Dividends are a great way to build up a truly passive income stream. For doing nothing more than simply being a shareholder of stock, the company will share a fraction of its earnings with you each quarter.
Even though its quite easy to get started with investing in dividend stocks, one of the biggest challenges is often knowing where to look for them or which ones to buy.
If you want my advice, the solution is simple: Purchase a group called the Dogs of the Dow. The Dogs of the Dow are not only among some of the best blue chip dividend stocks available, but they also offer a very strategic advantage for market value growth as well.
What Are the Dogs of the Dow?
Simply put, the Dogs of the Dow are the top 10 highest dividend yielding stocks among the 30 companies in the Dow Jones Industrial Average.
The way it works is that an investor will buy up equal shares of each of the 10 companies and then hold on to them for at least one year. Every year at the beginning of January the composition of the group changes based on the current market stock price and dividend payout for each company. After one year you can switch up your portfolio by changing it to the latest members of the Dogs of the Dow.
An easy way to know which stocks are in the group is to look them up on the website The Dogs of the Dow. Not only does this website keep useful year-to-day stats of all these stocks but it also offers quite a bit of useful knowledge and back-history as well.
Though we won’t cover it here, there is an alternative version of this strategy called The Small Dogs that uses only the top five highest dividend yield stocks (as opposed to the top 10).
Why the Dogs Are the Best Blue Chip Dividend Stocks:
The reason I like to stick to using the Dogs of the Dow dividend stock strategy is for a few key reasons:
- It’s easy to implement
- Above-average dividend yield
- Consistent market growth
- Stability with blue chip companies
1. Easy to Implement:
With this strategy the 10 stocks you’re going to buy is pretty cut and dry. There’s no need to do hours of research or analysis of any kind. You simply just buy the top 10 highest dividend yielding stocks from the beginning of the year – it’s that simple.
2. Above Average Dividend Yield:
On average the dividend yield for the 10 stocks in the Dogs of the Dow is usually between 3 and 4%. Now compare that to the average dividend yield of the S&P 500 at somewhere around 2%. That’s almost 2% more per year in your pocket! Though that may not seem like an incredible amount of money, an extra money stream of 2% year over year can really add up!
On top of that, the Dogs have beaten the regular Dow average by almost 1 percentage point over the course of the past 14 years. That’s not too bad either!
3. Consistent Market Growth:
The great thing about investing with dividend stocks is the consistency of market growth. Not only do you have the opportunity for the market share price of the stock to increase in value over time, but you also get to receive a semi-guaranteed income stream of dividends. This helps create a nice “buffer” against bad market conditions. For example, if the market is down 10% one year but you made 4% in dividend payments, then you’ve really only lost 6% as opposed to everyone else who also lost 10%.
Now compare that to stocks that do not pay dividends. With those types of stocks, the only thing you have to rely on is the market price. So, again, if the market goes down 10%, you just lose 10% of your investment. There is no buffer to offset that loss.
4. Stability with Blue Chip Companies:
The last thing I like about using the Dogs of the Dow is the fact that I’m only investing with stable, blue-chip stocks. As every investor knows, there are unique risks and benefits to going after different stocks of different sized-companies. Though small and medium sized companies may pose the possibility of attractive double-digit gains, they also can stand a greater likelihood of failure as well as complete loss of investment.
The same is generally not true for the types of large-cap multi-billion dollar types of companies that are considered to be blue chip. Because of their size, experience, and established product lines or services, these types of companies generally grow at a much more consistent pace. They also know how to weather any economics storms or temporary financial hardships. So this helps to eliminate the chance for loss.
Not only are dividends a great way to produce a steady stream of passive income, but they also represent a semi-guaranteed portion of earnings that you wouldn’t normally get with just any stock. To make things easy on yourself, look into the Dogs of the Dow to easily see which companies are the best blue chip dividend stocks, and then you’ll have the strength of the Dow Jones group working to put more money in your pocket.
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