How Dividend-Paying Stocks Can Smooth Volatility
Long-term investors should take advantage of current bargains and add solid companies such as Cracker Barrel to their portfolios.
After a strong rebound for many value stocks in February, the month closed with a couple of down days, setting the stage for a mild start to the month of March, when many traders traditionally look for a rally. More important, though, is the psychological boost provided by recent action in the stock market. Coming off a scary first month of the year, February gave hope to many who feared that 2016 might be like 2008 and 2009, the years of the "Great Recession." Instead of a rout among housing and financial stocks, the latest scare came from the collapse in oil and commodity prices, which led to distribution cuts by master limited partnerships (MLPs) and dividend reductions by commodity-related stocks.
While some pain in that area may continue to be an issue, the bad news has not spread throughout the market. Still, many are maintaining a wait-and-see attitude in response to the mediocre trends in corporate earnings. So short-term investors may be in for another month of volatility, as traders try to maintain a positive outlook.
Long-term investors are actually in a superior position. They can focus on owning solid, conservative stocks that have proven their worth over time and take advantage of occasional bargains to build up their portfolios.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free 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.
Once again, the benefits of dollar-cost averaging and dividend reinvestment will become obvious as the current economy takes time to develop. Accumulating more shares of dividend-paying (and preferably dividend-raising) companies will reap rewards whenever the markets turn more bullish. That could be of extra importance if we see a prolonged series of up and down movements, as we have over the past year or more. The key to maintaining a strong psychological state is to focus on high quality companies that allow you to sleep well at night because of their strong balance sheets, earnings and dividend history and dependable products and services.
My current recommendation is Cracker Barrel Country Stores (symbol CBRL). Founded in 1969 and headquartered in Lebanon, Tennessee, Cracker Barrel Old Country Stores operates 635 combination full-service restaurant and gift shops in 42 states. Most are company-owned, not leased, and can be found along major highways. The restaurants, which feature homestyle country cooking, account for about 80% of revenues. The gift shops (20% of sales) feature rocking chairs, apparel, toys, cookware, ceramics and an array of food items.
According to Yahoo Finance, consensus estimates call for the stock to earn about $7.50 per share in the fiscal year that ends in July and $8.26 in fiscal 2017, compared with $6.82 in fiscal 2015. Officers and directors own 1.2% of the 23.9 million outstanding shares, which is down from 62 million in 1998. The $4.40-per-share annual payout results in a yield of 3.0% and has increased for 13 straight years.
What makes Cracker Barrel an attractive investment is its popularity among families and small groups looking for familiar, affordable dining that is consistent across a wide swath of states, primarily in the South and Midwest. Its gift shops provide a bonus stream of revenue and serve to attract the attention of diners waiting to be seated. Sales have grown from $2.43 billion in fiscal 2011 to $2.84 billion in fiscal 2015 while earnings per share have grown from $3.70 to $6.82 over the same time period. Although it already has a presence in 42 states, the company has plenty of room for expansion, as it operates only a small number of locations in many of those states. An added bonus is the fact that the stock holds up well during market declines, yet continues to offer value for the patient long-term investor.
Cracker Barrel is one of the many U.S. companies that offer shares you can purchase directly—and commission-free—through their company-sponsored dividend reinvestment plans (DRIPs). These companies actually pay the investing fees for you once you've enrolled in their DRIPs—and you can enroll with the purchase of just one share in most cases. To see my list of recommended DRIPs, please visit www.directinvesting.com.
Ms. Vita Nelson is one of the earliest proponents of dividend reinvestment plans (DRIPs) and a knowledgeable authority on the operations of these plans. She provides financial information centered around DRIP investing at www.drp.com and www.directinvesting.com. She 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).
-
Americans, Even With Higher Incomes, Are Feeling the SqueezeA 50-year mortgage probably isn’t the answer, but there are other ways to alleviate the continuing sting of high prices
-
Hiding the Truth From Your Financial Adviser Can Cost YouHiding assets or debt from a financial adviser damages the relationship as well as your finances. If you're not being fully transparent, it's time to ask why.
-
How to Manage a Disagreement With Your Financial AdviserKnowing how to deal with a disagreement can improve both your finances and your relationship with your planner.
-
Are You Honest With Your Financial Adviser? Why Hiding the Truth Can Cost You
Hiding assets or debt from a financial adviser damages the relationship as well as your finances. If you're not being fully transparent, it's time to ask why.
-
5 Actions to Set Up Your Business With Your Exit in Mind, From a Wealth AdviserWhen you're starting a business, it may seem counterintuitive to begin with exit planning. But preparing will put you on a more secure footing in the long run.
-
Missed Your RMD? 4 Ways to Avoid Doing That Again (and Skip the IRS Penalties), From a Financial PlannerIf you miss your RMDs, you could face a hefty fine. Here are four ways to stay on top of your payments — and on the right side of the IRS.
-
What Really Happens in the First 30 Days After Someone Dies (and Where Families Get Stuck)The administrative requirements following a death move quickly. This is how to ensure your loved ones won't be plunged into chaos during a time of distress.
-
AI-Powered Investing in 2026: How Algorithms Will Shape Your PortfolioAI is becoming a standard investing tool, as it helps cut through the noise, personalize portfolios and manage risk. That said, human oversight remains essential. Here's how it all works.
-
A Newly Retired Couple With a Portfolio Full of Winners Faced a $50,000 Tax Bill: This Is the Strategy That Helped Save ThemLarge unrealized capital gains can create a serious tax headache for retirees with a successful portfolio. A tax-aware long-short strategy can help.
-
5 Retirement Myths to Leave Behind (and How to Start Planning for the Reality)Separating facts from fiction is an important first step toward building a retirement plan that's grounded in reality and not based on incorrect assumptions.
-
I'm a Financial Adviser: Silence Is Golden, But It Hurts Your Heirs More Than You ThinkTalking to heirs about transferring wealth can be overwhelming, but avoiding it now can lead to conflict later. Here's how to start sharing your plans.
