There's a very simple formula for growing your wealth in the stock market: Buy the stock of solid companies that are raising their dividends every year, and reinvest those dividends. When you reinvest dividends, every three months you get more stock in place of the cash dividend. Then, when the next dividend is paid, you get more, because you have more stock. And when the dividend gets raised, well, you get even more money. This is the power of compounding. And if you do it over a period of time, you will inevitably end up with a fortune.
Watch out for the dividend sector known as "Consumer Staples." Consumer staples are companies whose products are staples — that is, people buy the products no matter what the economy is doing. This includes things like toothpaste, diapers, and food and companies like Johnson & Johnson (NYSE: JNJ), Hormel (NYSE: HRL), Kimberly-Clark (NYSE: KMB), or Procter & Gamble (NYSE: PG). Bloomberg reports that retiring baby boomers have been buying these supposedly "safe" dividend stocks hand over fist, and they have driven the prices up very high. For instance, Kimberly-Clark has a P/E ratio of 21 — that's 35% higher than its 10-year average. And with a P/E of 31, Hormel is 65% higher than its 10-year average. Hormel is also 62% higher than the average tech stock.
Source: Wealth Daily
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- A Winning Investment Strategy
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