The Fool’s Take
Dividend-paying stocks have outperformed nonpayers by more than 2-to-1 over the past 50 years, and the strongest results come from companies that steadily increase their dividend payments.
One of the easiest ways to invest in dividend payers is via an exchange-traded fund such as the Schwab U.S. Dividend Equity ETF. This ETF closely tracks the Dow Jones U.S. Dividend 100 Index, which aims to measure the performance of 100 top high-yielding U.S. dividend stocks.
It focuses on companies with strong financial profiles and consistent records of paying their dividends. These characteristics mean that these companies have stable and often rising dividends.
The index sported an average dividend yield of 4% as of the end of July and an average forward-looking price-to-earnings (P/E) ratio of 14. With its blend of yield and growth positions, the Schwab U.S. Dividend Equity ETF is expected to deliver attractive total returns in the future. (The ETF’s dividend yield was recently 3.9%.)
The Schwab U.S. Dividend Equity ETF’s components feature many top-tier dividend stocks and posts solid returns, too, averaging annual gains of 11.5% over the past decade.
Ask The Fool
From R.R., Binghamton, N.Y.: What’s a rolling average?
A rolling, or moving, average is used to reveal long-term trends by smoothing out data.
Imagine, for example, a list of a location’s precipitation on July 4 over 25 years. Some unusually high or low numbers would make it hard to see a trend. A simple moving average, though, would show you the average precipitation over subsets of those years.
For example, to get a three-year moving average, you’d first average the numbers for years 1, 2 and 3. Then you’d average years 2, 3 and 4, then years 3, 4 and 5 — and so on, ending with years 23, 24 and 25.
You’d end up measuring 23 three-year periods. While a graphed line of the original 25 numbers might be jagged, the 23 three-year averages will produce a smoother line.
Some investors try to guess where various stocks are headed by studying moving averages of their stock prices. We prefer to focus on factors such as companies’ financial health and growth prospects.
From C.P., Lake City, Fla.: Where can I find a list of a company’s board of directors?
Try visiting the company’s website and looking for a link or tab that says something like “About Us,” where there may be a “Leadership” or “Governance” area. There, you’ll often find photos and short bios of directors.
Alternatively, click over to your favorite online search engine and search for the company’s name and “board of directors.”
You can also just call the company and ask for the “investor relations” department. (That department may even send you more information on the company, if you ask.)
The Fool’s School
You’re probably protecting yourself against some uncommon disasters, perhaps by not standing under trees during lightning storms or having a grab-and-go bag in case you need to evacuate due to a wildfire.
But here are some more likely disasters you may not be preparing for:
A job loss: A job loss can strike at any time, and you don’t want to have to take on debt to survive. So have an emergency fund ready, stocked with at least several months’ worth of living expenses, such as food, housing, utilities, taxes, transportation and so on. It can also be smart to make yourself more valuable to your employer or other potential employers by learning new skills or getting new certifications or degrees.
A poor credit score: A low credit score means you’ll face higher interest rates when you want to borrow money, such as for a home or car — and with a mortgage, a higher rate can end up costing you tens of thousands of dollars, if not far more. You can boost your credit score by paying down your debts and paying bills on time.
Needing long-term care: According to a 2022 research brief from the U.S. government, 56% of people turning 65 will need some long-term care at some point. For those who do, it will be costly, so look into how you might afford it if need be. Those who are wealthy can pay for such care on their own, and those who are struggling financially probably won’t be able to pay for it at all. But if you’re in between, you should consider long-term care insurance. (Tip: Some annuities include a long-term care feature.) Learn more at LongTermCare.gov.
Running out of money after retiring: Take some time to figure out how much income you’ll need in retirement and where it will come from. Social Security will play a part, but probably a small one. Delaying retirement for a few years can help you save more, and taking on a side gig can help, too.
My Smartest Investment
From N.S., email: My best and worst investment decision was buying and selling Apple stock. Many years ago, I bought $5,000 of Apple stock; a few years later it was worth $30,000. I sold the shares to make a down payment on a small cottage.
If I’d kept the stock, though, I would no doubt be a millionaire several times over. However, now retired, my wife and I live in this second home. (It cost us $60,000 and is now worth $700,000.) The investment worked for us, and we are very grateful.
The Fool responds: Hindsight is 20/20, and nearly all of us have investments we sold but wish we’d hung on to.
Apple went public on Dec. 12, 1980, and if you’d bought one share then, it would have become 224 shares by now, due to multiple stock splits. At a recent stock price of $233, that single purchase would be worth more than $52,000.
If you’d started with, say, 200 shares, they would now be 44,800 shares, worth well over $10 million in total.
Holding on to Apple stock so long would not have been the obvious thing to do, as the company went through plenty of tough years, when its future didn’t seem golden. We bet you’ve gotten a lot of enjoyment out of that cottage!
(Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.)
Who Am I?
I trace my roots to 1894, when my founder launched the Lancaster Caramel Company and set me up as a chocolate-making subsidiary.
I debuted milk chocolate bars in 1900, and seven years later, I introduced osculations (under a different name). In 1909, my founder started a school (and home) for orphaned boys. I supplied World War II soldiers with field rations.
Today, with a recent market value above $36 billion, I’m headquartered in an area that used to be a village called Derry Church. My brands include Reese’s, Twizzlers, Heath, Almond Joy, Jolly Rancher and Skinny Pop.
Who am I?
Forget last week’s question? Find it here.
Last week’s answer: MetLife