield when considering dividend stocks. Look at a company’s long-term growth prospects, and pay attention from time to time to make sure the story remains intact.

With that in mind, here are some companies that deliver good dividends, and which should grow over decades:

Starbucks Corporaton (NASDAQ:SBUX) pays what looks like a paltry dividend, 30 cents per share on shares that open at $57.41 on May 8. That’s $1.20 per share, just 2.08%. But the dividend has tripled since 2012, and the stock is worth nearly 5 times more than it was. You would have paid $12 in 2012 for today’s $1.20 per share, and your yield is 10%.

Cisco Systems, Inc. (NASDAQ:CSCO) has paid regular dividends since 2011, and now yields 2.34%. The shares have nearly tripled in price since the dividend stream began, giving you an effective yield over 7%, plus the capital gain.

Intel Corporation (NASDAQ:INTC) began paying dividends in 1993, the equivalent of 10 cents on an investment of $2.10. The shares opened for trade May 8 at $53, with a dividend of 30 cents per share.

You get rich slowly by buying good stocks when you’re young and letting them ride.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.

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