Best Dividend Reinvestment Plans for 2017
Building wealth takes time and effort. Luckily, there’s something called the power of compounding that can help investors achieve this goal. At Income Investors, we tend to look at companies that provide a steadily growing stream of dividends. But for investors that don’t need to use the cash dividends immediately, they can choose to reinvest those dividends and let the power of compounding work its magic. In fact, there are stocks with dividend reinvestment plans, or DRIPs. In this article, we are going to take a look at the five best dividend reinvestment plans for 2017 and how you can enroll in these plans.
Participating in DRIPs has many benefits. Because investors are reinvesting directly with the company, there’s usually no commission when they use their dividends to buy new shares. Even when companies use transfer agents to handle their DRIPs, they almost always take care of the fees and commissions for investors, so every penny of your dividends goes to purchasing new shares.
Other than no-fee DRIPs companies, there are also companies offering discount DRIPs. In those cases, investors would be able to use dividends to purchase shares at a discount from the market price, usually between one and five percent.
How powerful can DRIPs be when it comes to building wealth over time?
Well, let’s take The Coca-Cola Co (NYSE:KO), one of the blue-chip companies with DRIPs, as an example. If an investor invested $100,000 in Coca-Cola stock 10 years ago and collected and spent all the dividends, their portfolio would be worth $169,732 today. And that’s because KO stock went up 69.7% during this period.
However, if the investor enrolled in the company’s DRIP and reinvested all the dividends over the past 10 years, their portfolio would be worth $222,412, translating to a return of 122.4%. That’s the power of compounding!
Of course, when the investor participated in Coca-Cola’s DRIP, they gave up the opportunity to enjoy those cash payments over this period. So DRIPs are not for everyone. If the goal of your investment is to provide a stream of income to cover everyday expenses, it’s probably a better choice to collect and use those dividends as they are distributed.
Don’t forget, while DRIPs can be the most cost-efficient way to reinvest your dividends, investing in DRIPs is not just about finding the biggest discount. It is the company offering the DRIP that should be analyzed in detail. If a stock offers a great discount in its dividend reinvestment program but its business is not sound, it’s probably not a good pick for long-term investors. As is the case with any dividend stock, you don’t want to invest in a company that might cut its payout soon.
Now, let’s take a look at the five best DRIPs to invest in 2017.
List of Companies That Offer Dividend Reinvestment Plans
Company NameStock SymbolDividend YieldDRIP Discount
|Omega Healthcare Investors Inc
|Aqua America Inc
|Johnson & Johnson
|Healthcare Realty Trust Inc
1. Omega Healthcare Investors Inc
Omega Healthcare Investors Inc (NYSE:OHI) is one of the best high-yield dividend reinvestment stocks on the market today. But the high yield and the DRIP are not the only reasons why investors should consider the company.
Omega Healthcare Investors is a real estate investment trust (REIT) that invests in and provides financing to the long-term care industry. The company’s portfolio includes over 1,000 healthcare facilities located in 42 states and the U.K., operated by 81 third party operators. The company’s gross real estate investments totaled $8.8 billion.
The long-term care industry has a relatively inelastic demand. But even if business fluctuates, Omega could still be fine. Because the company uses third-party operators, property level expenses such as labor, insurance, property taxes, and capital expenditures are the operators’ responsibility, leaving Omega with no operating risk. Moreover, the REIT is also well diversified, with its largest operator accounting for only 10% of its total rent/interest.
Omega has quite an impressive track record when it comes to returning value to investors. From 2005 to 2015, it was the number-one healthcare REIT for total shareholder return and number three among all REITs.
Right now, the company pays $0.61 per share on a quarterly basis, translating to a handsome annual dividend yield of 8.11%.
For investors that don’t need the cash dividends immediately, Omega offers its Dividend Reinvestment and Common Stock Purchase Plan. Under this plan, existing shareholders of Omega can choose to have all or any portion of their cash dividends automatically reinvested in additional common shares. The company has also established a discount for shares purchased with reinvested dividends; right now, the discount is set at one percent. (Source: “Dividend Reinvestment and Common Stock Purchase Plan,” Omega Healthcare Investors Inc, last accessed February 15, 2017.)
Omega uses Computershare Trust Company as the plan administrator. Investors wishing to enroll in Omega’s dividend reinvestment plan can request to receive an enrollment form from Computershare.
2. Aqua America Inc
Aqua America Inc (NYSE:WTR) is a water and wastewater utility company based in Bryn Mawr, Pennsylvania. It serves approximately three million people in Texas, Indiana, Virginia, Ohio, Pennsylvania, North Carolina, Illinois, and New Jersey.
The U.S. water industry represents a unique investment opportunity. The market is highly fragmented with a small private sector. There are high barriers to entry, which give companies like Aqua America monopoly status in their respective markets.
Aqua America has been a solid dividend stock. The company has been paying consecutive quarterly cash dividends for 72 years. Moreover, Aqua America has raised its dividend rate 26 times in the last 25 years.
