Say Congratulations with a Gift That Keeps on GROWING: 5 Great DRIPs to Buy
Dividend reinvestment plans are the ultimate gifts. It's not inconceivable that today's modest gift could grow to $1 million when your new graduate or favorite newlywed retires.
Spring is in the air and summer is around the corner. Both seasons mark significant milestones for many younger people. There are graduations and weddings — events that mark important accomplishments and lifelong commitments. These are occasions that deserve to be commemorated with significant gifts.
For the past several years the editors at Moneypaper have offered an alternative to the traditional cash gift — where your gift is distinguished from the next only by the dollar amount. That gift is a five-stock portfolio held in dividend reinvestment plans (DRIPs).
Your total investment cost to set up such a gift portfolio is somewhere between $400 and $500 (depending on the current share prices of the stocks). In addition to the financial benefit, which has the potential to compound to substantial wealth over the long-term, this gift will provide the recipient a first-hand experience with a logical approach to building wealth by investing in stocks.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
By “saving” in the stock of the companies in this DRIPs portfolio, your young investor has the opportunity to build wealth by participating in the growth of the economy with cash investments of as little as $25 at a time. These small investments are likely to compound into real wealth over the long-term.
An Astounding Nest Egg at Retirement
Let’s assume that the graduate or the newlywed (or you on their behalf), invests $1,500 a year for the next five years — that’s $125 a month spread evenly among the five high-quality, dividend-paying companies in the portfolio ($25 in each company every month). Let’s also say that no further investments are EVER going to be made into those accounts. Based on the historical returns of the stock market over long periods of time, the results would be astounding.
What would the total $7,500 (invested over five years) turn into? The answer will surprise you…
Assuming a 7% return compounded annually, you’ll have $8,801 at the end of your first five years. Leave that alone and make no more contributions and your investment would grow to $259,251 in 50 years assuming a 7% annual average return compounded.
Now, let’s use a more optimistic assumption: that is that the average annualized growth is 10%, which approximates the long-term return achieved by the market as a whole as calculated by the Ibbotson organization.
Assuming a 10% return compounded annually, you’ll have $9,359 at the end of your first five years. Leave that alone and make no more contributions and your investment would grow to $1,098,661 in 50 years.
Now that's a substantial gift!
5 Companies for Your Consideration
Every year the editors of Moneypaper pick five companies worthy of your consideration for such a gift. To make our list, these companies have consistently paid dividends for 10+ years, offer a company-sponsored DRIP where your dividends can be automatically reinvested and shares can be purchased directly without paying fees or commissions. With such a portfolio, your long-term results are likely to exceed the results achieved by the market as a whole.
Hormel (ticker symbol HRL) is a food service company that produces a wide range of meat products, including pepperoni, Spam and Jennie-O turkey, as well as Skippy peanut butter.
MDU Resources (MDU) is a diversified natural resource company with business operations in energy delivery and construction.
Polaris Industries (PII) designs, engineers and manufactures off-road vehicles including all-terrain vehicles (ATV) and side-by-side vehicles for recreational and utility use, snowmobiles, motorcycles and global adjacent markets vehicles, together with the related parts, garments and accessories.
3M Company (MMM) is a diversified technology company with brands including household names like Post-it Notes and Scotch Tape.
Abbott Laboratories (ABT) is a health care company engaged in the discovery, development, manufacture and sale of a diversified line of health care products, including Similac baby formula and Glucerna nutrition drinks.
The best way to set up this portfolio is to purchase the stock directly by enrolling in the company’s DRIP. That way you won’t pay commissions and your dividends will be automatically reinvested to compound over the years. Enrollment in these companies is available through the Temper Enrollment Service with the purchase of a single share of company stock. For a full list of no-fee DRIPs, click here.
-
Use An iPhone? You May Be Hearing From A Class-Action Lawsuit Group
A handful of suits against the iPhone maker seek to crack down on everything from app store purchases to messaging.
By Keerthi Vedantam Published
-
Capital One/Discover: What's In Their Wallet For You?
Push back on Capital One's planned merger with Discover is growing with one group of consumer advocates calling for a public hearing.
By Keerthi Vedantam Published
-
Should You Enroll in Medicare if You Still Have a Job?
This question is being asked more than ever these days, so here’s what you can do when it comes to making Medicare decisions while you’re still working.
By Jae W. Oh Published
-
Three Big Ways That Life Insurance Can Be a Lifeline
Life insurance not only provides a safety net for loved ones and leaves behind a lasting legacy, but the cash value can also help during financial hardship.
By Steve Sugumele Published
-
Romance Scams That Target Older Adults Rising: What to Do
Here are some tips to help you avoid falling for a scam, especially when a scammer tries to prey on your affection.
By Patrick M. Simasko, J.D. Published
-
Lessons Learned From Britney Spears’ Financial Conservatorship
The pop star’s recent memoir reveals the toll her involuntary conservatorship took on her and spotlights the drawbacks of these legal arrangements.
By Stacy Francis, CFP®, CDFA®, CES™ Published
-
Four Things to Know About Managing a Loved One’s Finances
Figuring out when it’s time and knowing how to talk about it are just the start. You also need info about estate plans, insurance and health care decisions.
By Tony Drake, CFP®, Investment Advisor Representative Published
-
Three Tax-Smart Strategies for Real Estate Investing
Opportunity zones, Delaware statutory trusts and real estate income funds can help investors maximize gains and mitigate taxes.
By Dwight Kay Published
-
Can Language Apps Teach You to Speak a Foreign Language?
Your expectations might be too high if you think an online language platform can teach you to have a meaningful conversation in a foreign language.
By H. Dennis Beaver, Esq. Published
-
Avoid Surprises: Don’t Procrastinate on Your Taxes
You really should start thinking about next year’s taxes immediately after filing this year’s. Better tax efficiency could save you some serious dough.
By Jared Elson, Investment Adviser Published