investing

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.

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.

About the Author

Vita Nelson

Founding Publisher and Editor, Moneypaper

Ms. Vita Nelson is is the Editor and Publisher of Moneypaper's Guide to Direct Investment Plans, Chairman of the Board of Temper of the Times Investor Service, Inc. (a DRIP enrollment service), and co-manager of the MP 63 Fund (DRIPX).

Most Popular

Is the Stock Market a House of Cards?
investing

Is the Stock Market a House of Cards?

The stock market volatility we’ve been experiencing and the apparent disconnect with the broader economy have some investors wondering just that. But …
October 12, 2020
Stock Market Holidays in 2020
Markets

Stock Market Holidays in 2020

Is the stock market open today? Take a look at which days the NYSE, Nasdaq and bond markets take off in 2020.
October 12, 2020
10 Worst Things to Keep in Your Wallet
Scams

10 Worst Things to Keep in Your Wallet

Storing your passport book or card, a spare key, or any of these other important items in your wallet leaves you open to identity theft -- or worse.
October 9, 2020

Recommended

11 Dividend-Paying Stocks You Should Think Twice About
dividend stocks

11 Dividend-Paying Stocks You Should Think Twice About

Dividend-paying stocks often can be a store of safety, but 2020 has been difficult on income equities. These 11 picks look like shaky plays despite th…
September 21, 2020
Bonds: 10 Things You Need to Know
Investing for Income

Bonds: 10 Things You Need to Know

Bonds can be more complex than stocks, but it's not hard to become a knowledgeable fixed-income investor.
July 22, 2020
13 Dividend Stocks That Have Paid Investors for 100+ Years
stocks

13 Dividend Stocks That Have Paid Investors for 100+ Years

Here are 13 dividend stocks that each boast a rich history of uninterrupted payouts to shareholders that stretch back at least a century.
May 21, 2020
Bad News on IRA and 401(k) Contribution Limits for 2021
retirement plans

Bad News on IRA and 401(k) Contribution Limits for 2021

Retirement savers will be disappointed with the contribution limits for next year, but at least more people will qualify for retirement tax breaks in …
October 26, 2020