The kids are back in school learning reading, writing, and arithmetic (and that’s probably all since the standardized tests don’t deem anything else to be important). But Junior doesn’t have to be the only one in the family to get an education this fall.
As an investor, you should constantly be striving to learn as much as you can about market history, how markets work, different types of analysis, etc.
For example, did you know that since 1937, the market has gone up 91% of the time over 10 year periods? That puts me at ease considering the upcoming election and the fact that I have absolutely no faith that either presidential candidate or Congress will do much to improve the economy.
It may be a tough slog going forward, but that’s not much different than other difficult periods in history. The 1970s decade was no cakewalk. Vietnam, Watergate, gas lines, and double digit inflation -- yet, including dividends, investors made money in every 10 year period involving the 1970s (i.e., 1967-1976, 1973-1982, etc.).
World War II didn’t do much to stop the stock market. Only the 10 year period ending in 1946 finished down – and that included several years of the Great Depression.
Over 10 year periods, the stock market goes up -- and it goes up a lot. Including dividends, the market rises an average of 129% over 10 years, more than doubling investors’ money.
So even though most politicians wouldn’t know good policy if it fell in their laps, the market is likely going to do what it has done throughout history: Go up over the long term.
But that doesn’t mean investors should just blindly put their money into an index fund and collect their proceeds in 10 or more years. There are ways of maximizing returns.
Give Yourself a Raise.
One of the easiest and most powerful methods is to invest in perpetual dividend raisers. These are stocks that have a track record of raising their dividend every year. This is important for three critical reasons:
It suggests the business is healthy; a company whose business is struggling is not likely to be able to boost its payout to investors every year over the long term.
It shows that management understands its fiduciary responsibility to shareholders.
It helps investors outpace inflation and create real wealth.
In my book Get Rich with Dividends
, I introduce investors to my 10-11-12 System. It’s a system designed to generate 12% annual returns over a 10 year period. With those kinds of returns you triple your money in 10 years and make nearly 1,000% over twenty years.
One of my favorites stocks these days that qualifies under the 10-11-12 System is Intel
(INTC). The stock pays a dividend yield of 3.4% and has raised the dividend by double digits every year for nine years. Its most recent increase was its third in eighteen months. Plus, the company only pays out 22% of its profits to shareholders, so it has plenty of room to continue raising the dividend in the future.
Intel is the leading semiconductor manufacturer in the world and dominates the computer processor market with roughly 80% market share. The increased use of the cloud should benefit Intel, as more cloud use requires more servers, which is Intel’s sweet spot.
Intel is a blue chip company that deserves a spot in any core dividend portfolio.
Brookfield Infrastructure Partners
(BIP) is certainly lesser known than Intel, but also deserves your consideration. The company operates a diverse group of businesses all over the world. It runs ports and railroads in Australia, toll roads in Chile, gas pipelines in the US, timberland in Canada, and transmission lines in several countries.
It pays a 4.3% yield and has raised the payout every year for five years. Roughly 80% of its revenue is secured by contract or government regulation, so management has great visibility on earnings, cash flow, and its ability to pay and raise the cash distribution.
Additionally, Brookfield is a terrific idea if you’re concerned about taxes. Brookfield Infrastructure Partners is a master limited partnership (or MLP). Typically, most of an MLP’s cash distribution is considered a return of capital. This means the payout will not be taxed as a dividend. Instead, it will lower your cost basis and may lead to capital gains when you sell the stock. At that point, you will be responsible for taxes on any capital gains.
But for those seeking tax deferred income today, especially if you’re concerned about the expiration of the Bush tax cuts and a hike in the tax rate on dividends, a master limited partnership like Brookfield may be the answer. Just be sure to speak with your tax advisor before investing as MLPs can complicate your tax return and you want to make sure the cost and risk is worth the benefit.
Setting up a portfolio of stocks with solid yields that raise the dividend every year is the best way to ensure you capture excess returns, even beyond the strong performance of the market decade after decade, no matter who was in Washington or any other world capital.
Marc Lichtenfeld is the author of Get Rich with Dividends, A Proven System for Earning Double Digit Returns
. He is also the Associate Investment Director of the Oxford Club
and the editor of the Ultimate Income Letter.
No positions in stocks mentioned.