In this article, we discuss 13 best DRIP stocks to own. You can skip our detailed analysis of the dividend reinvestment plan and the overall performance of dividend stocks, and go directly to read 5 Best DRIP Stocks To Own.
A dividend reinvestment plan, or DRIP, is a strategy where investors use the dividends earned from a stock to buy more shares of that same stock, rather than receiving the dividends in cash. This allows investors to acquire additional shares of the company, leveraging the power of compounding. Over time, the increased number of shares can lead to higher dividend payments, creating a self-reinforcing cycle of growth. Over time, experts have closely watched and spoken positively about reinvesting dividends. Steven Greiner, managing director of Schwab Equity Ratings at the Schwab Center for Financial Research, is on board with this strategy. Here is what he says:
"Reinvesting dividends is nearly effortless. Once you set it up—which generally involves simply ticking a box—there's nothing more to do but sit back and let compounding work its magic. Be aware, however, that companies can reduce or stop paying dividends."
Mr. Steven's final point is a dividend investor's worst fear. Nobody wants to put their money into companies that suddenly stop paying dividends. That's why dividend investors look for companies with a solid track record of consistent and strong dividend growth to avoid unpleasant surprises. Having a strong track record of dividend growth can boost returns and act as a defense against the eroding effects of inflation by offering a steadily increasing income stream, almost like an annual raise. Additionally, companies that consistently increase dividends also have the potential for price appreciation. This is because stock prices often follow the upward trajectory of a company's earnings and dividends over the long term.
According to a report by T. Rowe Price, holding onto a dividend growth approach for an extended time can help your returns grow exponentially. In the last three decades until last year, reinvested dividends played a significant role, making up 42.5% of the S&P 500 Index's overall gains. The report further mentioned that it's even more powerful for a group of excellent companies that boost their dividends faster than the market. This is because the more frequently a growing dividend is reinvested, the stronger its potential influence on long-term returns. Johnson & Johnson (NYSE:JNJ), The Procter & Gamble Company (NYSE:PG), and AbbVie Inc (NYSE:ABBV) are some of the best DRIP stocks to own as these companies hold strong dividend growth track records.
As mentioned earlier, dividends play a big role in the overall returns of the market. A report by iShares pointed out that in certain periods, like the 1940s and 1970s, dividends made up at least half of the stock market's total return. It's important to note that these returns assume investors reinvested the dividends by buying more shares instead of taking the cash. The key takeaway is that due to the compounding effect, being in the market for a long time is often more crucial for investment success than trying to time the market perfectly. In this article, we will take a look at the best DRIP stocks to own.
To compile this list, we looked through Insider Monkey's database of over 900 hedge funds as of Q2 2023. We specifically chose dividend stocks that provide a dividend reinvestment plan (DRIP) to shareholders. After filtering, we narrowed down the selection to companies with robust and consistent dividend track records. The stocks are ranked in ascending order of the number of hedge funds having stakes in them, as of Q2 2023.
Hormel Foods Corporation (NYSE:HRL) is a big player in the food industry. The company specializes in producing and selling a wide range of food products. On September 25, the company declared a quarterly dividend of $0.275 per share, which was in line with its previous dividend. Overall, the company holds a 57-year streak of dividend growth, which makes it one of the best DRIP stocks to own. The stock's dividend yield on November 9 came in at 3.39%.
At the end of Q2 2023, 24 hedge funds in Insider Monkey's database reported owning stakes in Hormel Foods Corporation (NYSE:HRL), compared with 30 in the previous quarter. The consolidated value of these stakes is over $267.2 million. With over 2 million shares, Bill & Melinda Gates Foundation Trust was the company's leading stakeholder in Q2.
Realty Income Corporation (NYSE:O) is an American real estate investment trust company that focuses on commercial properties. The company owns a diverse portfolio of retail and commercial properties, and its tenants include a variety of businesses, from convenience stores to drugstores to supermarkets.
Realty Income Corporation (NYSE:O) is one of the best DRIP stocks to own as the company pays monthly dividends to shareholders. In addition to this, the company has been raising its dividends for 29 consecutive years. It pays a monthly dividend of $0.256 per share for a dividend yield of 6.01%, as of November 9.
