A couple of years ago, Damon Verial posted an article titled "Top 5 Dividend Stocks for Young Investors". Later that summer, I decided to respond with one of my own. I’d forgotten about that piece until recently, when I saw that Mr. Verial wrote a follow-up to his original, and now I’ve decided to do the same.

When I wrote “My Top 5 Dividend Stocks For Young Investors” piece in July 2017, I created a sample portfolio with my picks. Below, I’ve included a graphic showing how those names have performed since.

As you can see, although my list included a couple of duds (Nvidia, Disney, and AT&T all underperformed the broader market since I named them as top picks), the overall portfolio still did fairly well, returning more than 15%. Apple and Nike were responsible for most of these gains, that’s for sure. Yet, I suppose that’s why you don’t put 100% of your money into just one stock.

Below, in the S&P 500 comparison.

Unfortunately (for me, at least), SPY slightly outperformed these picks since 7/18/17. I’m not happy about underperformance in the short term; however, from a dividend growth perspective, all of the companies are doing well. They’ve each increased their dividends annually since the original list was made, and looking ahead, I suspect that trend will continue.

What’s more, the relative weakness that Nvidia, AT&T, and Disney experienced during the last couple of years has actually made them cheaper. To me, this means that their risk profiles have been reduced moving forward, and I think they have a higher likelihood of posting outperformance in the short to medium term (due to mean reversion). In terms of meeting my long-term financial goals, I’d be happy to continue to hold all 5 of these names (which I do, being long shares of each in my personal portfolio).

However, part of this article is about addressing my top 5 dividend stocks for young investors looking forward. Because of my long-term horizon and outlook, you’d probably imagine that a portfolio of top picks that I created in 2017 wouldn’t change much by 2019. Well, if that’s the case, you’d be right.

Moving forward, I would like to make one change to this portfolio. Right about now, you’re probably thinking that the obvious cut is AT&T, right? It was the only name that posted negative returns since July 2017, and right now, it’s obviously in the dog house, trading at its lowest valuation in years. Well, actually AT&T isn’t the target that I’m trimming. It’s Nvidia.

Why? Well, because while I continue to believe that Nvidia is a wonderful long-term investment, it’s dividend growth outlook has changed. The company’s dividend growth has slowed in recent years (alongside its sales and earnings growth), and I now view this name as more of a speculative/growth technology play than a dividend growth play.

Frankly put, while I still think Nvidia has the potential to produce technology that is totally revolutionary to society, if I’m going to own a large stake in something that yields less than 1%, it better be providing me with strong, double-digit dividend growth. Nvidia did that for a couple of years prior to me writing the original article, and I thought it would be a perennial double-digit performer. Well, the company’s most recent dividend increase was just 6.7%, and that just isn’t getting the job done.

So, when looking for potential replacements for Nvidia, I looked at a handful of my favorite DGI names. Starbucks (SBUX) came to mind (that seems like the perfect stock for Millennials, doesn’t it?), but it’s trading at 52-week highs (and for more than 28x ttm earnings), and while I think its dividend growth outlook is great, I don’t want to pay such a high premium for a retail name.

Sticking in the consumer discretionary space, I considered TJX Companies (TJX). In terms of dividend growth, it doesn’t get much better than TJX. This company has provided its shareholders a dividend growth CAGR of more than 20% over the last 20 years. Because of this outstanding dividend growth, an investor who bought shares of TJX 20 years ago would have a yield on cost of nearly 25% today. That’s exactly the type of dividend growth that I’m looking for when trying to choose the top 5 dividend stocks for young investors. However, TJX is an apparel name trading for more than 21x ttm earnings, and while I think it’s a great stock to own, I’m not sure that today is a great time to be buying shares.

I considered Broadcom (AVGO), which operates in the chip space like Nvidia, pays a much higher dividend yield, and has better forward-looking dividend growth prospects (in my opinion), but while I own AVGO shares and really like the company, I do acknowledge that the “roll-up” type strategy that management tends to favor is a bit worrisome when looking for a core-type position within a DGI portfolio. So, no AVGO.

I thought about Comcast (CMCSA), which is fairly cheap at the moment (even though it’s trading near 52-week highs) and has been one of the best dividend growth stories in the market over the last decade or so, but then I realized that Disney is already included in this portfolio and I didn’t want to be too overly concentrated in the media/entertainment space. Truth be told, I think CMCSA has better dividend growth prospects than Disney. However, over the long term, I think DIS is uniquely situated to benefit from a variety of secular trends, and I cannot imagine a scenario where that stock wasn’t included on a list like this.

Speaking of the best dividend growth stories in the market, I thought about another name that starts with a “C”: Constellation Brands (STZ). Unlike many of the other names that I considered, STZ is trading well below its long-term premium, and I think it’s fair to say that shares are trading for fair value. STZ has generated massive dividend growth in recent years. Its management team has made large investments in the marijuana market, which I think will be one of the strongest growth trends in the consumer space over the next couple of decades. However, it’s unclear how the growth trajectory of that market might play out, and because of this, I wouldn’t be surprised if STZ’s dividend growth slowed down (similar to NVDA’s) in the short term.

