Archive

Posts Tagged ‘dividends’

3 Agriculture Stocks With Strong Yields (ADM, MON, TNH)

January 7th, 2013

Jared Cummans: As we enter 2013 investors are faced largely with the same general uncertainty over the future of the U.S. economy that we saw last year. In light of this, a number of commodity investors have turned to dividend stocks to help maintain a sense of security and a steady stream of income Read more…

Agriculture, Investing Guide

Ten MLPs With Impressive Dividend Yields (TLP, LINE, TNH, RGP, VNR, PVR)

November 30th, 2012

Michael Flannelly: In the current economic climate investors have sought any and all potential investment opportunities to see attractive yields and returns. One such asset class includes Master Limited Partnerships, otherwise known as MLPs, which have been provided attractive dividend yields Read more…

Earnings, Energy, Markets

Dividends In A Changing Economy (T, VZ, MCD)

November 15th, 2012

Jim Trippon: Nearly lost amid the pre election and post election haze of commentary in the financial media, were some other things of interest to investors. While the commentators on the business channels on tv can make even the smallest event seem apocalyptic, Read more…

Dividends, Markets

Expect More Good News For Dividends (DVY)

October 21st, 2012

Jim Trippon: Dividend investors have found this year and even the last several years to be good ones. Since the stock market averages began to come back after the 2008-2009 financial crisis, Read more…

Dividends, ETF

Dividend Increases Quietly Continue (MCD, YUM)

September 26th, 2012

Jim Trippon: The dividend hits keep coming, as 2012 continues to be a good year, quietly or otherwise, for dividends. Two fast food giants, McDonald’s (NYSE:MCD) and Yum! Brands (NYSE:YUM) announced dividend increases. McDonald’s recently announced Read more…

Dividends, Markets

Dow Jones Utility Average: Have Utility Stocks Gotten Ahead of Themselves? (EXC, SO, WMB, POM, XEL, PCG)

August 28th, 2012

Roger Conrad: Thanks to investors’ flight to safety and unabated hunger for generous dividends, the Dow Jones Utility Average (DJUA) is within a few percentage points of its all-time highs. Read more…

Dividends, Utilities

Third Quarter Looking Rosy For Verizon Communications (VZ, CSTR, NFLX)

August 23rd, 2012

John Persinos: Verizon Communications (NYSE:VZ) has been on a roll, with revenue growing during each of the past four quarters on a year-over-year basis. In the second quarter, Verizon delivered another strong quarter of earnings growth and cash generation Read more…

Technology

Portfolio Management Technique: Channeling Dividends (PG)

August 22nd, 2012

Jim Trippon: We’ve written recently about a relatively simple way to apply a portfolio management technique to your dividend holdings, which we labeled as “keep some, sell some.” This enables a dividend investor to build and keep a core of portfolio holdings, Read more…

Dividends

How to Earn an Extra $1,497.86 This Month

May 5th, 2011

How to Earn an Extra $1,497.86 This Month

I want to share an update with you.

I'll provide a couple of income ideas, but I hope more than anything that it's something you'll pass along to show more investors the light of a unique income investing niche.

For those unaware, I'm the Chief Strategist of The Daily Paycheck. My goal is simple: Using funds from my $200,000 real-money portfolio (yes, I invest alongside subscribers using real cash), I'm building a portfolio that delivers a dividend check for every day of the month.

Imagine if you had a goose that laid a golden egg every day — that's what I'm trying to recreate. Think of how secure you'd feel with having a dividend check every day of the week. It sounds dreamy, but I promise you — it's closer than you realize.

In April, for example, I'm on pace to rake in $1,497.86 thanks to over 20 different dividend payments.

I started The Daily Paycheck in December 2009. So far the results have been phenomenal.

In addition to last month's $1,497.86 in dividends, I earned $1,024.15 in March and $1,474.89 in February.

[If you'd like to learn more about my "Daily Paycheck" strategy -- including a few picks to get started -- you can read my free course on the topic by clicking this link.]

But what if you don't have the luxury of a $200,000 portfolio… or even $100,000? Wouldn't the income from a smaller portfolio be too small to amount to anything?
That's where the second feature of my strategy can be a godsend.

