Debt Free

Tech and other hyper growth stocks are kind of like those friends you used to have before you got older and more responsible. They could be a blast to hang out with, but you never knew when they were going to get you in a heap of trouble. Now, you presumably don't have the desire to be in the back of that crazy guy's Camaro drinking Bud talls, taking bong hits, and speeding around town in search of the next party any more. As the smoke from the burning BF Goodrich T/As clears a bit, you're probably looking for something with a good bit of upside without the hair raising element of being inebriated in the back of Spike's muscle car, bouncing through the desert. As we look back on it, many of us made it through the dot bomb era with the same sense of relief we got after getting through our high school and college years. We may have had the crap scared out of us a few times, but at least we made it through in more or less one piece.

Here's something you may have thought about with the same frequency you entertained the thought of staying home and studying on Friday night; boring stocks that actually pay great dividends. In the old days, that was how many of our parents actually made their investments pay off. Somewhere along the line, that just seemed too boring. Why get a few cents a share when you could get explosive growth. After all, it's kind of cool to watch your shares go from $4.00 to $25.00. It gives you kind of rush; similar to what you got sitting in the back of Spike's Camaro with super hot Suzy from 4^th period English, and a bottle of malt liquor. The problem is that the vast majority of your equities have even less of a chance to make those kind of gains than you did of getting into Suzy's pants.

Where does that leave you? Probably with a bit of a hangover and a sense of frustration. Fear not. You just need to look in a different direction. “Well, what about boring stocks that pay great dividends?” you may be asking. I'm glad you brought it up. If you actually plot the gains you can make from such investments, it's actually greater in many cases than what you can obtain from growth stocks. In addition, you don't have to incur that feeling in the pit of your stomach. The key is reinvestment of your dividends.

The real gems are found by looking at companies that have a low stock price, but still pay great dividends. There are many firms that fit that picture. They are fairly profitable, and have solid fundamentals, but for whatever reason, have been overlooked by many investors. That allows you to reinvest your healthy dividends buy buying fairly cheap shares of the company. In time, your portfolio will grow to mind boggling proportions using this strategy.

Many companies will even allow you to participate in a direct stock purchase / dividend reinvestment plan. Hershey Company for example, you know, the chocolate people, will allow you to start such a program with a minimum of 1 share and $25.00 a month. The best part is that many of these companies provide impressive returns. Only $500 invested in Hershey in 1980 for example, would have bought 20 shares of class B common stock. This would now be now be worth, sit down, $27,164.00! Hershey has had 4 stock splits since 1980, leaving you with 489 shares today. The best part is that $27,164 does not even factor in the effects of dividend reinvestment. Over the last 10 years, Hershey has paid dividends averaging almost $0.61/share/year. If you'd reinvested all dividends since 1980, you'd get to take advantage of the stock splits over the intervening years.

If you'd only managed to purchase a average of 4 shares a year as a result of dividend reinvestment, you would have managed to amass an additional 368 shares, thanks to the stock splits. So you grand total shares of Hershey stock would number 857! Those 857 shares were worth, at the close of business Friday, $55.46 each. Your little $500 investment in 1980 would now be worth $47,529.22! If you'd only taken that graduation gift and bought a few shares of a chocolate company instead of flying around town spending it on booze and doobies, you'd be so much better off today! The lesson is that, just because a stock doesn't seem like it's sexy, with tons of growth potential, it may still give you amazing returns. Pick solid companies that may be a bit undervalued but pay good dividends and reinvest those dividends. You may be surprised to wake up rich one of these days.