Use Loyal3 To Create A Zero-Cost Dividend Growth Portfolio: The 10 Best Brands

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Includes: AAPL, COST, DIS, HAS, HSY, INTC, KHC, KO, MAT, MCD, MSFT, NKE, PEP, PG, SBUX, TGT, UL, VFC, VIA, WMT, YUM
by: Matthew Waterman

Summary

Loyal3.com offers the ability to buy and sell stocks with zero trade fees.

Buy these companies to create a steady stream of rising dividend income.

Stocks ranked by current P/E Ratio, dividend growth, and current yield.

I get asked all the time about how to go about starting a new portfolio. New investors want to find a big winner right out of the gate, but the real secret to long-term success with investments is buying businesses with consistent results and growing dividends, and then paying the smallest amount possible in fees to own them.

Loyal3.com is a great way to take care of both of these from day one. They're a somewhat newer broker that makes its money through kickbacks and advertising fees collected from the companies you can invest in there. So I will give the disclaimer up front that using Loyal3 will result in a marginal increase in the amount of junk mail you get, and I also received a couple of calls from the local school and police force soliciting donations. However, for the hundreds of dollars I have saved in fees, I feel that makes it a great bargain.

You can't buy everything at Loyal3, but you can pick up a little over 50 excellent businesses without paying any trade fees at all, and you don't have to buy whole shares. You can buy in for as little as $10 and build a life-long stream of income. The list below is assembled from what I think are some of the best companies listed there. For other low cost options there is also Sharebuilder, whose automatic investment plan will allow you to buy stocks for as little as $2/trade if you have a Costco (NASDAQ: COST) membership, plus you can get a free $50 for your first trade of any size. If you don't have Costco, those autotrades are still a very reasonable $4 each, and $6.95 to sell.

But I digress, back to Loyal3. Let's talk about those great, free to trade companies. One trick I have for who to choose is that I've created a virtual portfolio at Yahoo Finance, and I sort all of the available brands at Loyal3 by the current dividend yield, and then from there I look for consistency of earnings quality and dividend growth. Dividend growth statistics are quoted from dividendinvestor.com.

1. At the top of my list right now is Mattel (NASDAQ: MAT). It's no secret that I'm bullish on the near term future of this company. If you take a tour through your local Toys "R" Us, you'll see that Mattel products occupy nearly half of all of the shelf space in the building. Barbie is probably their most talked about item, but they also own the Fisher-Price, Hot Wheels, Monster High, Mega Blok, and Thomas & Friends brands as well. The current P/E is a little over 13 with a yield of 5.5%. Dividend growth in the last 5 years has been over 15% annually on average. And while this year's dividend has not been as impressive as the 4 years before it, the low current price and the fact that you can own it free of trade fees make it a very strong buy in my opinion.

2. The Walt Disney Company (NYSE: DIS). I am not even going to try to list all of the brands under this company's umbrella, but it is necessary to point out that one of the reasons my #1 is suffering so much is due to Disney taking it's famous Princess brands over to the competition. Disney's dividend growth is a phenomenal 27.53% annually over the last 5 years. Dividends are only paid once a year, that's the only downside I could possibly think of, but this should be a component of every dividend portfolio. Current P/E 22 and the current yield is 1.20% which seems low, but when you have growth like that you can make the stock a permanent holding.

3. Starbucks (NASDAQ: SBUX). You know very well what they make, and you know you can't stop drinking it. I used to work as a bankruptcy & budget counselor, and this company's products were the top budget breaker. I saw people who's homes were going into foreclosure that were spending $300+ every month on their coffee. And they would sooner let that house go than give up their lattes. Today I teach people how to get paid by them instead. 25.6% growth in dividends over the last 3 years. The current P/E of 29 isn't as cheap as I'd prefer, and the current yield is 1.60%, but I give them weight for their phenomenal brand power.

3. So let's cover that competitor to Mattel I mentioned a moment ago. Hasbro (NASDAQ: HAS) is seeing 5-year dividend growth on the average of 17.82% per year. They will be taking the Disney Princess line away from Mattel in 2016, and will have exclusive rights to make Frozen dolls from that time forward. They also make Nerf, Transformers, Monopoly, My Little Pony, Play-Doh and the Easy-Bake Oven among others. The current P/E is 18, and the yield is 3.30%.

4. Microsoft (NASDAQ: MSFT). Makes software for computers such as Windows, and the popular Xbox One. Their most profitable division is by far their server-side support, which is usually what the public doesn't talk about when they get excited about the business. 17.38% annual dividend growth, current P/E of 18 and yield is 2.70%. Of note however, the dividend growth has not been as robust as it once was. It is probably cyclical based on Windows releases.