Once you're getting your daily paycheck you can do what you want with it — pay bills, go out to eat, buy a new pair of shoes. But if you're wanting to grow your small checks into big checks, the smartest thing you can do is reinvest your dividends.

This is what I do with my real-money portfolio.

So instead of getting my $1,497.86 this month in cash, I'm actually getting it in the form of more shares. Of course, these shares are then paid future dividends, increasing future payments, and so on.

When you don't have much cash to invest, the effect of compounding is one of the most profitable strategies you can use to boost your income.

Action to Take –> One tip to make your paychecks grow even faster — litter your portfolio with monthly dividend payers and reinvest. The more frequent payments mean your dividends compound on a monthly basis instead quarterly, boosting your income that much quicker.

[Note: My boss, StreetAuthority co-founder Paul Tracy, is the one who turned me on to the Daily Paycheck strategy. He started a couple of years ago and is already seeing monthly dividends totaling more than $4,000. He wrote about his experience, and why he tapped me to lead The Daily Paycheck, in a recent memo. Visit this link to read it now.]

Uncategorized

How to Earn an Extra $1,497.86 This Month

May 5th, 2011

How to Earn an Extra $1,497.86 This Month

I want to share an update with you.

I'll provide a couple of income ideas, but I hope more than anything that it's something you'll pass along to show more investors the light of a unique income investing niche.

For those unaware, I'm the Chief Strategist of The Daily Paycheck. My goal is simple: Using funds from my $200,000 real-money portfolio (yes, I invest alongside subscribers using real cash), I'm building a portfolio that delivers a dividend check for every day of the month.

Imagine if you had a goose that laid a golden egg every day — that's what I'm trying to recreate. Think of how secure you'd feel with having a dividend check every day of the week. It sounds dreamy, but I promise you — it's closer than you realize.

In April, for example, I'm on pace to rake in $1,497.86 thanks to over 20 different dividend payments.

I started The Daily Paycheck in December 2009. So far the results have been phenomenal.

In addition to last month's $1,497.86 in dividends, I earned $1,024.15 in March and $1,474.89 in February.

[If you'd like to learn more about my "Daily Paycheck" strategy -- including a few picks to get started -- you can read my free course on the topic by clicking this link.]

But what if you don't have the luxury of a $200,000 portfolio… or even $100,000? Wouldn't the income from a smaller portfolio be too small to amount to anything?
That's where the second feature of my strategy can be a godsend.

Once you're getting your daily paycheck you can do what you want with it — pay bills, go out to eat, buy a new pair of shoes. But if you're wanting to grow your small checks into big checks, the smartest thing you can do is reinvest your dividends.

This is what I do with my real-money portfolio.

So instead of getting my $1,497.86 this month in cash, I'm actually getting it in the form of more shares. Of course, these shares are then paid future dividends, increasing future payments, and so on.

When you don't have much cash to invest, the effect of compounding is one of the most profitable strategies you can use to boost your income.

Action to Take –> One tip to make your paychecks grow even faster — litter your portfolio with monthly dividend payers and reinvest. The more frequent payments mean your dividends compound on a monthly basis instead quarterly, boosting your income that much quicker.

[Note: My boss, StreetAuthority co-founder Paul Tracy, is the one who turned me on to the Daily Paycheck strategy. He started a couple of years ago and is already seeing monthly dividends totaling more than $4,000. He wrote about his experience, and why he tapped me to lead The Daily Paycheck, in a recent memo. Visit this link to read it now.]

Uncategorized

5 High-Yield Stocks That Could Increase Dividends Very Soon

April 8th, 2011

5 High-Yield Stocks That Could Increase Dividends Very Soon

New income investors sometimes make the mistake of looking no further than a stock's current dividend yield. After all, a stock such as biotech firm PDL BioPharma (NASDAQ: PDL) looks mighty enticing, based on its 10% yield.

But looks can be misleading. A closer look at PDL reveals a dividend that may be in trouble. The company's net income fell by more than 50% last year, and PDL paid out more in dividends than it earned as income. The company earned $92 million, but paid $130 million in dividends.

