Boost Your Returns with Dividend Stocks

Kiplinger’s senior associate editor John Waggoner rejoins the show to discuss his favorite dividend-paying stocks.

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.

Ryan Welcome to Your Money's Worth. I'm Kiplinger's associate editor, Ryan Ermey, joined, as always, my senior editor, Sandy Block. Sandy, how are you enjoying your summer so far?

Sandy: I'm having a great summer, Ryan.

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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 . . .

Sandy: Nice.

Ryan: . . . in our backyard, which in D.C., is a big deal.

Sandy: Yes.

Ryan: It's like party central on the weekends, but weekend mornings, we like to sit out there and have a coffee, and read the paper, and all that. We usually like to read the paper electronically, and the problem was, there was no internet out there. So, we bought the TP-LINK AC750 (opens in new tab) from Amazon. It's only $30, and now, we have Alexa out there. She can read the news . . .

Sandy: Oh, my gosh.

Ryan: . . . to me. So, these are things. It's basically like Oprah's favorite things. We're not saying that these are the best things in the world, but these are the things that are making our lives . . .

Sandy: Quality of life.

Ryan: . . . a little bit brighter this summer, and the only other major difference between us and Oprah is that we're not going to buy any of this stuff because . . .

Sandy: No, you do not get a car.

Ryan: So, what's making your summer better, Sandy?

Sandy: Well, I am a big fan of farmer's markets. Actually, here in the D.C. area, there are some that are year-round, but in summer is when things really get great and you get seasonal things, but my sort of tip is that, although the ones in D.C. are great, the closer you get to the farms, often times, the better the deal.

Ryan: Yeah.

Sandy: As you probably know, I spend a lot of time in West Virginia, and I buy at farmer's markets that are only a couple miles from the actual farms. Often times, the prices are very reasonable, and you're buying things that were picked that day.

Ryan: Yeah.

Sandy: I got to know the farmers. I buy fresh eggs from a fellow who stands alongside of the road and sells them for $2.

Ryan: Hey.

Sandy: You know, which . . .

Ryan: A dozen?

Sandy: Yeah, a dozen, exactly, and they were like . . .

Ryan: I guess not a piece.

Sandy: Well, you know, in D.C., they might be. So, you get to know the farmers. You get good food. The only challenge, of course, is that you've got to eat all that food, and I have a tendency, sometimes, to overbuy. I've got a big thing of . . .

Ryan: You get a little ambitious.

Sandy: I got a big thing of green beans I got to figure out what to do with the next couple days, but that's a nice problem to have. It really makes my summer happy to do that.

Ryan: The other one that I'll mention before I get into the rest of the staff picks is that my roommate really sold [us] on this robot vacuum from . . . I'm not going to know how to say the name of the brand. I'm guessing it's Eufy? E-U-F-Y. The RoboVac 11S (opens in new tab) on sale for $174 on Amazon, and I first thought it was a little silly and frivolous, but I have to say, I love him now. He just kind of . . .

Sandy: Your new roommate.

Ryan: . . . just kind of wanders around the house and bumps into things . . .

Sandy: And picks up.

Ryan: . . . but doesn't make a lot of . . . I know. He's like an earnest little robot. I really love him. He runs out of power. He goes back to his little home. So, that one is worth it, and who wants to be spending their summers inside vacuuming, anyway?

Sandy: Right, vacuuming, oh my gosh.

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 (opens in new tab). 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 (opens in new tab) and the like. Miriam also contributed . . . She said, "Not to get all millennial on you . . ."

Sandy: I'm not sure what's millennial about this.

Ryan: I don't know. Maybe it's because she says plants.

Sandy: What? Like boomers don't like plants?

Ryan: I think, if anything, boomers like plants more.

Sandy: Yes. We're all into gardening.

Ryan: I mean, unless millennials like certain kinds of plants. Anyway . . . depending on what you do with them.

Sandy: That's another podcast.

Ryan: But that's not what Miriam is talking about. Miriam is talking about real live plants, and she recommends Trader Joe's.

Sandy: Yes, yes.

Ryan: She said that she saw the exact same plant that she bought at Trader Joe's for $6 at almost triple the price at another store, and their potted herbs are like $2 a plant.

