Boost Your Returns with Dividend Stocks

published 9 July 2019

Ryan: Here at Your Money's Worth, we're trying to give you advice that will pay dividends, and today, we mean that literally. Senior Associate Editor, John Waggoner, rejoins the show to talk about dividend paying stocks in our main segment. On today's show, Sandy and I share the Kiplinger magazine staff's favorite buys of the summer, and in a new edition of Fact or Fiction, we talk 529 plans and opportunity zone funds. That's all ahead on this episode of Your Money's Worth. Stick around.

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Ryan: Me, too. For me, summer is a good time. Things slow down. Your life kind of slows down, and I like to fill that time by buying things for myself. That's going to be the theme of our first segment here. I think everyone wants to be out and about, having fun in the sun in the summer, and so I asked the magazine staff for their favorite things that they've bought over the past couple months that have made their summer days a little bit brighter. As an example, I included one that my housemates and I just purchased, which is a W-iFi extender. Now, the best part of my house, by a long shot, is that we have this big, beautiful covered, raised deck . . .

Ryan: Our fearless leader, Mark Solheim said that summer travel is the way to go. I mean, we've written about how to score deals on flights. We get, like, Scott's Cheap Flights. We like buying several months in advance. The other thing that our colleague, Miriam Cross, always talks about is being flexible about your dates and about your destination, and you can find really, really good deals on Google Flights and the like. Miriam also contributed . . . She said, "Not to get all millennial on you . . ."

Ryan: Brendan Pederson, one of the staff writers in the magazine, says that he's been loving his Hydro Flask. I looked this up. The bottle is about . . . For an 18 ounce bottle, it's about $30 on Amazon. Bigger bottles go for more. He said he picked it up last month, and it's incredibly insulated and keeps ice frozen for 12 hours, and keeps tea and coffee hot all day. If it's keeping ice frozen in the summers we have been having . . .

Ryan: . . . you know, the summer days we've been having here, that means that thing works. Our friend, Nellie Huang , who is senior associate editor, investing writer, too shy to come on the podcast, but we're going to get her on here eventually, got her family season passes at Six Flags. Obviously, Six Flags all over the place, and prices seem to vary here and there for the season passes, but the gist is, if you're taking the family twice, if you're going to take them more than twice for the summer, get the season pass . . .

Sandy: Yeah. A lot of people love to read in the summer. Our investing editor, Anne Kates Smith, said that she's a big fan of the Libby app, which will let you borrow eBooks and audiobooks from your public library. It's summer reading central, and you can read practically on any device, including your Kindle. She's got three books out currently and one on hold, and I've also used the Libby app, and it's great. Our longtime copy editor, Denise Mitchell, just mentioned a couple books that she loves. The Overstory. by Richard Powers, which we were just talking about before this podcast . . .

John: Well, when you raise your dividend, you're actually kind of setting the financial bar higher because if you cut your dividend, Wall Street will kill the stock, and then they'll dig it up and they'll kill it again. Wall Street hates a dividend cut. They love a dividend increase. A company that increases its dividends a lot over time is, A, not only shareholder conscious, but also, basically, a good growth solid stock because they don't raise it unless they know they can keep giving it.

John: Well, it's actually pretty good. Companies have been raising their dividends at a pretty brisk clip for the last couple years. They're expected to raise dividends about 9% this year, which is way better than you're going to get from your boss, and it's a way better increase than you're going to get from inflation. So, that's really good news. Economic times are good at this point. Cash seems to be pretty plentiful. In fact, cash in balance sheets are near record highs. So, it's all good signs for dividends.

Ryan: Let's get to it. Give the people what they want, which are picks. If someone wants to get exposure to more dividend-paying stocks, because as you say, it's a huge component of . . . and we've talked about this on the podcast before. It's a huge component of your total return, historically. So, if people want broad exposure to dividend-paying stocks, where should they look? And then, what are a couple actual names that we're liking?

John: So, if you pick the real winners, the ones that have really done well, you'll get a lower yield. For people who like stocks that have a higher yield and a really, let's say, speckled record and returns the return, we can start with 3M. It's yielding about 3.3% right now. Minnesota Mining, as people used to know it. It's been hit by a couple things, one of which is China. Another one of which is that they have this crazy habit of spending a lot of money for R&D, which I think is a good thing.

Sandy: The other problem is, college is getting really expensive. Do you really want to tap that money now, and then end up having to borrow or take out loans from your house or something later to pay for college? I mean, these plans were designed for college. If you're determined to use money to send junior to prep school, our advice is, set up a separate 529 plan just for that purpose. You're going to want to invest it probably more conservatively . . .

Ryan: The reason that these things have gained so much steam is because they come with a really robust benefit on capital gains tax. Of our three benefits, the first one is that you can defer paying capital gains tax on funds that you roll into, what's called, an opportunity zone fund. So, backing up for one second, opportunity zones are these designated areas of cities, of states. The states designated them. The federal government approved them. Areas where they say that they're in need of investor dollars, okay? So, sort of underserved, under-invested areas think sort of rough urban neighborhoods are kind of underserved, rural communities, what have you. Okay?

Ryan: The projects in these opportunity zones are investible through, what's called, opportunity zone funds. If you get a capital gain, you have 180 days to roll that money into an opportunity zone fund, and in doing so, you can defer paying capital gains tax until either you sell or until December 31st, 2026. That is the hard deadline. You will have to pay it then, no matter what, but you get that deferral.

Ryan: Another big caveat is fee structure. It’s not like a mutual fund. First of all, unlike a mutual fund, in order to invest, you’re probably going to have to be an accredited investor. And while there are a couple sort of thresholds people have to meet to get that status, it generally means that you have to be a high net worth individual. And minimums on these things are going to be much, much higher. Some of them are less, but most are going to be six figures or more. Anyway, in terms of fee structure, you pay something similar to a hedge fund structure, so you’re going to pay usually, like 1.5% or 2%. It's your class . . . I think they call it 20 and 2 for hedge funds.

Ryan: So, I would say if this is something that you are interested in, you have the money, you have the experience, the best thing you can do is try to stick with people, hopefully a company or a firm that manages these kind of investments already, and now just happens to be able to do them in these opportunity zones, and only if it totally makes sense for you. If you have a big capital gain, maybe you just sold a huge amount of stock, and so it appreciated over the years, then this is something worth looking into, but like I said, with someone who you absolutely trust as a steward of your money.

Ryan: That's it for this episode of Your Money's Worth. For show notes and more great Kiplinger content on the topics we discussed on today's show, visit kiplinger.com/links/podcasts. You can stay connected with us on Twitter, Facebook or by e-mailing us at podcast@kiplinger.com. If you liked the show, please remember to rate, review and subscribe to Your Money's Worth wherever you get your podcasts. Thanks for listening.

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Block joined Kiplinger in June 2012 from USA Today, where she was a reporter and personal finance columnist for more than 15 years. Prior to that, she worked for the Akron Beacon-Journal and Dow Jones Newswires. In 1993, she was a Knight-Bagehot fellow in economics and business journalism at the Columbia University Graduate School of Journalism. She has a BA in communications from Bethany College in Bethany, W.Va.