5 Stocks That Put Your Savings Account to Shame
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case” - Robert Allen
These days most savings accounts are earning less than one percent annually. Inflation on the other hand is a lot higher. Over the past three years it has averaged about 2% annually meaning if all your money is in a money market, you’re losing money.
It goes without saying that you should have three to six months of savings in an emergency fund. Not to mention the importance of keeping any money you’ll need for a large purchase over the next three years out of the market. However, too many would be investors are keeping too much of their funds out of the market completely because of fear. It doesn’t have to be that way; here are five safe stocks whose dividend put your savings account to shame.
The biggest company in the world, Apple (NASDAQ: AAPL) just started to pay a dividend again. It’s not a big one at just one and a half percent but it’ll still beat your savings account. Apple has over a hundred billion dollars in cash and is adding $10 billion to that pile each quarter meaning that dividend is safe and secure for many years. Meanwhile, Apple has the potential to grow that dividend while your savings rate won’t be going up until rates go up. Unfortunately, rates aren’t likely to go up any time soon and when they do it’s likely because the Fed is raising rates to fight rising inflation.
Nuclear power generator Exelon (NYSE: EXC) is able to generate a really massive dividend. At about 5.8% their dividend is more than twice as high as anyone else on this list. While their dividend is unlikely to grow over the short term, they’re investing heavily to ensure the long term stability of both their electric generation and their earnings. Investing in this sleepy utility should make it easier for you to sleep at night knowing your investment isn’t going anywhere. Just as your utility bill arrives each month without interruption you can expect the same from their quarterly dividend checks.
The pain at the pump is unlikely to go away anytime soon, ease the pain a little by investing in a company like ExxonMobil (NYSE: XOM). They pay a solid dividend which currently yields 2.5% and it’s one they’ve grown annually by 7.25% over the past five years. For a company that generates about $10 billion of cash annually they’ll not have any trouble paying that dividend. Finally, with the price of oil driven higher by demand, it’s a key cause of inflation (though one that’s only not measured) so investing in Exxon should lessen the pain at the pump over time.
Odds are you’ve shopped in the past at the world’s biggest retailer. My wife and I made our own run to Wal-Mart Stores (NYSE: WMT) earlier today because on some things you just cannot beat their prices. Their massive size has given them the negotiating clout to get lower prices from their suppliers. These low prices when combined with the volume they push through their stores have led to fantastically stable growth in earnings for decades. Those earnings are increasingly being paid out to shareholders as they’ve grown their dividend 13.5% annually for the past five years and the yield now sits at just a shade over 2%.
Going back to that money sitting in your bank account, Wells Fargo (NYSE: WFC) and their peers are glad you keep it there. They take that money and lend it out and are making a mint on that spread. As Warren Buffett’s favorite bank, the nation’s largest residential mortgage lender is also one of the more conservative lenders around. This conservatism served them well during the financial crisis though they did have to cut their dividend as part of the required government bailout. However, their conservative leading practices have positioned them to deliver stable earnings growth and while their dividend hasn’t quite come back up to their pre-crisis levels but it’s nearly double where it was a year ago and four times higher than crisis levels. I think it’s only a matter of time before this current two and a half percent yielder goes above and beyond their pre-crisis payout.
There you have it; five exceptionally well run companies with payouts that put your savings account to shame. Like Robert Allen reminded us, that savings account will never make you rich, and with it earning less than inflation you won’t even get ahead. Don’t make the mistake of staying out of the market for fear of the market. Let your savings account handle your emergency fund but your long term money will serve you better in the market. Not sure where to go from here, click here to learn how to invest better.
latimerburned owns shares of Apple and has the following options: Apple. The Motley Fool owns shares of Apple, Wells Fargo & Company, and ExxonMobil and has the following options: short OCT 2012 $33.00 puts on Wells Fargo & Company and short OCT 2012 $36.00 calls on Wells Fargo & Company. Motley Fool newsletter services recommend Apple, Exelon, and Wells Fargo & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.