As DRIP Investors, we are buying an income stream—dividends— that will ultimately replace our wages or self-employment income. As Finance Professors Rubin and Spaht stated, “For those investors who adopt ten and fifteen year horizons, the dividend investment [DRIP] strategy will lead to financial independence for life. Regardless of the direction of the market, a constant and growing dividend is a never-ending income stream.”
If after we buy a DRIP stock, it drops in price, we still receive the same increasing dividend payment, which is reinvested at a cheaper price, buying more shares resulting in a higher dividend yield. I know it sounds crazy and goes against what Wall Street peddles, but DRIP investors benefit from stock market declines!
Take for example, MPLX LP (MPLX),[1] which has a current yield of 8.46% at a price of $40.68 per share; this DRIP Contender has paid and raised its annual dividend for 12 years, with an average annual increase of 10.79%. The initial cost for 100 shares would be $4,068.00 with an annual dividend of $344.15, which when reinvested will purchase 8.46 more shares at the end of the first year. Assuming we enter a recession after one year and MPLX declines in value by 32%, our 108.46 shares are only worth $3,000.26. Even though, on paper, we have an unrealized loss of $1,067.74, our second-year dividend increases to $381.29, which when reinvested, buys us 13.78 additional shares of MPLX.
Play this out through the end of year five and we have increased the number of shares we own from 100 to 173.18. If MPLX never recovered from the 32% decline or $27.66 per share, our MPLX portfolio would be worth $4,790.20: an increase in value of 17.75% over our original cost of $4,068.00.
If, however, after 5 years MPLX increased in value to the $40.68 per share that we originally paid for it, our MPLX portfolio would be worth $7,045.02, a 73.18% increase over our original purchase price.
MORE IMPORTANT, the annual dividend increases by 50.66%, from $344.15 to $518.51 representing “a constant and growing . . . never-ending income stream.” REMEMBER, we live off income and under the DRIP strategy, our principal stays intact!
In our April 26, 2024, Newsletter Issue 42-2024, we identified 25 DRIPs that represented Great Businesses to Buy Now. As of this writing, the following three no longer meet our criteria:
· 3M Company (MMM)
· Air Products & Chem (APD)
· HP Inc (HPQ)
The remaining 22 DRIPs from Issue 42-2024 still represent Great Businesses to Buy Now. The following four DRIPs have been added to our list of Great Businesses to Buy Now:
· PepsiCo Inc (PEP) - $172.90, yield = 3.18%, Paid/Raised 48-years, 10.8% Incr per year
· MPLX LP (MPLX) - $40.68, yield = 8.46%, Paid/Raised 12-years, 10.79% Incr per year
· Gaming and Leisure Properties Inc (GLPI) - $44.90, yield = 6.87%, 10-years, 10.68% Incr
· Hess Midstream LP (HESM) - $34.75, yield =7.60%, 7-years, 11.64% Incr per year
Are you interested in a high-yield portfolio? If so, consider the following:
1. Franklin Resources Inc (BEN) - $23.05, yield = 5.32%, Paid/Raised 43-years, 12.3% Incr
2. Enbridge Inc (ENB) - $36.15, yield = 7.36%, Paid/Raised 28-years, 11.3% Incr
3. Enterprise Products Partners (EPD) - $28.04, yield = 7.3%, Paid/Raised 27-years
4. Arbor Realty Trust Inc (ABR) - $13.27, yield = 12.86%, Paid/Raised 12-years, 12.87% Incr
5. Cogent Communications Holdings Inc (CCOI) - $59.39, yield = 6.59%, 12-years, 13.95%
6. NextEra Energy Partners (NEP) - $34.31, yield = 10.61%, 10-years, 14.90%
7. Hess Midstream LP (HESM) - $34.75, yield =7.60%, 7-years, 11.64% Incr
8. MPLX LP (MPLX) - $40.68, yield = 8.46%, 12-years, 10.79% Incr
9. Gaming and Leisure Properties Inc (GLPI) - $44.90, yield = 6.87%, 10-years, 10.68%
10. Int’l Business Machines (IBM) - $169.35, yield = 3.91%, 28-years, 17.5%
If you purchased an equal number of shares of each of the above DRIPs, say 100 shares of each, it would cost approximately $49,000 with an average annual first year dividend yield of 6.4%. Can’t afford $49,000… buy 20 shares of each, which will cost you just under $10,000.
For a 10% yield, drop IBM, purchase 2,000 shares of ABR, 300 shares of NEP, and 100 shares of the remaining seven DRIPs, which will cost you approximately $64,000. Can’t afford $64,000… buy 200 shares of ABR, 30 shares of NEP, and 10 shares of the remaining seven DRIPs for a total cost of $6,500.
With the above DRIPs and the Great Buys from our Newsletter, dated April 26, 2024, you now have 26 DRIPs to choose from!
If you are interested in becoming financially independent and desiring freedom from the 9-to-5 daily grind within 10-to-15 years, keep buying DRIP stocks.
To understand why Gold, Bonds, ETF’s, Mutual Funds and Real Estate cannot compete with DRIP stocks, please read, The Best Kept Secret to Financial Freedom, Amazon.com: The Best Kept Secret to Financial Freedom eBook : Beard Jr., Robert G.: Kindle Store. Pass this information along to your family, friends, and associates.
If you want your children and grandchildren to obtain financial independence early in their lives, no matter what job or career they choose, and no matter how many mistakes they make along the way, get them started early!
Dum Spiro Spero—While I breathe, I hope.
Slàinte mhath,
Robert (Mike) G. Beard Jr., C.P.A., C.G.M.A., J.D., LL.M.
[1] Go to the Dividend Channel, https://www.dividendchannel.com, type symbol MPLX, and you will find out what this company does; do the same for any other DRIP listed here. Go to Dividend Radar (portfolio-insight.com) to get the most recent listing of Dividend Champions, Contenders, and Challengers.