When earnings decline sharply, even blue-chip companies can sometimes find their dividends in danger. A good example is General Electric (NYSE: GE), which was forced to trim its dividend by two-thirds during the economic downturn. Quarterly payments dropped from $0.31 to just $0.10. [See: "Forget GE, Buy These Stocks Instead"]

Another high-profile casualty of the downturn was oil refiner Valero Energy (NYSE: VLO). Valero cut its quarterly dividend from $0.15 to $0.05, which is where the dividend remains today.

So how do you protect yourself from stocks at risk of dividend cuts and identify those most able to grow dividends? A great starting point is to examine each company's payout ratio. This ratio measures a stock's annual dividend payment as a percentage of its earnings. A company that earned $1 per share in profits last year and paid a $0.60 annual dividend, for example, has a dividend payout ratio of 60%. A quick look at any free financial website like Yahoo Finance will show PDL's payout ratio at 140% — in other words, 40% more than earnings.

In general, lower payout ratios are better. The reason for this is simple — they leave plenty of room for dividend growth and a safety cushion if earnings decline. There are a few notable exceptions to the low payout rule. For example, real estate investment trusts (REITs) and master limited partnerships (MLPs) typically carry high payout ratios because they must, by law, pay out most of their earnings to shareholders. Apart from these special instances, however, the ideal pick for an income investor is a high-yield stock with a low payout ratio.

Finding stocks with low payout ratios is relatively simple. My initial search found more than 2,000 U.S. stocks with payout ratios for the past 12 months of 60% or less. However, the task became more complex when I added above-average dividend yield as a criterion. When I limited the search to stocks also yielding 5% or better, only 46 stocks passed the screen.

To ensure I was picking stocks that have the earnings power to support future dividend increases, I added a third metric. I restricted my list to stocks likely to deliver at least 8% earnings growth in the next 12 months.

After incorporating these three criteria into my screen, my original list of stocks was narrowed down to just five. Here is my list of high-yield payers and potential dividend growers.

1. HickoryTech Corp. (Nasdaq: HTCO)
6% Yield
58% Payout

Real Estate, Uncategorized

The 8 Rules I Use to Earn $112.77 in Dividends Per Day

March 30th, 2011

The 8 Rules I Use to Earn $112.77 in Dividends Per Day

I counted twice, just to be sure…

$41,161.63.

That's the amount in “daily paychecks” — more commonly known as dividends — I received from my investment portfolio in 2010. That total comes to $112.77 for each day of the year. Cash.

Why am I telling you this?

It's not to brag. I was born and raised in Wisconsin. The typical Midwestern mentality is so ingrained in me, I very rarely talk about money. And I'm not one to show off, either. I drive a Nissan I bought six years ago. I get my hair cut at Supercuts.

No, I'm telling you this because I honestly think what I've discovered is the single best way to invest, hands down.

I'm talking, of course, about the “Daily Paycheck” strategy. If you've read Dividend Opportunities for even a couple of weeks, you're likely familiar with Amy Calistri and this strategy.

Amy is the Chief Strategist behind our premium Daily Paycheck newsletter. Her goal is to build a portfolio that pays at least one dividend every day of the year. The idea for her advisory came from my personal “Daily Paycheck” experiment.

I've been following the strategy personally for a few years now. In that time, I've not only been able to build an investment portfolio that pays me more than 30 times a month, but the checks are getting bigger and bigger as time passes.

What I like best is that it's the easiest way to invest you can imagine. Once you get started, it runs on autopilot. Of course, you'll make a few portfolio adjustments now and then, but you won't have to anxiously watch your holdings every day.

Now it's time to come clean. If you start this strategy tomorrow, it's unlikely you'll be earning $112 a day by the weekend.

I've been fortunate to start with a healthy-sized portfolio. And as I said, I've enjoyed the benefits of implementing the “Daily Paycheck” strategy for a few years now, so my payments have grown much larger than when I started.

But here's the good news… it doesn't matter. Whether you have $20,000 or $2 million, you can start your own “Daily Paycheck” portfolio today. The results are fully scaleable, and anyone can have success, as long as you follow eight simple rules Amy and I created to not only build our portfolios, but also manage risks…

1. Dividend payers beat non-dividend payers.
According to Ned Davis Research, firms in the S&P 500 that raised dividends gained an average of 8.8% per year between 1972 and 2008. Those that cut dividends or never paid them produced zero return over this entire time span.

