When I first considered a high-yield investing strategy, my goal was to devise a portfolio that yielded between 6% and 8% annually. To be sure, that’s a worthy starting point. Years from now, however, I expect to own a portfolio that yields 25%, 50% and even 100% on the cost basis of many of the investments in that portfolio. [You, too, can achieve the same return on investment for your portfolio. Here’s how.] Words: 636
So writes Ian Wyatt (www.wyattresearch.com) in edited excerpts from his original article* entitled How to Construct a Portfolio that Yields 100%.
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Wyatt goes on to say, in part:
I used to think that a 6%-8% yield was a reasonable range for a diversified income portfolio but I’ve modified my perception. Why? Because…the more I analyzed dividend-paying stocks (and dividend-growth stocks in particular), the more I realized I was failing to fully account for income potential over time [and that I could actually more than double my money in doing so.]
The Longer the Time Frame, the Greater the Compounding Effect
A couple of weeks ago, I wrote an article on the wonders of dividend-growth investing focusing on two dividend-growth stocks, McDonald’s Corp. (NYSE: MCD) and McCormick & Co. (NYSE: MKC).
- McDonald’s yields 3.4% based on a $90-per-share market price and a $3.08 annual dividend….
- Back in January 2011, McDonald’s yielded 3.3% based on the $2.44 annual dividend it paid at the time.
The yield has risen because McDonald’s has raised its dividend. What’s more, I expect McDonald’s will continue to raise its dividend. This means the yield will continue to grow on the cost basis.
McDonald’s incremental yield increase might seem insignificant, but it can be a remarkably powerful wealth-producing tool.
- If you had bought McDonald’s five years ago, you’d own an investment that yields 5% today;
- if you had bought McDonald’s 10 years ago, your investment would yield 10%;
- if you’d bought 30 years ago, your investment would yield more than 100% (and has held steady above 100% for the past couple of years).
- if you had bought McDonald’s in the early 1980s, you’d own an investment that would return your purchase price each year in dividends – and, as time marches on and the dividend is increased, McDonald’s will deliver more than the purchase price each year in dividends!
Though not quite to the same degree as McDonald’s, an investment in McCormick has a similar wealth-building effect. If you had bought McCormick 15 years ago, you’d own an investment that yields roughly 12%.
The longer the time frame, the greater the compounding effect.
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Gold’s Performance in Comparison to Good Dividend Stocks
This week, I am going to compare ExxonMobil (NYSE:XOM) with gold [which] I like gold because it’s a store of value…and a good diversifying asset, though it’s not a cash-generating asset.
In 1971, the year the United States government dropped all pretense of tethering the dollar to a gold standard, the average price of gold was $40 an ounce. The average split-adjusted price of a share of ExxonMobil was about $2.30.
Today, gold trades near $1,700 an ounce; a share of ExxonMobil trades near $90. Gold has appreciated at an average annual rate of roughly 9.6% over the past 41 years. ExxonMobil’s share price has appreciated at an average annual rate of 9.4% over the same period but ExxonMobil would have been by far the more remunerative investment. ExxonMobil is dividend grower and has paid and increased its dividend for decades.
Today, ExxonMobil pays $2.28 per share in annual dividends. This means ExxonMobil is paying the initial purchase price each year in dividends – that’s an automatic 100% annual return on investment today – and, keep in mind, I’m not factoring in all the dividends accumulated (and possibly reinvested) over the years.
I’m convinced dividends will continue to be the driving variable in stock valuation for years to come. What’s more, it will be the most reliable variable. When companies consistently increase earnings and dividend payments, share price is sure to follow….
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While the average amateur investor may be excellent in their own career field, it doesn’t mean they know what to invest in, or how to pick stocks. In fact being very good at your field can give you the false sense that whatever stocks you pick or your broker picks for you must be good, because after all, you picked them and you picked your broker — and you’re smart so, no doubt, those stock prices will go up. Unfortunately, the smart and talented stock-picking neophyte is not investing at all but speculating. Words: 924
What hope can there be for motivated stock pickers – no matter how much they sweat and toil – to outperform the low-cost index funds that simply mechanically track the market? Well – in spite of the absurd rise of the Nobel-acclaimed, and highly promoted, Efficient Market Hypothesis that claims that individual investors can’t beat the market – it turns out there is plenty! Just ask Warren Buffett, for one. [Let me explain.] Words: 1574
The amount of evidence stacking up that…mutual funds…do not provide value for their investors is just staggering…While there are certainly signs that the public’s tolerance of excessive fees and executive pay is falling, the likelihood of significant structural change in the finance industry is still remote. Given such a backdrop the probability remains that investors in funds will, on average, continue to underperform their benchmarks. So what is an investor to do? [Read on!] Words: 830
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There are many indicators available that provide information on stock and index movement to help you time the market and make money. Market strength and volatility are two such categories of indicators and a description of six of them are described in this “cut and save” article. Read on! Words: 974
Technical Analysis is the discipline of finding reliable patterns, trends, indicators and formations, mainly in price, for buying and selling assets…To a large degree, technical analysis is a self-fulfilling prophesy [in that] it is effectively an unofficial agreement amongst market participants to impose more order on what would otherwise be more random. The key is to understand which patterns, formations and indicators are widely adhered to, so as to become useful predictors of price action [and this article does just that. Let me explain.] Words: 470
The decrease in stock prices over the past weeks has many investors scared that the market is forecasting a dip in the economy. This panic has started to create an environment where enterprising dividend investors could start adding to their positions at cheaper prices. In fact, if stocks keep going lower this would create tremendous opportunities for enterprising dividend investors to scoop up some of the best dividend stocks in the world at fire sale prices. In this article I will explain why the market dip has created a perfect opportunity for dividend investors and specify 11 stocks worth considering. Words: 819
The herd continues to stampede into U.S. Treasury debt of every possible maturity to, theoretically, avoid risk. Yields on AA+ 10-yr bonds can be locked in to yield 2.11% per year and you get your principal back in 10 years. [As we see it, though] the only justification for [such a meagre] return on invested capital must be tied to the belief that a return is better than nothing given the prospects of a future depression. We believe, however, that fighting the Fed and investing like a depression is coming is not the right way to position your portfolio. [Below are 20 suggestions on how to generate in excess of 2.11% returns plus strong appreciation potential with modest risk.] Words: 657