DRIPs, Aristocrats and Monthly Dividends

06/06/2016 10:00 am EST

Focus: DIVIDEND

Charles Carlson

Editor, DRIP Investor

Income expert Chuck Carlson, editor of DRIP Investor, explains how investors can get a check every month by selecting stocks from each of three dividend-payment periods.

Steve Halpern:  Our special guest today is dividend expert Chuck Carlson, editor of DRIP Investor.  How are you doing today Chuck?

Chuck Carlson:  I’m good Steve, thank you.

Steve Halpern:  Well thank you for taking the time.  For our listeners who are unfamiliar with DRIPS, could you give a primer on dividend reinvestment plans?

Chuck Carlson:  Sure, dividend reinvestment plans, or DRIPS, are programs offered by around 900 companies, both US as well as foreign, that allow investors to buy stocks directly from the company.  

Investors buy stock in two ways in these plans.  In the first way, instead of receiving dividend checks, companies will take those dividends and reinvest them for individuals to buy additional shares of stock.  

The second way is that most plans have what’s called an optional cash investment option whereby you can send an additional amount of money directly to the company or an agent of the company, which is what’s called a transfer agent, who administers the plan for the company, and in many cases, these minimum investments can be as little as $25 to $50 once you’re enrolled in the plan.

Steve Halpern:  And that allows you to really accumulate a larger stake over time and sort of just by the nature of ongoing investing take advantage of dollar cost averaging as well, correct?

Chuck Carlson:  Well, that’s right, I mean one of the biggest strengths of these programs is it allows an individual to mold an investment program based on his or hers own financial restraints because the minimums tend to be quite small and the maximums can be quite large.

So for a dividend company you can go out and buy stock again usually $25, $50 a crack, and if your amount isn’t enough to buy a full share of stock, you can actually buy a fractional share of stock and be entitled to the fractional part of the dividend.

So they’re great plans, especially for individuals that like to buy and accumulate and hold stock over a long period of time and take advantage of things that you mentioned such as dollar cost averaging where you’re making regular investments in your stocks on a regular basis.

Steve Halpern:  Now in your latest report to subscribers, you focused on DRIFTs that were issued from companies that qualify as what you called dividend aristocrats.  What qualifies a stock to this status?

Chuck Carlson:  Typically, dividend aristocrats, which is actually a term coined by Standard and Poor’s to describe companies that have raised their dividends annually for at least the last 20 years; so these are companies that can be viewed as very consistent dividend increasers, again, a minimum of 20 consecutive years of raising their dividends.

Steve Halpern:  Okay, so we’ve got his background, do you assess the dividend aristocrats, but look at their dividend payment dates in order to create a recommended portfolio for your subscribers that provided dividend checks on a monthly basis.  Could you explain how you achieved this strategy?

Chuck Carlson:  Sure, you know, most people are familiar with the quarterly dividend payment schemes that most US companies have where every three months you will receive a dividend check for those companies that pay dividends.  

What people kind of fail to understand or don’t really think through is that not all companies are on the same three-month payment scheme.  

For example, a lot of companies pay their dividends every March, June, September, and December, that’s probably the most popular payment period, but a lot of companies pay their quarterly dividends on off-months.  

For example, there are companies that pay dividends every February, May, August, and November and there are also companies that pay their dividends every month beginning January, in April, July, and October.  

So, there are really three distinct quarterly payment schedules, and what we did in this story was divided up the dividend aristocrats showing companies that a) offered DRIP programs, and b) breaking up those companies by their dividend payment dates, so we have a listing of companies that pay every January, April, July, and October.  

We have another list that pays every February, May, August, and November; and then finally those that pay every March, June, September, and December, and an investor who owns stocks from each of those three categories, because of how those companies pay their dividends, would receive a dividend check every month of the year.

Steve Halpern:  So let’s look at some individual stocks and you’ve highlighted some of your favorites within each of these dividend payment periods.  Let’s begin with the January, April, July, October cycle.  Could you tell us a few stocks that stand out in this group?

Chuck Carlson:  Sure, that’s probably the least popular payment period, but there are still plenty of interesting stocks in there.  Some of the stocks that I did highlight include UGI (UGI), which is a utility company, a gas utility company, and they also have a propane business.  

Among utility stocks, we think it’s one of the more attractive issues in the utility stocks.  

There’s a second company in that theme -- Medtronics (MDT) -- which is the well-known healthcare technology company focusing on things like pacemakers and defibrillators and cardiovascular equipment.  

Finally, a third stock I’ll throw out is Albemarle (ALB), which is a chemical company.  Albemarle’s actually one of the few companies that mines lithium and with the increase in demand for lithium because of lithium batteries and things like that, it’s a company where their business has done quite well.

Those are three names of companies in that particular payment scheme, the January, April, July, and October that we particularly like; and all three do offer dividend reinvestment plans.

Steve Halpern:  So let’s turn to the second payment cycle, which is February, May, August, and November.  What issues would you highlight here?

Chuck Carlson:  One that I would highlight is C.R. Bard (BCR); again, it’s a medical technology company in the cardiovascular area along with some other medical areas.  The stock has performed well and the company’s earnings have been solid as well.  

Also, Proctor and Gamble (PG) is kind of a long-time favorite of mine; I’ve been a long-time owner of Proctor and Gamble, it’s a company that I believe has increased its dividends annually for more than 50-plus years.

So it has one of the more lengthy dividend increase records among the dividend aristocrats and it’s a stock currently yielding over 3%, so you get a nice bump between growth as well as current income.

Steve Halpern:  Now finally let’s look at the companies that pay in March, June, September, and December, which you know is the most common period.  Are there a few groups here that would stand out for investors?

Chuck Carlson:  Yes, and this tends to be the most popular payment period, so your choices in this particular group are pretty plentiful.  To give some names in this sector, again, all of these companies offer dividend reinvestment plans.  

There’s Aflac (AFL), the insurance company; there’s Aqua America (WTR), which is a water utility, Atmos Energy (ATO), which is a gas utility.  You’ve got some medical companies such as Johnson and Johnson (JNJ) and Becton Dickinson (BDX).

In the consumer products, consumer staples areas you have PepsiCo (PEP) and McDonalds (MCD), and then finally you have also a stock that’s been a long-time owned of mine, which is Walgreens Boots (WBA), the drug store chain.  

These are all companies that have dividend reinvestment plans, have paid dividends annually for at least the last 20 years, and are companies that I think offer good long-term potential.

Steve Halpern:  Again, our guest today is Chuck Carlson of DRIP Investor.  It’s really fascinating to hear your thoughts.  Thank you so much for your time today.

Chuck Carlson:  Thank you.

By Chuck Carlson, Editor of DRIP Investor

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