Sandy: Potted herbs and their succulents are a really good deal, too. Yes.

Ryan: Brendan Pederson, one of the staff writers in the magazine, says that he's been loving his Hydro Flask (opens in new tab). 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 . . .

Sandy: Yes, sir.

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 (opens in new tab). 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: Right, right.

Ryan: . . . because it's going to pay for itself.

Sandy: Now, several of our contributors mentioned reading.

Ryan: Yes.

Sandy: And a lot of people that . . .

Ryan: We're [reading a] bunch.

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 (opens in new tab), 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 (opens in new tab). by Richard Powers, which we were just talking about before this podcast . . .

Ryan: Yeah.

Sandy: . . . won the 2019 Pulitzer Prize. It's got an environmental theme. The other one, which I did read and loved very much that Denise recommends is A Gentleman in Moscow (opens in new tab) by Amor Towles. It's a terrific read, and I would highly recommend it for the summer because it is a can't-put-it-down book.

Ryan: Those are both going in the sort of low teens, so yeah. There you have it, our favorite things, just like Oprah. Go out and get the stuff. We have Prime Day coming up in a couple weeks, so hopefully this stuff is on sale for you guys, and we'll be directing you to all of the online sale based content on in the show notes.

Ryan: After the break, John Waggoner is talking dividend stocks, including the ones you should buy now. Don't go anywhere.

Ryan: We're back, and we're here with Senior Associate Editor, John Waggoner, a favorite of regular listeners to the podcast. We're talking about a favorite topic of readers of our website, which is income investing and dividends. So, John, thank you for coming on.

John: Hey, thanks for having me.

Ryan: So, let's just start with the very basic thing. What are dividend stocks, and why do people like to invest in them so much?

John: Sure. Dividend stocks have the swell ability to send you a check every three months.

Ryan: Right.

John: Even sweller, sometimes they will increase it every year. What that happens is, of course, if you like income, you get a check every three months. That's wonderful, but what's even better is that over time, if you reinvest your dividends, it counts for a huge amount of your total return, about a third of your total return over time.

Sandy: So, John, if you read the news regularly, business news, you see it's a big headline if a company raises its dividend and an even bigger headline if it lowers it. Why is that such a big deal?

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.

Ryan: Right. We tend to think of stocks that pay a generous dividend or that raise their dividend as companies that are, say, replete with cash, or at least have the cash to do it. What should people be looking for if they're trying to assess a dividend-paying stock?

John: Well, one thing is to look at their previous track record. Fortunately, there's an easy way to do that. There's something called the dividend achievers, which are stocks that have raised their dividends for the last 25 years or more. If they've done that, you can bet that they will probably do everything in their power to keep doing that. So, that's one good thing to look for.

John: The other is just, look at how much cash they have on hand. Kind of an interesting sidelight is if they are also buying back their stock, that's also kind of a cushion because given the choice between buying back stock and paying a dividend, they'll always pay the dividend, and they'll stop the buyback program and use that money to pay the dividend.

Ryan: So, you wrote a piece recently sort of giving a broad outline of what the outlook is for dividend-paying companies. Share with the dear listeners what sort of that outlook is.

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.

Sandy: So, John, we've had some record highs in the stock market as of this recording, but a lot of people think that the good times are due to end sometime. If you go into a bear market or a market downturn, do dividends protect you from some of your losses?

John: They protect you a little bit. If you're getting a 3% dividend yield and the stock market is down 13%, you're still down 10%.

Ryan: Right.

John: So, I mean, it's not a panacea. On the other hand, dividend-paying stocks are one place that investors tend to try to hide during a bear market. So, it's likely that those stocks will actually fall less than the broader market.

Ryan: There's also some correlation with quality, right? A solid dividend-paying stock, especially one in the achievers or . . . I think they're called dividend aristocrats, too. Although, that might be some sort of proprietary name, but those companies seem to also have high overlap with what are considered sort of quality companies that tend to hold up while they're in downturns.

John: Oh, yes, absolutely. I believe the achievers are 10 year dividend increasers, and the aristocrats are 25 year.

Ryan: I think kings are 50.

John: That's right, exactly.

Ryan: So, we have to come up with something for 100 year.