2. Higher yields beat lower yields.
This is such a “no-brainer” that it doesn't require explanation. Clearly, a bigger dividend puts more cash in your pocket.

3. Reinvesting your checks beats cashing them.
This buys you more shares, which leads to larger dividend checks, which buy you even more shares, and so on (this is how my dividend checks have grown).

4. Small caps beat large caps.
A 70-year study of different equity classes showed that $1,000 invested in small-cap stocks grew to $3,425,250. In large-cap stocks it grew to only $973,850.

5. International beats domestic.
The average U.S. stock pays just 2.0%. That's peanuts compared to yields overseas. Stocks in New Zealand yield 5.4%… stocks in Portugal yield 4.1%… in Spain 5.3%… and in the Czech Republic 4.8%.

6. Emerging markets beat developed.
It's much easier for a small economy to post fast growth than a large one. And investors who know this benefit. Since 1994, Vanguard's Emerging Markets Stock Index Fund is up 268%. Stocks throughout the developed world, as measured by Morgan Stanley's EAFE index, are up just 55%.

7. Tax-free beats taxable.
Tax-free securities often put more cash in your pocket at the end of the day — especially if you're in a high tax bracket. A muni fund yielding 6.0% pays you a tax-equivalent yield of 9.2% if you're in the 35% tax bracket.

8. Monthly payouts beat annual payout.
Getting paid monthly is not only more convenient — you actually earn more. Thanks to compounding, a stock paying out 1% monthly yields far more than 12% — it can actually pay you 12.68% if you reinvest.

It's these eight rules I've followed to build a portfolio that not only paid me $112 a day in 2010, but that is also seeing rising payments. In December, I earned 59 checks, at an average daily amount of $214.18. (December's payouts were higher than normal thanks to year-end dividends, but there's no doubt the payments are increasing.)

Action to Take –>

Uncategorized

Safer Stocks

February 21st, 2011

Martin D. Weiss, Ph.D. and Mike Larson

While the country is still struggling to lift itself out of this Great Recession, many investors don’t want to take big chances with stocks that are unproven or high risk.

Nor do you have to. You should be able to have your cake and eat it too — with safer stocks that give you a cushion of yield, stability and profits.

Fortunately for our readers, Weiss Research’s income specialist, Nilus Mattive, has repeatedly found precisely that combination; and his brand new video just posted to our website shows you how.

I’ll tell you more about the video in a moment. But first, let me illustrate the power of safer stocks with a passage from my father’s writings of years ago …

Safer Stocks in the 1930s

“Throughout the 1930s,” Dad wrote, “I was continually looking for safer stock opportunities. But the best single opportunity actually came as the Depression was ending, in a very conservative sector of the market.

“It was a sector that failed to recover with the rest of the market and then hit a new low at the end of the decade: utility stocks.

“A key reason: Wall Street was afraid President Roosevelt was going to nationalize the entire industry.

“I worked as an analyst and business manager for a stock research company at the time. So I went to my boss, and I said: ‘FDR is already contemplating a war overseas. He’s not going to fight another war at home. Let’s get a study up on utilities. They’re way down and they look like fantastic values.’

“I was deeply interested in utilities for the same reason many investors became enamored with them years later: a stable, cash-cow business with the likelihood of rising dividends on their stocks.

“After much painstaking effort, we came to the conclusion that it was time to buy. We bought bonds that were going at 25 cents on the dollar, like Standard Gas and Electric. We bought stocks in Commonwealth and Southern, which were trading on the Big Board at 10, 15, 16 cents a share.

“Between the dividend income and the price appreciation, we multiplied our money many times over.”

Indeed, Nilus tells us that dividend-paying stocks offer a host of advantages that make them a viable choice in uncertain times.

First, companies that pay dividends have weathered bad markets far better than their peers that don’t pay dividends.

For example, in 2002, a very bad year for stocks, non-dividend-paying stocks in the S&P 500 fell 30 percent. Dividend-paying stocks lost only 11 percent. Similarly, in 2008, while non-dividend-paying stocks fell dramatically, those paying dividends declined only moderately and then recovered far more quickly.

