This Simple Stock Market Strategy Would Have Increased Returns 926%

Sage advice worth noting! By Tom Dyson, publisher, Common Sense Investing Friday, June 24, 2011

"Dividends don't matter." I was playing golf with a stock trader last weekend. When I told him I specialize in stocks that pay dividends, he gave me a look of condescension. "I don't understand what the big deal is with dividends," he explained. "The stock falls by the amount of the dividend, so you can't benefit from it. Total return is the only thing that matters." On the surface, my golf partner is right. A dividend is simply a cash payout from the company to the shareholder. Whatever the shareholder gains, the company loses. So it seems shareholders don't actually come out ahead. But as I'll show you today, to say cash payouts like these don't matter is wrong. They improve returns by thousands of percent over the long term. My friend Meb Faber proved this to me the other day… Meb is a professional stock market number cruncher, or as he calls himself, a "quant." He's used his skills to create some incredible investing strategies. (You can read more about them here and here.) He alsolaunched an ETF (the symbol is GTAA) so you can follow his system with just one click. Meb recently crunched the numbers on dividends and other cash payouts and found something amazing. He started with the Russell 3000, an index of 3000 small-cap stocks. Since 1972, the market-cap weighted Russell 3000 index gained 9.98% a year on average. But when Meb took the highest dividend payers in the index, (the top 10% of dividend payers), he found they returned 13.29% per year… an improvement of more than 3% over the common index. Meb didn't end his study there… When most people think of companies returning cash to investors, they think of dividends. But there are two other ways a company returns cash to shareholders. Stock buybacks are the first way. A company might decide to pay shareholders by buying back its own stock in the open market. To an accountant, it's an identical transaction as a dividend. Cash leaves the company. Cash goes to the shareholders. The difference is, instead of sending each shareholder a check for, say, $100, the company causes the investors' stock to rise in value by $100. The shareholder has a capital gain instead of a cash income, but the result to the shareholder is the same. The second way a company returns cash to shareholders without paying dividends is by paying down debt. Cash flows from the company and accrues to shareholders, just like a dividend. In this case, the cash pays off a bondholder who has a senior claim to the stockholder. Once the bondholder is out of the way, the shareholder is that much closer to the future profits. When you include these two additional ways companies return cash to shareholders, you get the true "cash" yield to shareholders. Meb calls this the "shareholder yield." Meb repeated his study on the Russell 3000, taking total shareholder yield into account. This is what he found… Group Average Annual Return Russell 3000 9.98% Dividend Yield (top 10%) 13.29% Shareholder Yield (top 10%) 16.93% Earning 9.98% over 38 years turns $1,000 into $37,147. Earning 16.93% a year over 38 years turns $1,000 into $381,229. In other words, over 38 years, that annual difference of nearly 7% would have increased your total returns by 926%. The conclusion is, my golf buddy is totally wrong. Stocks that pay out cash generate far higher returns than stocks that don't. If you're investing for high returns and are ignoring stocks that pay cash out to shareholders, you're missing the point. You should almost always favor companies that pay out cash to investors over those that don't. Good investing, Tom

One of the best kept secrets of retirement investing

From Dividend Growth Investor:
There are over 60 million baby boomers in the U.S., most of which will retire over the next two decades. Most of them will generate income in retirement through Social Security, while some of the lucky ones will also enjoy a pension provided by their employers. Some boomers might also have some amount of money that they want to learn how to invest, in order to generate income in retirement.

Financial Advisers typically offer the 4% rule as a solution for managing ones money in retirement. This method assumes that investors will rely on total returns in order to monetize their portfolio for living expenses. 

... The danger of this method is that it requires total returns each year in order to grow your portfolio, and avoid eating/spending your principal. Otherwise investors could end up depleting their asset base and might not be able to enjoy retirement for long...

Read full article...