John: There are a couple of those, yeah.

Ryan: Yeah.

John: Yes.

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: Sure. Most people should invest in mutual funds for their portfolio, just because they get diversification, unless you want to roll out . . . Pick 20 or 30 stocks, which is about how many you'll need for a really diversified portfolio.

Ryan: Ermey: Right.

John Wagner: One of our favorites is the Vanguard Dividend Appreciation, (ticker VIG (opens in new tab)). That actually invests in companies that have steady history of raising their dividends, and so if you want to get in on the dividend gods, that's one way to do it.

Ryan: All righty. Oh, and there's another ETF we like, that I think is a member of our list of favorite ETFs at Kiplinger ETF 20 is the Schwab Dividend Equity.

John: Right, and that's simply solid dividend-paying companies. They all buy decent dividends. They all have good balance sheets, and it's done quite well.

Ryan: And so, another list we like . . . We actually have a list of our favorite dividend-paying stocks that you keep up. Which ones look good at the moment?

John: Sure. It depends on what you're looking for. If you're looking for . . .

Ryan: We're looking for winners.

John: Winners, winners, okay, only the ones that go up.

Ryan: We're looking for only lead pipe lock perfect stock picks that will never go down.

John: Well, all righty then. If you want to reach me in the future, I'll be in Antarctica. So, I picked two out of these, partly because this is an expensive market. Everything has gone up a lot.

Sandy: Right.

John: When your stocks go up, your dividend payout goes down as a percentage, right?

Ryan: Sure.

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.

Ryan: Well, they have to come up with the next Scotch tape, right?

Sandy: Right, yeah.

John: They do, and Scotch Guard and . . .

Ryan: All their amazing innovative products.

John: . . . Scotch . . . yeah. Scotch something.

Sandy: Post-it Notes (opens in new tab).

John: They've just been kind of clobbered in this year, but they're a late cycle stock, which means they tend to do a lot with raw materials and things. These stocks tend to do well at the end of an economic cycle. I hope we're not at the end of the economic cycle, but as of next month, we'll be in the longest economic cycle since 1850.

Ryan: Right.

Sandy: Whoa.

John: So . . .

Ryan: So, we're closer to the end than to the beginning, frankly.

John: I would think, yeah. So, that's one. The ticker, of course, is MMM (opens in new tab). The other one is AbbVie (opens in new tab), which is yielding 5.6% . . .

Sandy: Whoa.

John: . . . which is pretty coast to yield. It's the maker of Humira, and it's got a big pipeline of drugs. Healthcare stocks have just gotten sick lately, but that has driven up the yields. We all need healthcare.

Sandy: Right.

John: As we get older, we need more of it. So, I think it's a good long-term play and a good dividend-payer.

Ryan: We'll link to our colleague, Nellie Huang's story. She just had a big blowout on healthcare stocks. So, there you have it, John Wagner's perfect iron picks. No, of course not. Obviously, just suggestions here.

Sandy: We'll have you back . . .

Ryan: Do your own research.

Sandy: We'll be here. We'll be here.

Ryan: But yeah. John, in the meantime, thank you so much for coming out.

John: Thank you.

Ryan: Do opportunity zones really offer a triple tax break? If so, is it worth investing in them? Find out next in the new edition of Fact or Fiction.

Ryan: We're back, and before we go another edition of Financial Fact or Fiction, Sandy, what do you have?

Sandy: Okay, here's what I've got. You can use money from your 529 college savings plan to pay for junior's private school.

Ryan: Like, a private, like, middle . . .

Sandy: K through 12.

Ryan: . . . middle school or high school?

Sandy: Yeah, yeah.

Ryan: Yeah, I think you can.

Sandy: You can. You can, under the tax overhaul enacted at the end of 2017. You can take out up to $10,000 a year to pay for private school K through 12 for your kids. Now, a couple caveats here. Even though the feds made this official, some of the states have not changed their laws . . .

Ryan: Okay.

Sandy: . . . which means if you've gotten a state tax break in some states and you take this money out, you might have to give it back. So, that's one thing you need to check.

