Dividend stocks
Investment firm Nuveen took a look at historical stock performance from 1930 to 2023 and found that dividend stocks outperformed stocks that do not pay a dividend.
In fact, dividend growth stocks, ones that consistently hiked dividends, outperformed all others, based on its analysis.
“Dividend growth stocks have provided an attractive combination of earnings and cash flow growth potential, healthy balance sheets and sustainable dividend policies,” said their report.
This is, perhaps, why many savvy investors focus on dividend-paying stocks. In fact, the top five largest holdings in Warren Buffett’s portfolio all pay dividends.
Like Buffett, you could assemble a portfolio of blue-chip dividend stocks with robust profitability, or you could simply invest in a fund that tracks the highest-quality dividend stocks.
The ProShares S&P 500 Dividend Aristocrats ETF (NOBL), for instance, currently offers exposure to over 66 companies that have consistently hiked dividends for at least 25 years — with many hiking for 40 years.
The fund offers a relatively modest 2.25% dividend yield, yet it has delivered 11.6% compounded annual growth since its inception in 2013.
For those looking to replicate Warren Buffett and Georgette O'Leary’s strategies, this fund is a convenient option.
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Read MoreCorporate credit
Unlike dividend stocks, corporate credit doesn’t get much attention. However, rising interest rates in recent years has changed that.
According to Stanford, investment firms such as Vanguard, Hargreaves Lansdown, Invesco, and Janus Henderson, have recently introduced corporate bond funds for retail investors due to rising demand for this asset class.
This could be because of attractive yields. As of September 2024, AAA-rated corporate bonds offer an average yield of 4.68%, according to the Federal Reserve. That’s much higher than the dividend yield mentioned earlier.
Investors looking to add this asset class to their portfolio could consider the SPDR® Portfolio Corporate Bond ETF, which tracks investment-grade bonds with at least a Baa3/BBB- rating and, as of this writing, offers a yield to maturity of 4.93%.
A combination of high-quality corporate bonds and dividend stocks, patiently held for decades like Georgette O'Leary, could help you build wealth.
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