Moreover, there are ways to shield yourself even from those lesser declines, as I’ll explain shortly.

Second, dividend stocks can be one of the few investments that provide rising yields.

Let’s say you buy a stock for $10 a share and it’s paying an annual dividend of $0.50. Your immediate yield is 5 percent, which is not bad. But watch what happens as the company boosts its dividend by $0.05 per share every year: Ten years later, the stock will pay an annual dividend of $1 a share. And since your cost for the stock is locked in at $10 per share, your effective yield (based on the original cost) is now 10 percent. If this pattern continues over time, your effective yield could grow to 15 percent or even 20 percent.

Thus, with a prudent selection and patience, stocks that steadily raise their dividends can produce levels of income that are virtually impossible to get with equivalent bonds.

Consider Procter & Gamble. Its shareholders have received larger and larger dividend checks every year for 52 consecutive years.

Moreover, you don’t have to go back 52 years to see the benefits: If you had bought P&G just 15 years earlier, you would be earning an effective dividend yield of 11.3 percent.

Johnson & Johnson delivered even better results: Investors who bought its shares 15 years ago get an effective dividend yield of nearly 17 percent.

And investors who bought Altria (the tobacco company formerly known as Phillip Morris) get an 18.6 percent annual yield.

While other investors were busy chasing fast profits during the dot-com boom — only to see them go up in smoke — investors in companies with steadily rising dividends like P&G, J&J, and Altria made out like silent bandits. As long as they bought companies that continued to boost their dividends, their effective yields kept going up — and there was no limit to how high their dividend payments could rise.

Third, dividend stocks provide the potential for higher total returns.

In addition to the dividend yield, let’s not forget the real potential for the stock to rise in value.

The formula: Your total return = Yield + Gains

In other words, the total amount you make each year is the combination of both your dividend checks and the rise in the price of your shares.

In a rising market with rising dividends, that can be a powerful combination. My father also illustrates this key point with a real example about gold shares:

“Back in the Depression,” he wrote, “gold and gold shares had a bad reputation. Earlier in the century, a bunch of shady characters used to roam the countryside peddling shares in mining ventures that soon went belly-up. So by the 1930s, most investors gave mining companies a wide berth. But we figured we couldn’t go wrong if we concentrated on the biggest companies like Homestake and a couple of big Canadian companies.

“Homestake went from a bottom of $65 per share after the Crash to $130 and change in 1931. From there, it doubled again to more than $350 a share by 1933. By the time it peaked in 1936, it had climbed to $540 a share — an astronomical gain of more than $470 per share. That was a sevenfold increase.

“In the meantime, the dividends also doubled, redoubled, and doubled again — reaching $56 per share in 1935. Think about it. The dividends earned in one year alone almost paid back the entire purchase price of the stock.

“Dome, another great gold producer, did even better. You could have bought Dome for as little as $6 a share after the Crash. But in the next seven years, it paid $16.60 per share in dividends. The dividends alone were equal to more than 2.5 times the cost of the stock. Meanwhile, the price of Dome rose to $61 a share. A person who put $10,000 into Dome could have walked away with more than $100,000.”

I believe similar opportunities are likely in the years ahead.

Fourth, dividends are themselves strong evidence of performance.

When a company sends you a dividend check, it’s putting its money where its mouth is. Unlike earnings or sales, a dividend is not an accounting construct. It represents decisive and definitive evidence of the company’s earnings performance and cash.

So it should come as no surprise that companies paying consistent dividends also happen to be those that typically boast the most consistent pattern of rising share prices.

Dividends are not guaranteed. Companies can — and sometimes do — choose to suspend or lower their dividends.

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However, dividends still represent far more than a company’s promise or forecast of future earnings; they are hard cash payments and nonrefundable.

Never forget: Your paper profits can disappear if a stock falls. But the moment a dividend is deposited into your account, it’s yours to keep regardless of any future decline in the share price.

Fifth, you can take advantage of compounding.