As of the close of Q2 2023, 24 hedge funds tracked by Insider Monkey held stakes in Realty Income Corporation (NYSE:O), up from 22 in the previous quarter. The collective value of these stakes is over $243.6 million.
Harley-Davidson, Inc. (NYSE:HOG) is an American motorcycle manufacturer. They design, manufacture, and sell heavyweight motorcycles, as well as offer related products like riding gear and accessories. The company currently pays a quarterly dividend of $0.165 per share, having raised it by 5% in February this year. This marked the company's third consecutive year of dividend growth. The stock's dividend yield on November 9 came in at 2.39%.
Insider Monkey's database of Q2 2023 indicated that 27 hedge funds owned stakes in Harley-Davidson, Inc. (NYSE:HOG), with a total value of over $717.7 million. Among these hedge funds, H Partners Management was the company's largest stakeholder in the second quarter.
A. O. Smith Corporation (NYSE:AOS) is a Wisconsin-based manufacturer of water heaters, boilers, and other water treatment products. In its recently announced quarterly earnings, the company reported a strong cash position. Its operating cash flow for the quarter came in at $439 million and it also generated $396 million in free cash flow.
A. O. Smith Corporation (NYSE:AOS) declared a 7% hike in its quarterly dividend to $0.32 on October 9. Through this increase, the company stretched its dividend growth streak to 30 years, which makes AOS one of the best DRIP stocks to own. As of November 9, the stock has a dividend yield of 1.80%.
The number of hedge funds tracked by Insider Monkey owning stakes in A. O. Smith Corporation (NYSE:AOS) jumped to 39 in Q2 2023, from 28 in the previous quarter. These stakes are collectively valued at over $640.6 million.
3M Company (NYSE:MMM) is a multinational conglomerate that operates in various sectors, including industry, worker safety, healthcare, and consumer goods. On November 7, the company announced a quarterly dividend of $1.50 per share, which fell in line with its previous dividend. Its dividend growth streak currently stands at 65 years, which makes MMM one of the best DRIP stocks to own. The stock offers a 6.50% dividend yield to shareholders.
With a collective stake value of over $726.7 million, 49 hedge funds in Insider Monkey's database owned positions in 3M Company (NYSE:MMM) in Q2 2023. In the previous quarter, 51 funds held stakes in the company with a total collective value of roughly $700 million.
Emerson Electric Co. (NYSE:EMR) is next on our list of the best DRIP stocks to own. It is a global technology and engineering company that provides a wide range of products and services across various industries. The company holds one of the longest dividend growth streak records, spanning over 67 years. It currently pays a quarterly dividend of $0.525 per share and has a dividend yield of 2.48%, as recorded on November 9.
As per Insider Monkey's database of Q2 2023, 49 hedge funds, up from 47 in the previous quarter, owned stakes in Emerson Electric Co. (NYSE:EMR). Their collective stake value is more than $1.77 billion.
Caterpillar Inc. (NYSE:CAT) is a renowned global manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. The company offers a quarterly dividend of $1.30 per share and has a dividend yield of 2.21%, as of November 9. It is one of the best DRIP stocks to own as the company has raised its dividends for 29 consecutive years.
At the end of the June quarter of 2023, 50 hedge funds in Insider Monkey's database owned stakes in Caterpillar Inc. (NYSE:CAT), compared with 52 in the previous quarter. These stakes are collectively valued at over $2.55 billion. With more than 7.3 million shares, Bill & Melinda Gates Foundation Trust owned the largest position in the company.
Chubb Limited (NYSE:CB) is a New Jersey-based global insurance company that provides a range of insurance products and services to individuals and businesses. The company's dividend growth streak currently stands at 30 years and it pays a quarterly dividend of $0.86 per share. The stock's dividend yield on November 9 came in at 1.57%.
The number of hedge funds tracked by Insider Monkey owning stakes in Chubb Limited (NYSE:CB) grew to 50 in Q2 2023, from 45 in the previous quarter. These stakes have a collective value of over $1.7 billion.
