If dividend stocks provide investors with predictable income, then DRIP stocks offer significant long-term growth potential.
As a result, DRIP stocks allow you to own more shares of the company or fund over time, making them an excellent way to consistently grow your wealth by compounding your returns.
Dividend reinvestment plans (DRIPs) are a simple, wealth-compounding process that uses dividends paid by the company or fund to buy more shares of that same investment. These shares are often commission-free, and they enable investors to buy fractional shares. Some even offer discounts on shares via DRIP.
However, not all dividend stocks are good DRIP investments…
Take dividend yield, for example.
You want to make sure your money is working for you and that you’re investing in good companies that return some of their wealth back to the shareholder. Don’t be fooled by super high yields. What’s more important is that the company is good enough to pay its dividend steadily over time, and even grow it.
Of course, your yield will fluctuate based on the share price. But your DRIP plan will remove any worry about trying to time out the market.
So, here are three DRIP stocks to buy now that have a dividend yield of 4% or higher to help grow your returns.
DRIP Stock, No. 3: 3M Co.
3M Co. (NYSE: MMM) is a company that’s been around for a long time – more than 100 years.
Over the company’s lifetime, 3M has raised its dividend for 63 consecutive years. Anything more than 25 annual increases qualifies an S&P 500 company as a Dividend Aristocrat. Only 65 companies have earned this status right now.
After 50 years of consecutive increases, a company earns the unofficial title as a Dividend King – an even more rare and remarkable feat.
And 3M beats that rating, which is an impressive achievement in its own right.
The dividend payout has increased at an annualized rate of around 10% over the past decade. That’s roughly three times the historical rate of inflation, which means that the buying power of the dividends investors receive have actually grown over time.
Of course, not every year includes a double-digit percentage hike. The pandemic and global economic shutdowns made the recent increases small in comparison.
3M’s current dividend yield is around 3.3%. While that’s not quite 4%, that is roughly double what you would get from dividend stocks in the S&P 500 index today.
And to top it off, 3M’s current yield is toward the high end of the company’s historical range. The last time the yield was this high was during the 2008-2009 economic recession, meaning that 3M is trading at an attractive value.
DRIP Stock, No. 2: AbbVie Inc.
AbbVie Inc. (NYSE: ABBV) is one of the best dividend stocks to date because of the company’s steady growth through acquisitions – like earlier in 2021, when ABBV acquired the biotech company Mitokinin.
Mitokinin developed technology to increase the activity of the Pink1 compound that’s heavily liked to Parkinson’s disease.
By increasing Pink1 levels, overall brain activity and synaptic functions increase. This results in lower risk for developing diseases like Parkinson’s. The Parkinson’s disease market is expected to reach $5.69 billion by 2022, which could further drive ABBV’s growth.
Its total revenue in 2018 was roughly $32 billion. That number climbed higher, accelerated by the pandemic in 2020, when it hit over $45 billion. And by the end of June 2021, revenue for the past 12 months was $53.73 billion – an increase of 48.31%. And the company has a current profit margin of 12.4%.
The biopharmaceutical company has delivered dividend increases for the last five years. Again, increases go a long way to show that the company appreciates shareholders and wants to reward them.
ABBV has a strong yield of 4.81%, much higher than the S&P 500 average of 2%. This makes it a fantastic DRIP stock to invest in.
DRIP Stock, No. 1: Exxon Mobil Corp.
Volatility in crude oil prices over the past decade forced many gas and oil dividend stocks to cut their payouts. But ExxonMobil Corp. (NYSE: XOM) has managed to avoid that outcome.
In fact, with the exception of the last year, the company has increased its dividend every year for more than three decades.
While the push to address climate change, which represents a very real threat, will work against oil companies in the future, that future is still relatively far away.
Despite this shift in the global oil industry, ExxonMobil generated over $14 billion in operating cash flow. In 2020, management added debt to fund capital expenditures and make sure it carried enough cash to ride it out the pandemic-driven downturn. Despite every reason to make the cut, the board decided to hold its $0.87 per-share quarterly dividend.
That’s paid off in 2021.
Since the recovery in oil demand, ExxonMobil generated more operating and free cash in the first quarter of 2021 than it did during all of 2020 – a great sign for ExxonMobil. And with shares more than 40% below the five-year high, the stock price has room to run.
Factor in the 6.1% dividend yield at current prices, and ExxonMobil is that much more appealing DRIP stock to add to your portfolio.
By using extra cash to invest in these three stocks, you could grow your wealth with the compounding effect that these DRIP stocks offer because you’re owning more and more of the stock over time without having to lift a finger.
But if you’re looking for juicer, more immediate return, we have just the stock for you…
Our Best Stock to Buy Today
Square Inc. (NYSE: SQ) is a fintech leader, and fintech is one of the hottest sectors around today. Square has a leg up on most of the competition in the payments slice of the fintech market.
Payments is where the big advances – and big bucks – figure to be.
Square is a favorite of mine because it’s all about technological transformation. It’s about peer-to-peer payments. The company’s mobile payments platform is about helping individuals start and grow their businesses. Its Cash App service is going to be a one-stop shop for everything related to finance and e-commerce.
There’s an addressable market that’s huge – huge and growing, I’d add – with no ceiling in sight, just open blue skies.
Square’s now about content, too. Its Tidal division is about artists creating, about ticketing, about merchandising – and no surprise here, about making money. Square’s numbers are getting better all the time because the company is expanding its platforms and ecosystem. As we saw with Apple Inc. (NASDAQ: AAPL) – a buy-and-hold-forever stock if ever there was one – that’s a winning recipe for continually higher share prices.
Revenue grew 328.95% from 2017 to 2020, and it’s already up another 38.9% over the past 12 months, while the stock itself is up a market-crushing 61% in that time.
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Source: Money Morning