Last month, I showed you how to get started and become fully invested – for life – with as little as $1,000, and then I showed you how you can do even better with only $5,000. We've seen that simply getting into the market can be the most important investment decision you'll ever make.
So today I want to show you an investment tactic that's going to get you into "primo" stocks… without having to pay primo prices. And even better, you'll never have to deal with a single broker (who'll charge you primo prices).
And best of all, these stocks, and the plan I'm going to show you to use with them, are going to boost your income like nothing else in this market will…
The Most Powerful Wealth Builders Available
I'm talking about DRIPs – or dividend reinvestment plans.
Now, that might sound like a leaky faucet, but they're actually a great way to turn a small amount of money into the sort of retirement-boosting savings you've always longed for.
You see, one of the lessons I've learned about this business over the years is that there's no better way to grow real wealth than to systematically invest in high-quality stocks – and hold on for the long haul.
That's why DRIPs are such powerful wealth-builders.
Don't let the name fool you – DRIPs go way beyond the average dividend-paying stock purchase. The real beauty comes from the added perks.
By plowing your dividends back into more shares, DRIPs make it easy to harness the power of "compounding" – taking a smidgeon of capital and putting it to work.
So I've put together a list of five DRIP stocks that will kick-start your long-term wealth for pennies on the dollar.
But before I show you how DRIP investing can turbocharge your wealth down the road, let's take a look at how this wealth-building strategy works.
It's extremely simple…
DRIPs 101: Building Wealth One Share at a Time
DRIP investing is an easy way for investors to get started buying shares in one company at a time by allowing them to invest directly in that company instead of through a traditional or online broker.
For first-time investors who may be timid about getting into the market, DRIP stocks can be a great learning tool.
The best DRIP programs are often offered by companies with strong dividend payout histories – the ones that cater to long-term investors who tend to stick with stocks. Most DRIPs let investors reinvest all dividends into more shares of a company, at little or no cost.
This is crucial.
Let's say you're able to invest $5,000 per year. Although that doesn't seem like much, thanks to the magic of compounded dividends, that $5,000 annual investment could turn to nearly $5 million over time.
Assuming a $100 share price in a given company, if you started out Year One with an investment of 50 shares, by the end of a 30-year period, you'd have a nice nest egg of 49,736 shares worth nearly $5 million. Even better, at Year 31, those shares would be throwing off more than $910,000 in cash dividends every year.
For investors without much "seed money," keeping costs to a minimum is crucial. So it's nice to know that when it comes to keeping broker fees and commissions low, it doesn't get much better than DRIPs.
DRIP plans provide investors a compelling way to invest amounts as small as $50 to $100 per month free of charge and build positions in high-quality stocks for the long haul. And being in for the long haul is important – these plans are not for quick-draw traders who want to make quick cash in the market.
So how do you know if a company offers a DRIP plan?
More than 1,100 companies offer DRIPs. To find out if a company offers a DRIP program, all you have to do is check out their website or, if you want a more comprehensive list, go to Computershare.
It's important to remember, especially in volatile times like we've seen in 2016, DRIPs can be a nice way to smooth out purchases.
You see, DRIPs take the guessing game out of investing.
Here's what I mean…
An Easy Way to Do Dollar-Cost Averaging
One of the key benefits of DRIPs is that they take emotion out of the equation.
Instead of dropping a large sum into a stock all at once and hoping you got a great price, you keep buying the stock on the same date each month, regardless of the price.
If the market continues to fall, your average price goes lower.
If the market climbs, you started with a nice little discount, and regardless of what the price is today, you'll be coming out ahead down the road.
If the price of the stock you're reinvesting in is high, your dividends automatically buy fewer shares.
If the price of the stock you're reinvesting in is low, your dividends automatically buy more shares.
So you see, by investing in DRIPs, investors can be more aggressive when prices are low and more conservative when they are high. In the long run, your average price will balance itself out.
Most companies that offer DRIPs will allow you to buy extra shares directly, again cutting out the broker middleman.
If this all sounds familiar, that's because it's not a new idea. Think of your 401(k): a little bit of money gets whisked away to buy shares of different funds each month. Do you miss that money? Probably not. Does it add up over time? You bet it does. The only difference with DRIPs is that you're buying shares and building positions in individual companies.
Now that you know a little more about how DRIPs work, let's take a look at five blue-chip companies that every investor should use in their DRIP strategy.
DRIP Investment No. 1: Abbott Laboratories
As one of the world's largest producers of prescription drugs, diagnostic tests, nutrition and vision care products, Abbott Laboratories (NYSE: ABT) is a pharmaceutical titan.
With a market cap of $55 billion, Abbott has consistently raised its dividend for 44 years and serves customers in more than 150 countries.
Recently, this 125-year-old firm made headlines when it solidified its bid to acquire device maker St. Jude Medical Inc. in a cash and stock deal valued at $25 billion.
Abbott CEO Miles White said on a conference call that St. Jude's "highly competitive" portfolio of devices will help the combined company reduce healthcare costs and improve outcomes for patients.
