Speculating in risky stocks with too much money will typically lead to losses over time. Investors would be better off focusing on investments in companies that are consistent in growing revenue and earnings and those that increase dividends consistently. Participating in dividend reinvestment plans (DRIPS) in these types of stocks can accomplish significant wealth building over the long term without the worry of market fluctuations and other short-term worries.
Dividend reinvestment plans are a disciplined method of investing that takes the emotion out of the investing equation. Reacting with emotion during a market sell-off could cause investors to sell their stocks unnecessarily, while an automatic DRIP plan will allow for dollar cost averaging over time which can lead to significant wealth accumulation.
I highlighted a few good companies that offer dividend reinvestment plans and consistently raise dividends which is conducive for growing wealth.
The J.M. Smucker Company (SJM) pays a dividend of 2.4%. The company offers a variety of foods that are consumed daily by millions of people. Some of Smucker's products include: coffee, peanut butter, fruit spreads, baking mixes, shortening and oils, beverages, toppings, condiments, and more.
Smucker's is fairly valued with a forward PE ratio of 15, a PEG of 2, and a price-to-book ratio of 1.82. For the past twelve months, the company pulled in $1.03 billion in operating cash flow and $815.9 million in free cash flow. It is expected to grow earnings annually at 8.28% for the next five years.
Kimberly-Clark Corporation (KMB) pays a dividend of 3.5%. Many parents of newborns/toddlers are familiar with the company if they use the useful Huggies, Pull-Ups, and Little Swimmers products. KMB offers products that are needed for daily living such as: facial and bathroom tissue, paper towels, napkins, feminine hygiene products, soaps, sanitizers, etc. The company's medical division offers exam gloves, medical devices, infection prevention products, pain management products, etc.
Kimberly-Clark is fairly valued with a forward PE of 14.94, a PEG of 1.6, and a price-to-book ratio of 5.94. The company had $2.69 billion in operating cash flow and $1.48 billion in free cash flow for the last twelve months. KMB is expected to grow earnings annually at about 10% for the next five years.
McDonald's (MCD) pays a dividend of 3.4%. Kids of multiple generations have persuaded their parents to patronize the company's restaurants for their favorite Happy Meals, milk shakes, or other fast food fare. Healthier offerings such as real fruit smoothies, oatmeal, and fresh salads have been added to the menu to create a wider and more nutritional selection.
McDonald's' consistency has allowed it to maintain a fair valuation with a forward PE ratio of 15.35, a PEG of 1.9, and a price-to-book ratio of 6.46. The company is a cash flow machine with a trailing twelve month operating cash flow of $6.9 billion and free cash flow $3.54 billion. MCD is expected to grow earnings annually at 8.84% for the next five years.
Wal-Mart (WMT) pays a dividend of 2.3%. The company has established itself as the go-to low-cost retailer for groceries, household goods, automotive products, banking, pharmacy, sporting goods, electronics, and more. Its business model allows the company to operate successfully as a high-volume, low-margin business.
Wal-Mart is fairly valued with a forward PE ratio of 12.64, a PEG of 1.52, and a price-to-book ratio of 3.12. The company hauled in $27.25 billion in operating cash flow and $14.36 billion in free cash flow for the last twelve months. Sam Walton's creation is expected to grow earnings annually at 9.2% for the next five years.
United Parcel Service (UPS) pays a dividend of 3.1%. Its business is paramount during the Christmas/Hanukah shopping season as well as throughout the year with the popularity of online shopping. The company gets packages delivered timely within the U.S. and internationally with a sophisticated logistics system.
Similar to the other companies in this article, UPS is also fairly valued with a forward PE ratio of 14.5, a PEG of 1.68, and a price-to-book ratio of 9.46. For the past twelve months, the company had operating cash flow of $6.81 billion and free cash flow of $3.45 billion. 'Brown' is expected to grow earnings annually at 9.79% for the next five years.
There are not too many surprises with these companies. This allows them to maintain a fair valuation. The consistency of their businesses allows for consistent raises in their dividend payments. If investors choose to reinvest dividends regularly with these companies, their wealth should grow significantly over the long-term. Recessions, debt-woes, and fiscal cliffs will all be overcome with these companies continuing to thrive in the long-run. It's time for investors to put money back to work in stocks such as these.
Disclosure: I am long MCD.