Sandy: The other thing you need to think about is whether this is an appropriate use for that money. When people put money in a college savings plan, they're thinking they're not going to need it for 18 years. If you use it for kindergarten, it probably hasn't grown very much, and it actually might be down if you put it heavily in stock. So, that's one problem.

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: Right.

Sandy: . . . than the investments in your college savings plan because you're going to need it a lot sooner.

Ryan: Right, and we recommend investing more conservatively for accounts that you're going to need to tap sooner, because that way, those funds will be less affected by a sharp draw down in, say, the stock market.

Sandy: Right. So, what you got?

Ryan: Mine is about opportunity zones, which are sort of a hot topic and something that I covered pretty recently in the magazine. Fact or fiction, Sandy? Investing in opportunity zones comes with a triple tax break.

Sandy: Ooh, wow. That just sounds too good to be true.

Ryan: It isn't. It actually does come with a triple tax break, but there is all sorts of stuff that I'm going to try to explain very quickly.

Sandy: We're on the edge of our seats.

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.

Sandy: Right, exactly, okay.

Ryan: The second benefit is that the longer you hold the investment, you'll get a discount on the amount of your original gain that you'll have to pay tax on.

Sandy: Oh, okay, yeah, all right.

Ryan: Okay?

Sandy: Sounds good.

Ryan: If you hold for five years, you'll get a 10% reduction in the amount of money you're paying . . .

Sandy: Taxes on.

Ryan: . . . your gain on.

Sandy: Yeah.

Ryan: If you hold for seven years, you'll get another 5% for a total of a 15% reduction. For example, an investor who rolls $100,000 in would owe capital gains tax on $90,000.

Sandy: Oh, okay.

Ryan: It's that 10% reduction . . .

Sandy: All right, yeah, yeah, yeah.

Ryan: . . . after five years. $85,000 after seven years. Of course, if you're doing the math in your head, and we have that 2026 deadline, that means if you want to get that seven years, you have to invest this year.

Sandy: Right now, yeah.

Ryan: That's not going to change. It's a hard deadline.

Ryan: Then the third benefit is that if you hold for 10 years, any gains that you earn on that original investment are tax-free.

Sandy: Oh, wow, okay.

Ryan: That's a big deal, and that's why a lot of people are getting into this.

Sandy: So, this all sounds really good. Tell me what's wrong with it.

Ryan: Yeah. There's a few big cautionary things to consider. One is that these things are cropping up, and you have to very carefully vet who is managing the funds because if it's someone who isn't used to managing something like this, someone who is not experienced in real estate investing . . . and that's what most of this. It's real estate development deals . . .

Sandy: Yeah, sure.

Ryan: . . . almost all of them. All different kinds of businesses qualify, except like liquor stores and casinos, stuff that they don't want . . .

Sandy: Tattoo parlors, probably.

Ryan: Yeah, stuff that they don't want you building, but almost all of them are real estate development deals. If someone mismanages it or doesn't keep it in compliance with government regulations, you could potentially lose your benefit.

Sandy: Oh, wow. That's a big caveat.


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.

Sandy: Right, right.

Ryan: You're going to pay, generally, 2% in expenses, and then they promise you a certain return. Anything that they get you an excess of that return, you're going to pay another 20% on.

Sandy: Oh, right, okay.

Ryan: So, you have to be . . . I mean, the big piece of advice is, if you've never invested in, say, a hedge fund or some sort of private equity deal or something similar, this probably isn't for you, just because these are already, by definition, sort of risky, distressed areas of the market. Above all, the tax benefits, you shouldn't let the tax benefits wag the . . .

Sandy: You should decide this is a good investment and that the tax benefit is gravy.

Ryan: Correct, because if you don't earn anything on your investment, the tax benefits really don't quite matter as much.

Sandy: Right, right.

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 You can stay connected with us on Twitter (opens in new tab), Facebook (opens in new tab) or by e-mailing us at (opens in new tab). 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.

Ryan Ermey
Associate Editor, Kiplinger's Personal Finance
Ryan joined Kiplinger in the fall of 2013. He writes and fact-checks stories that appear in Kiplinger's Personal Finance magazine and on He previously interned for the CBS Evening News investigative team and worked as a copy editor and features columnist at the GW Hatchet. He holds a BA in English and creative writing from George Washington University.