Right now, the company has a quarterly dividend rate of $0.1913 per share, giving WTR stock an annual dividend yield of 2.57%.
WTR stock investors wishing to reinvest their dividends should check out the company’s Dividend Reinvestment and Direct Stock Purchase Plan. An investor can participate in the plan if they own at least five shares of Aqua America common stock registered in their name or if they make an initial minimum investment of at least $500.00.
Aqua America also uses Computershare as the transfer agent for the plan. Investors can enroll in the plan by going to the transfer agent’s web site.
Once enrolled, investors can reinvest all or a portion of the dividends paid on their first 100,000 shares of Aqua America common stock. Here’s the best part: the company offers a five-percent discount from the market price when investors reinvest their dividends through the DRIP.
3. Johnson & Johnson
Income investors are no stranger to Johnson & Johnson (NYSE:JNJ) stock. The healthcare giant is known for providing recession-proof dividends. It has been around for well over a century. Moreover, the company has raised its dividends in each of the past 54 years. (Source: “Dividend History,” Johnson & Johnson, last accessed February 15, 2017.)
With a quarterly dividend rate of $0.80 per share, JNJ stock has an annual dividend yield of 2.73%.
Johnson & Johnson has a dividend reinvestment program. After enrolling in the company’s DRIP, investors can reinvest all or a portion of JNJ stock dividends into additional shares without any fees or commissions. The plan also allows its participants to make additional cash purchases of JNJ stock up to $50,000 per year. Johnson & Johnson’s DRIP is administered by Computershare as well. Investors interested in enrolling in JNJ stock DRIP can contact Computershare at 1-800-328-9033 or go to its web site.
The number-one reason to invest in Johnson & Johnson is its solid business. The demand for its products is not affected that much by economic cycles. People might not buy as many new cars when times are tough, but when they need JNJ’s products like “Band-Aids” or “Tylenol,” they will most likely still get it.
That’s why Johnson & Johnson is a top dividend stock for 2017 and beyond. Even though it doesn’t offer a discount for DRIP investors, enrolling in its program could turn out to be a rewarding decision in the long term.
4. 3M Co
Started by five businessmen in Two Harbors, Minnesota in 1902, 3M Co (NYSE:MMM) has grown to become a multinational conglomerate, commanding over $100.0 billion of market cap. The company’s products range from healthcare and highway safety to office products to abrasives and adhesives. With operations in 70 countries, 3M’s products are sold in about 200 countries around the world. International sales account for approximately 60% of the company’s total revenue.
3M runs a well-diversified business. With tens of thousands of products, the company does not have to rely on one or two big sellers.
The most impressive part about 3M stock is its track record of dividends. The company has paid uninterrupted dividends for 100 years and increased its payout in each of the past 59 years. (Source: “Dividends,” 3M Co, last accessed February 15, 2017.)
3M stock is currently paying $1.175 per share on a quarterly basis, translating to an annual yield of 2.59%.
3M’s dividend reinvestment plan is administered by Wells Fargo Shareowner Services. Any registered owner of 3M common stock is eligible for the program. To enroll, investors can go online or complete and sign the authorization card and mail it to Wells Fargo. 3M does not offer a discount, but it does take care of the brokerage fees and service charges when DRIP investors reinvest their dividends. The company’s solid business and track record of dividends make it one of the best DRIP stocks to buy and hold for the long run.
5. Healthcare Realty Trust Inc
Like Omega, Healthcare Realty Trust Inc (NYSE:HR) is a healthcare REIT. The company focuses on owning, managing, acquiring, and developing outpatient medical facilities throughout the U.S. By the end of 2016, the company had gross investments of approximately $3.6 billion. Its 202 properties are located in 27 states and total approximately 14.6 million square feet.
Healthcare Realty currently pays $0.30 per share each quarter, translating to an annual dividend yield of 3.95%.
The company offers a dividend reinvestment plan (DRIP), which is administered by Wells Fargo Shareowner Services. As long as an investor owns at least one share of Healthcare Realty common stock, they are eligible to participate in the plan. There are no brokerage commissions or bank fees and the company offers a five-percent discount when plan participants automatically reinvest their dividends. (Source: “Prospectus,” Healthcare Realty Trust Inc, last accessed February 15, 2017.)
To enroll in Healthcare Realty’s DRIP, investors can call Wells Fargo Shareowner Services at 1-800-468-9716.
Final Thoughts on Best DRIPs for 2017
At the end of the day, don’t forget that there is a limited number of companies offering dividend reinvestment plans. This means if you want to invest in a particular stock, such as a dividend growth stock or monthly dividend stock, you may find out that the company doesn’t have a DRIP. However, note that many brokerages today allow investors to automatically reinvest dividends at no cost. For those that want to reinvest dividends from a company that doesn’t offer a DRIP, going with a brokerage could be the best option.