As you probably know, compounding is one of the most powerful tools for building wealth. For example, if you put $10,000 into a savings account with a 6 percent annual interest rate, you’ll have $10,600 after one year. Next year, you’ll be earning 6 percent on the $10,600 rather than just the original $10,000. It might not seem like a big deal at first, but the effects over time can really add up. Ten years later, you’d have almost $18,000.

With dividends, the idea is the same. If you don’t need the income from your dividend checks on a regular basis, you can use your regular payments to buy more shares. By doing so, you’ll be steadily increasing your holdings of that company over time. More importantly, you’ll also be setting yourself up for additional dividends on the new shares. When combined, these two simple forces become a very powerful form of compounding.

To document its power, Standard & Poor’s looked at monthly data for its benchmark S&P 500 Index over a 50-year period, comparing simple price appreciation to the gains made by reinvesting any dividends paid. The results were astounding: The S&P 500′s capital appreciation was 381.9 percent; its “dividends reinvested” gains were 905.1 percent!

Two Disadvantages of Dividend Stocks

When buying dividend-paying stocks, please don’t ignore the two disadvantages:

1. Dividends can be cut. In an earnings crunch, some companies may cut or cancel their dividends. However, as long as they continue to be viable companies with relatively strong balance sheets, their past history of consistent dividend payments should be a good indication of what to expect in a future recovery.

2. Stock price declines. Dividend stocks can fall in price like any other stock, and the resulting loss could be larger than the dividends you receive during that period. But you can protect yourself against that scenario with easy-to-buy investments such as ETFs designed explicitly for that purpose.

That’s what Nilus did in the 2007-2009 bear market. As a result, investors following his recommendations would not have lost any money in the decline. Instead, they would have beat the S&P 500 by 20 full percentage points — and with far less risk!

Today, Nilus is helping investors with income investments that pay average annual total returns of up to 54.4 percent per year without excess risk. He explains how in his brand new presentation, “Emergency Rx for Income Investors,” which we’ve just posted to our website.

Click here and it will begin playing on your screen right away.

Good luck and God bless!

Martin

Read more here:
Safer Stocks

Commodities, ETF, Mutual Fund, Uncategorized

How to Become a Millionaire by the Time You’re 40

February 17th, 2011

It sounds like a pretty good goal… just make sure you sock away a million dollars by the time you’re 40 years old. So, how do you do it? Matt Krantz at USA Today has crafted the most practical strategy he could think of to accomplish the deed.

First, he assumes you’re 23, with a salary of about $40,000, and he ignores inflation, just to greatly simplify the math. Then, after taxes and expenses, he figures saving up about ten percent per year is realistic, as is a two percent raise each year. He also assumes you manage a ten percent average annual return including dividends.

Where’s that leave you? By 40, you’ll have racked up about $227,000 in savings. Not at all shabby, but far shy of a million dollars. At that rate, you’d have to keep saving until 54 to reach your goal.

Instead, he suggests a more effective plan:

“What, then, is required to hit $1 million by 40? The first thing investors try to do is chase after highflying investments that will be their ticket to riches. But this approach brings the potential for disaster. To be a millionaire by 40, you’d have to get an average annual rate of return of 24% over the next 18 years. I can’t stress how difficult that’s going to be. A return of 24% is nearly three times the long-term average return of the Standard & Poor’s 500. Getting that return would require a huge increase in risk, risk that could wipe out your dreams after just one bear market.

“So if chasing returns isn’t the answer, what is? How about if you saved more? Clearly, if you squirrel away more money, and successfully invest at 10% returns, you can make your goal. But I hope you like eating 25-cents-a-pack ramen noodles. You’d have to save nearly 45% of your gross income to be a millionaire by 40. We all know some frugal people, but saving nearly half your gross income is probably not realistic.

“What if you could put your career on the fast track? Instead of boosting your income 2% a year, you get a better-paying job, do some moonlighting and boost your income. Well, you’d better get cracking. You’ll need your income to rise 21% a year over the next 18 years to make this happen. You’d need to boost your annual income from $40,000 to more than a $1 million by the time you’re 40 for this to all work out.”

It sounds a bit frustrating at first, but Krantz points out that if you manage to put away 20 percent of your salary, earn a four percent raise each year, and lock in ten percent average annual returns, your portfolio will hit $518,000 by your 40th birthday. Even more encouraging… he points out that if you can keep it up for just another few years, you’ll be a millionaire by 46. Not too bad. You can read all the details behind the strategy in his USA Today post on how it’s possible to put away $1 million by the time you’re 40.