Six world-class stocks that could pay larger and larger dividends for decades

From Dividend Monk:

When building a dividend-growth portfolio, finding high-quality companies that will continue paying larger and larger dividends for decades rather than just the next few years is important. The longer you can hold onto shares of a company, the lower your trading costs and taxes will be compared to what they would be if you trade often.
But this is only a good strategy if the companies you hold onto continue growing shareholder value.
So the key is to look for companies that, among other things:
a) Have a large and sustainable competitive advantage.
b) Are in an industry that is timeless, or nearly so.
c) Are in a solid financial position.
Here are six sample companies... JNJ, LOW, MCD, WMT, MDT, CVX
Read full article...
More on dividend stocks:
These stocks are an income investor's dream
This list of top stocks for 2011 has something for everyone

Four criteria the world's greatest dividend stocks have in common
View the original article here

How to find tomorrow's great dividend stocks

From Dividends Value:
... [A] dividend stock analysis is a snapshot in time, but the real question for the savvy dividend investor is ‘where is the stock headed?’
Here are four important directional metrics that I look for when updating my stock database...
1. Declining Shares
Many companies sell stock to raise cash. The important question is what is the company going to do with the cash? Is it for an acquisition or “general corporate purposes?” The latter is code for...
Read full article...

More on dividend stocks:
How to get started in dividend investing
This could be the best dividend opportunity of your lifetime
These dividend stocks could be "the best kept secret on Wall Street"
View the original article here

The great Richard Russell on how anyone can become rich

 
Tuesday, February 01, 2011

From Richard Russell on LewRockwell.com:

MAKING MONEY: The most popular piece I've published in 40 years of writing these letters was titled, "Rich Man, Poor Man." I have had dozens of requests to run this piece again or for permission to reprint it for various business organizations.

Making money entails a lot more than predicting which way the stock or bond markets are heading or trying to figure which stock or fund will double over the next few years. For the great majority of investors, making money requires a plan, self-discipline and desire.

I say, "for the great majority of people" because if you're a Steven Spielberg or a Bill Gates, you don't have to know about the Dow or the markets or about yields or price/earnings ratios. You're a phenomenon in your own field, and you're going to make big money as a by-product of your talent and ability. But this kind of genius is rare.

For the average investor, you and me, we're not geniuses so we have to have a financial plan. In view of this, I offer below a few items that we must be aware of if we are serious about making money...

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When this alarm goes off, it's time to get out of stocks

From Jeff Clark in Growth Stock Wire:

Periods of low volatility in the stock market are always followed by periods of high volatility. Always.
It's as certain as spring following winter.
Of course, when you're suffering through temperatures that would make an Eskimo shiver, it's hard to remember spring is on its way. And when stocks are a one-way bet, when the market moves higher day after day in unending bullishness, it's hard to imagine it moving in the other direction.
But it always does. You can bet on it.
By the look of the Volatility Index (VIX), the market may be about to change temperature...
Read full article ...
More on stocks:
You're taking a big risk buying stocks today
This chart says the bear market will return in 2011

If you're thinking of buying stocks today, read this first
View the original article here

Three ideas for safely buying stocks today

From The Reformed Broker:
Lots of people feel as though they're under-invested after this week. The anxiety is palpable. They've digested the latest economic data and have come around to the fact that they should probably be in some stocks. The cascading bond market certainly offers a bit of reinforcement in that regard with yields on the the 10-year Treasury ripping back above 3%. And rising.
The sideline dwellers must now confront their fears of top ticking the stock market. We've had an incredible run in equities for 20 months now and valuations are beginning to price in a recovery that is more robust than what many economists are forecasting. The under-invested are caught between the rock of misallocation and the hard place of not wanting to chase.
But never fear - I'm in the solutions business and I'm going to let you in on a few tricks you can use when you find yourself not quite long enough...
Read full article...
More on stocks:
Top research firm: Don't get too bearish now
Warren Buffett is dumping these long-held stocks
BREAKOUT: These stocks are about to make new yearly highs
View the original article here

A list of top income stocks with tons of room to raise dividends

From Dividends Value:

Dividend sustainability is paramount for the high-yield investor. Having a stock cut its dividend could potentially crush their income. A high-yield investor is less concerned about dividend growth than maintaining the current high-yield. Most traditional dividend growth stocks pay a moderate to low yield, thus sustainability is not enough – the dividend growth investor also expects substantial and consistent growth.

This expectation does not change even when the economy turns down and earnings decline; dividend growth investors still require annual dividend growth. The companies that are able to accomplish this are those with an operating model that generates strong free cash flows with...

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More on dividends:

Three signs of an impending dividend cut

Four essential traits of all great dividend stocks

One of the world's best bear-market dividend stocks

View the original article here