"Together we will compete in nearly every area of the cardiovascular device market," he said.
The deal is expected to propel Abbott's cardiovascular device unit to nearly $8.7 billion annually – a market that Abbott estimates will top $30 billion by 2017.
Abbott has been in business for more than a century – a testament to its nose for marketing and brand building.
DRIP Investment No. 2: Exxon Mobil Corp.
Exxon Mobil Corp. (NYSE: XOM), the largest publicly traded oil company on Earth, is also one of the very best DRIP stocks.
Despite crude oil's wild ride in 2016, Exxon's stock has held up much better than the rest oil's "Seven Sisters" superpowers.
In fact, while Chevron Corp. (NYSE: CVX), BP Plc. (NYSE ADR: BP) and Royal Dutch Shell Plc. (NYSE ADR: RDS.A) have all come under fire from analysts scrutinizing the safety of their dividend, Exxon has gained nearly 23% since the start of the year.
That's because this juggernaut has steady refinery and chemicals manufacturing profits that have covered many of the losses from its upstream business.
If you want to add Exxon to your DRIP plan today, you can pick this crude oil powerhouse up for 1.5 times sales, allowing you to increasingly claim your stake for a bargain price.
The added bonus: The stock is yielding a 3.4% dividend, which Exxon will happily plow back into your DRIP account in the form of brand-new stock purchases, for free every quarter.
DRIP Investment No. 3: Proctor & Gamble Co.
Founded in 1837, Procter & Gamble Co. (NYSE: PG) is a historic company with more than 178 years of phenomenal sales.
With no fewer than 21 brands and sales of over $70 billion annually, products in over 180 countries, and 59 consecutive years of dividend increases, this is a firm all investors should take a look at.
Consumers currently buy this home-goods giant's products more than 40 billion times a year.
The company's unique growth story stems from its focus on low-tech disposable products – laundry detergent, shampoo, razor blades, toilet paper, toothpaste, and paper towels.
In other words, stuff we can't do without.
Procter & Gamble supports its portfolio of brands with huge amounts of spending on advertising. Its product lines include Febreze, Crest, Gillette, Head & Shoulders, Downy, Tide, and Pampers.
The company spends $8 billion to $9 billion a year on advertising. That buys it tremendous product awareness that smaller competitors simply can't match.
The stock currently yields an impressive 3.24% dividend.
DRIP Investment No. 4: Becton, Dickinson & Co.
In 1897, traveling salesmen Maxwell Becton and Fairleigh Dickinson founded this company.
With nearly 30,000 employees and a market cap of $35 billion, Becton, Dickinson & Co. (NYSE: BDX) develops diagnostic and analytic systems (such as blood tests) and cutting-edge bioscience solutions (such as kits for cell analysis).
In 1906, Becton Dickinson built its first manufacturing facility in the United States specifically designed for thermometers, hypodermic needles, and syringes. Today, Becton Dickinson is a global company, with about 60% of its more than $10 billion in annual sales coming from outside the United States.
The company's competitive advantage lies in its global reach, strong supply lines, and well-established relationships with customers and governments.
Becton Dickinson has a long history of innovation. The company's ability to generate revenue from new products and market them through its established distribution network fuels nonstop growth.
Becton Dickinson's sales and profits have continued to rise every year, and the firm has increased its dividend payments for 43 consecutive years and now yields 1.72%.
DRIP Investment No. 5: Chubb Ltd.
Chubb Ltd. (NYSE: CB), one of the oldest insurance companies in North America, is the fifth-largest publicly traded property and casualty insurer in the United States.
Founded in 1882, this firm has grown its dividend payments for 33 consecutive years.
Chubb sells home, car, business, and supplemental health insurance policies through its network of independent agents and brokers located in North and South America, Australia, Europe, and Asia.
The core concept of insurance has not changed much in the last 400 years, and it's not about to change anytime soon. Technology like Big Data only make calculating insurance risks easier.
Chubb merged with ACE Ltd. in July 2015, and the two companies agreed to operate under the Chubb name. Combined, the companies, now based in Switzerland, have shareholder equity of nearly $46 billion and cash, investments, and other assets of $150 billion.
Chubb distributes its products through 8,000 independent agents and brokers in 120 offices across the United States and in more than 25 countries.
Turn on the Faucet and Let It DRIP
The bottom line here is that while all investments are subject to risk, investing in a solid DRIP program has historically been a recipe for success.
And it's one more "getting started" investing tactic you can add to the ones I've been sharing with you since March.
Don't forget that a DRIP account requires a little legwork on your part. Make sure you research every company that you want to invest in before you buy.
But for those who are willing to play the long game, DRIPs could be your ticket to lifelong wealth.
More from Bill: A tiny lab trading for around $5 just had one of the greatest months in medical history. Within weeks, they inked four major deals with national healthcare providers to roll out its life-saving new technology that could revolutionize medicine – by detecting diseases like cancer weeks, months, even years in advance. Analysts project a 4,709% revenue surge. Full story here.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.