5. McDonald's (NYSE: MCD) I'm Lovin' it, You're eating it. 68 million people eat there every day. Sales for all of Taco Bell, KFC, Pizza Hut, Wendy's, Arby's, Jack in the Box and Chipotle combined do not add up to the annual business that McDonald's did last year. The company is not on analysts' hot list right now, but the dividend has grown 14.31% average over the last 5 years. The current P/E is 18 and current yield is 3.70%.

6. Yum! Brands (NYSE: YUM) There's nothing wrong with being #2, #3, and #4 in the fast food category. And except for a slide in 2013, Yum Brands is gaining market share. The smaller overall size of the company gives them a growth advantage over the more mature but saturated (Ha!) McDonald's, especially in growth markets like Asia. 14.31% dividend growth over the last 5 years, a current P/E of 22.62, with a 2.30% current yield.

7. Kraft (NASDAQ: KRFT). Kraft has as close to a monopoly as anyone can get on Macaroni and Cheese. Literally, their closest competition are themselves in this category, because they also own Velveeta. As well as Maxwell House, Gevalia, Yuban, Tassimo, Capri-Sun, Crystal Light, Country Time, Jell-O, Cool Whip, Stove Top, and Grey Poupon. Finally, Oscar Meyer, which frequently combines several of the previously listed brands in their Lunchables products. Their commercials rank among the world's most memorable. Just shy of a P/E of 17, current yield of 3.3%. Dividend growth since spinning off the Mondelez brands has been about 10% annually.

8. The Coca-Cola Company (NYSE: KO). Warren Buffett's favorite brand, and it's not hard to understand why. Sells its products under the Coca-Cola, Diet Coke, Sprite, Fanta, Minute Maid, Powerade, Aquarius, Dasani, Vitamin Water, Georgia, Simply, Minute Maid, Del Valle, Ayataka, Bonaqua, and Schweppes brands. The main reason that they make this list is because they have been essentially selling sugar water for the last 100 years, and I expect that they'll be selling it for the next 100. It's easy to predict the future that way. Current P/E of 23.64, long-term dividend growth rate of about 9% annually. This company is believed to have an edge over others in expansion into Africa, as Coke is very popular there.

9. Also in the soft drink conglomerates, PepsiCo (NYSE: PEP). Sells drinks under the Pepsi, 7-Up Gatorade, Mountain Dew, and Aquafina brands. But they're also the dominate salty snack maker. Chips under the Frito-Lay brands such as Lays, Ruffles, Fritos, Doritos, Tostitos, and Cheetos. They own Quaker, Rice-A-Roni, and have a Latin America segment with Marias Gamesa, Emperador, Saladitas, Sabritas Elma chips, and Rosquinhas Mabel brands. Here's a cool fact: In 1994, Frito-Lay spent $50 million to make Doritos brand chips thinner and have round edges. Current P/E of 21.52, Dividend Yield 2.70%, 5 year dividend growth rate 7.41% annually.

10. Unilever PLC (NYSE: UL). You were probably starting to think I only loved food companies. A very large consumer goods brand with numerous household items and food products. This company has my attention right now because they are based in the United Kingdom, and I believe that they will benefit from the actions their central bank is taking to lower interest rates there. A strong dollar should help increase the sales and profitability of their products in the USA, where they are forced to compete on price against Procter & Gamble (NYSE: PG), unfortunately not a Loyal3 listing. Payments are somewhat uneven amounts, but they have shown 8.36% dividend growth annually the last 5 years. P/E is 19 and current yield is 3.40%.

There are certainly other brands with larger dividend growth than some of these here, but price was a factor in choosing this list. A spattering of other companies that I also buy through Loyal3 that didn't make it this time were Intel (NASDAQ: INTC) Wal-Mart (NYSE: WMT), Target (NYSE: TGT), Hershey (NYSE: HSY), VF Corp (NYSE: VFC), Viacom (NASDAQ: VIA), Nike (NYSE: NKE), and Apple (NASDAQ: AAPL). Each has their own great qualities, and I'll probably have more to say about each of them at a future time.

Disclosure: The author is long AAPL, DIS, HAS, HSY, INTC, KO, KRFT, MAT, MCD, MSFT, NKE, PEP, SBUX, TGT, UL, VFC, VIA, WMT, YUM.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I hold long-dated options on Mattel, as well as a long position in Nintendo, a competitor to Microsoft.