Where to invest $ 10,000 now
The coronavirus is slowing down a long bull market. If you have invested $ 10,000 in a fund that tracks the S&P 500 Market barometer in early 2010, your investment would have been worth $ 30,220 on February 18, 2020. But the market barometer fell 12% over the next 10 days, reducing that investment from ten years ago to 26,490 $ end of February.
You should expect the market to remain volatile until the coronavirus situation is dealt with. In the meantime, I would suggest picking up some solids dividend stocks that add more value to your portfolio when stock prices fall. Right now, three of the best options for a $ 10,000 investment would be the tech giant IBM (NYSE: IBM), pharmacy chain Alliance of Walgreens boots (NASDAQ: WBA), and titan tobacco Altria (NYSE: MO).
Each of my three suggestions comes with a unique investment thesis. If you have $ 10,000 in uninvested assets today, you can split it between these three symbols or put it all into whatever idea works best for you. Either way, you can’t go wrong with these three obvious purchases right now.
The magic of Drip investing
Reinvesting your dividends in additional stocks of dividend-paying stocks will increase your returns over the long term. You know that hypothetical $ 10,000 investment in the S&P 500 that I mentioned earlier? This stake would have capped at $ 37,300 with an active dividend reinvestment plan. The dividend yield on an S&P 500 tracker is typically around 2%, but the cumulative effect of reinvesting these modest payments has increased by 23% in 10 years.
The increase in dividend reinvestment only increases over time. Simply buying a market tracker and not activating a reinvestment plan would have missed an 11% increase in the past five years, or 48% in two decades. Patience is a virtue in the stock market, and doubly so for dividend investors.
Plus, dividend investors don’t really care if stock prices drop every now and then, or even stay low for several years. These automatic reinvestment purchases will allow you to acquire more stocks at a lower price, and you really aren’t looking for high prices until you’re ready to sell the stocks.
Altria is a classic income-generating stock with a dividend yield of 7.8%. The tobacco giant’s yields fell to 6.1% in December, but the share price has fallen 18% since then. Lower stock prices generate higher effective dividend yields, not to mention a more attractive purchase price.
It is true that the Altria share is taking a hit for good reasons. Fear of the coronavirus isn’t even the main issue here, as the company is under investigation for its handling of a $ 12.8 billion investment in e-cigarette maker Juul. But Altria still feeds its entire dividend policy from operating cash flows and operates in one of these sin-stock Industries. Altria’s operating cash flows have doubled in three years while stock prices have fallen by 45%.
Buy Altria now for Lock in those awesome dividend yields. If Juul’s story takes the title down further this year, you’ll only get a few more actions along the way.
An image of stability
The parent company of Walgreens and European convenience store chain Boots is now trading near its lowest level in six years. Faced with the challenges of e-commerce specialists and big box retailers, the company is managing a stalled revenue with the help of equally stable net profits and cash flow.
Corn the retailer does not stand still. Walgreens is reshaping its business model as we speak, planning to close 200 underperforming stores in 2020 while also bringing store concepts to a Jenny Craig store in other locations. The company will also be among the first to try a drone delivery service, undermining some of the advantages that online stores claim over physical stores.
Stable sales and cash flow aren’t exactly what retailers dream of, but it’s better than watching these metrics plunge under the onslaught of e-commerce. Walgreens continues to increase its dividend payouts and the yield currently stands at a good 4%. If you’ve been expecting this century-old retail veteran to redesign and show off another comeback, now seems like the perfect time to take the plunge.
Again, remember that you don’t mind the stock being cheap until it’s time to sell. Start your dividend reinvestment plan today and give Walgreens time to get back on track.
This technological turnaround is overdue
Finally, IBM has been a turnaround that has been going on for eight years. This company has always focused on providing cash returns to shareholders through a combination of buybacks and dividend payments. This was an uncommon strategy in the tech industry, where even the largest and most mature companies preferred to reinvest their extra money back into the business instead.
Dividend reinvestments would have increased your IBM holdings by 36% over the past 10 years, and the company is showing a 5% return today. The IT titan is operating under new management these days, after replacing Ginni Rometty with cloud computing tsar Arvind Krishna in January.
I think this company is on the right track, leading the market-wide charge in artificial intelligence and data analytics services. In short, IBM is on the verge of a massive rebound as its long-term shift in strategy begins to pay off. Until then, you can buy stocks at just 12 times the rolling earnings and 9 times the forward estimate, pocketing that hefty dividend yield to boot.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.