Best,

Rocky Vega,
The Daily Reckoning

How to Become a Millionaire by the Time You’re 40 originally appeared in the Daily Reckoning. The Daily Reckoning has published articles on the impact of quantitative easing, bakken oil, and hyperinflation.

Read more here:
How to Become a Millionaire by the Time You’re 40




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

OPTIONS, Uncategorized

How to Earn 13.0% Yields From Stocks Paying 6.2%

February 16th, 2011

How to Earn 13.0% Yields From Stocks Paying 6.2%

The story was picked up by the major news sources last year as a “cute” human interest feature. You might have seen the headlines like “How a Secretary Made and Gave Away $7 Million.”

But for me, this wasn't some light news piece. This was a story that resonated deeply with me.

I didn't know Grace Groner, from Lake Forest, Ill. From the stories, she was a woman who lived frugally. Her passing was of interest because her three shares of Abbott Laboratories (NYSE: ABT) grew into more than 100,000 shares through decades of dividend reinvestment. In total, her estate became worth roughly $7 million.

And while I didn't know Grace Groner, I did know Lillian Calistri.

The last time I saw Aunt Lillian was in 1990. I remember that a nephew had the misfortune of addressing her as “Lillian.” She promptly looked us all in the eye and said, “You will continue to call me Aunt Lillian.” We were all more than 25 years old at the time, but in Lillian's world, adulthood was no excuse for bad manners.

Aunt Lillian taught home economics at Charleroi High School in Pennsylvania. After she retired in the 1950s, she moved to Tucson, Ariz. I remember thinking it was nice that Lillian had been able to live comfortably in her golden years — aided by a teacher's retirement and a nest egg from the 1952 sale of the family's ice cream business.

Here's the kicker: When Lillian died in 1993, her estate was worth north of $5 million. Her broker was the only one who wasn't shocked. “They should have that kind of discipline on Wall Street,” he said. Dividend reinvestment? You bet.

But there's something else to this story. And it's something that can help you earn larger dividends soon — helpful if you don't have a lifetime to invest as Aunt Lillian and Grace did.

They may not have realized it at the time, but the women in these stories chose their investments wisely.

Abbott Laboratories paid its first dividend in 1983. Adjusted for stock splits, the pharmaceutical company initially paid a dividend of $0.01562 per share, representing a yield of just 1.1%. But during Ms. Groner's lifetime, Abbott consistently grew its dividend. Its latest dividend was $0.44 a share — 2,717% greater than the original payout.

One of Aunt Lillian's investments was International Business Machines (NYSE: IBM). IBM dished out its first dividend in 1962. Since then, it has grown its dividend by 64,900%.

Neither Abbott nor IBM had a particularly juicy yield at the time these women bought their shares. But they had something equally powerful: a corporate culture dedicated to dividend growth. Throughout Grace and Lillian's lifetime, these companies never cut their dividend. In good economic times and challenging times, these companies found a way to deliver ever-increasing income to their shareholders.

And those extra dividends add up a lot quicker than you'd think.

In my Daily Paycheck portfolio, I already have two lifetime dividend achievers. AT&T (NYSE: T) and Altria (NYSE: MO).

If you put $5,000 into AT&T five years ago, you'd have earned a 4.7% yield at the time. That's $242 a year. But today, that $5,000 investment would be paying $405 a year if you simply reinvested your dividends. That's an 8.1% yield on your original investment.

Altria is an even better story. Right now the shares pay a solid 6.2%. It's nothing to sneeze at, but thanks to the company's commitment to dividend growth, $5,000 invested just five years ago — plus reinvested dividends — is now earning 13.0%, or about $650 every year.

Action to Take–> It's doubtful most of us will have decades and decades to invest like Grace Groner or Aunt Lillian. But that doesn't mean we can't see our dividends grow enormously in a span of just a few short years by reinvesting dividends. Stocks like AT&T and Altria are perfectly capable of doing this again, but you should also look for other securities that could deliver a big paycheck down the road.

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