If you want to accumulate money over the long run, don’t limit your search to growth companies. The importance of dividend stocks in your portfolio can’t be understated. This is true with Hormel Foods (HRL 0.20%) and Realty Income (O -1.39%), both of which may be worth purchasing.
The dividend yield for food manufacturer Hormel is now about 2.3%, which is towards the top of the historical yield range for the business. That implies that the stock is now rather inexpensive and may be worthwhile for long-term income investors to purchase. That’s true even if the yield of 2.3% isn’t exactly mind-blowing in terms of absolute value. The main factor is dividend growth.
Due to its portfolio of well-known food brands, Hormel has been able to raise its dividend at an average annualized rate of nearly 13% over the previous ten years. Over that time, the quarterly dividend’s value has grown by almost 240%. That is a significant increase in dividends. The intriguing part is this, though: Stocks often move in a range of yields. Therefore, the yield has remained mostly stable throughout time even if it is historically high now. The stock rises in tandem with the dividend, which is how it happens. In the last ten years, the stock price has increased by around 220%. For comparison, the S&P 500 Index has increased by nearly 180% during the same time period.
It’s also important to note that Hormel is a very elite Dividend King, having had yearly dividend increases for more than 50 years. Therefore, the decade-long trend of dividend increases is not unusual; rather, it is the rule. Hormel is a brand to take into consideration right now if you want to make your retirement more comfortable.
The value of reinvesting dividends
Above, the S&P 500 comparison was made only on price change. When you reinvest dividends, true magic may happen; a prime example is the sizable real estate investment trust Realty Income. The S&P 500 has increased 345% over the last 20 years, while Realty Income shares have gained about 310%. But Realty Income has a prodigious track record of delivering dividends (it is a Dividend Aristocrat).
If all of the dividends had been reinvested, Realty Income’s total return—which includes reinvested dividends—would have been a staggering 1,100%, as opposed to the S&P 500 index’s about 550%. That demonstrates the dividend reinvestment strategy’s strength. And all of a sudden, despite the fact that the average historical dividend increase in this REIT has been a very small 4% or so, this REIT and its around 4.4% yield start to appear much more appealing.
Realty Income is also one of the biggest net lease REITs, which means that even while it owns buildings, most of the running expenses at the property level are covered by its tenants. In fact, this REIT has the capacity and scope to take on transactions that its competitors couldn’t even consider, with over 11,000 properties, a $40 billion market valuation, and an investment-grade rated balance sheet. Since there is no reason to believe it will relinquish its position as the industry leader, the future is certain to become larger and better. For long-term investors, this market leader is well worth the admittance fee.
Do not disregard dividends.
Hormel demonstrates how quick a stock price increase may result from quick dividend growth. Realty Income exemplifies the potential of dividend reinvestment and modest, consistent dividend growth. Don’t disregard dividends in favor of growth equities if you want to have a wealthy retirement. And if you take the time to do some research, both Hormel and Realty Income may fit into your portfolio right now.
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