By now it should be clear that while there are a handful of very high-quality companies in the market that I think would make outstanding investments for young dividend investors, none of them are perfect at the moment. I guess that will always be the case. If there were a perfect stock, everyone would own it (then it would get expensive and no longer be perfect). So, with this in mind, I decided that if I was going to have to choose an imperfect stock for this list, I ought to choose a name that I’ve never regretted buying myself. That stock is Visa (V).

Unlike Nvidia, Visa continues to provide investors with double-digit dividend increases, with its most recent raise coming in at 19%. I’m not sure that there is a stock in the market that I feel more sure about when it comes to its ability to provide double-digit dividend growth over the long term. Visa shares are seemingly always expensive, yet I’ve never regretted buying them. Once, in the past, I even made the mistake of selling a few because I thought they were overpriced. Sure, I locked in huge gains, but if I hadn’t sold, I’d be sitting on even bigger ones. That’s a lesson I only needed to learn once. To me, Visa is about as easy of a stock to hold as there is. Because of this, I think it makes perfect sense to think of it as a core holding for young dividend investors.

So, now let’s talk about the other names on this list. Even though AT&T and Disney have underperformed since I wrote the original article, I’m more than happy to keep them on my list of top stocks for young investors to own.

The original article Disney closed on the Fox deal, augmenting its IP portfolio and pipeline, solidifying itself as the king of content. Admittedly, Disney has been slow to roll out OTT options for consumers, and much of its relative weakness has been due to concerns that technology companies like Netflix are going to continue to eat its lunch on the digital frontier. However, I continue to have faith that not only will DIS be able to compete digitally, but it will dominate.

Even though DIS share price has lagged since wrote the original piece, its earnings continue to rise. Even though the share price has increased since the summer of 2017, the stock is actually cheaper now than it was then. If I liked DIS shares trading for ~17.5x earnings, then you better believe I like them at 15.3x. Over the long term, the company’s average P/E multiple is in the 20.5x range. I think the company’s outlook remains as bright as it has in the past, and because of this, I believe it’s only a matter of time before the market comes around to its prospects and fundamental valuation story and its valuation premium reverts back toward the norm. When this happens, DIS investors will be looking at double-digit returns.

The same argument can be made for AT&T. I know some people probably think it’s a bit off for me to talk about a stodgy high yielder like T as a great pick for young investors, but I actually really like this attractively valued, high-yielding name.

Do I expect AT&T to produce outstanding growth moving forward? No, I do not. However, I do think the company will produce modest growth, and once its balance sheet is cleaned up a bit, I expect the same sort of strong returns to be generated by multiple expansion. The company is currently trading for just 8.7x earnings, when its long-term average is in the 15x range. That best thing about the recent discount that the market has placed on AT&T is that investors who own the stock are getting paid ~6.6% to wait for the turnaround to happen.

Having a high yield like this can do wonders for one’s peace of mind during times of market volatility. That’s why I always include a high yielder or two when I’m talking about top stocks for young investors. I almost removed AT&T for this list and added shares of my favorite REIT, W.P. Carey (WPC), but the recent run-up of share prices in the REIT space due to fears of lower rates has removed much of the margin of safety that I saw in WPC shares not too long ago. Not only does T appear to be a better value, but it pays a higher dividend as well.

And I don’t think there’s much I need to say about Nike and Apple. Their outperformance speaks for itself.

Nike is the leading apparel/material science name in the world, and as I’ve said before, while I don’t claim to be a soothsayer of any sorts, there is one thing I’m relatively sure about: modern man will continue to wear shoes and clothes far into the future.

And Apple is the richest company in the world, and while money isn’t everything, I feel confident that AAPL’s cash/cash flows will allow it to continue to compete well in the tech space. This management team is very generous to its shareholders, returning hundreds of billions of dollars in the form of dividends and buybacks. iPhones have essentially become the Coke cans of the Millennial generation (everywhere you go, someone is holding one). And sure, iPhone growth will slow eventually. These handheld devices will eventually die out to disruptive tech. However, that’s where Apple’s talent and resources come into play. Whatever that next big thing is, I have a feeling that AAPL will be involved (and even if the company doesn’t come up with it first, I wouldn’t be surprised in the least if it were the first to perfect it and make it a luxury good for the consumer to thirst for). In the meantime, I suspect that AAPL management will continue to milk the company's massive ecosystem for everything that it’s worth via high-margin services. Reaping the benefits of the cash cow that is the Apple ecosystem definitely isn’t a very bad situation to find myself in as a shareholder.

So, if I were to re-do that theoretical young dividend investor portfolio today, here’s what it would look like:

Company NameTickerSharesCost BasisStart Value

Maybe in a year or two I’ll come back to revisit this piece/idea. Thinking about the best stocks for young, income-oriented investors is what I spend just about every day doing, and it’s fun to put together articles like this.

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