A Simple Formula For Methodical Wealth Creation
We just passed a major milestone. No, I’m not talking about the 50th anniversary of the Apollo 11 moon landing (although that is certainly worthy of recognition). But while we’re on the subject, it would be remiss of me to not cite a couple of examples of what the market has done for investors since that historic date in July 1969.
#-ad_banner-#If you bought a few shares of Walt Disney Co (NYSE: DIS) back then, they would have since multiplied in value 400 times over. Better still, a stake in McDonald’s (NYSE: MCD) would have delivered an astronomical return of 82,000%, including dividends.
That’s what happens when you become a part-owner in iconic American businesses, reinvest your dividends dutifully, and harness the long-term power of compound interest – which brings us to the real milestone I was talking about.
That’s the cumulative distributions of dividends and interest we’ve collected in our Daily Paycheck portfolio since it was created in January 2010. The latest running tally through last month is 3,389 “paychecks” worth a total of $155,219.
And while August looks to be somewhat of a slow month for dividends, we’re still scheduled to receive $1,313. That money will flow in regardless of what the market does. All those dividend reinvestment dollars will stretch even further in a pullback (not that I’m actively rooting for one).
We can thank serial dividend hikers like Enterprise Products Partners (NYSE: EPD) for contributing their share to the cause. Thanks to our dividend reinvestment strategy, we’ve acquired dozens of additional shares of EPD. And the distributions on those shares continue to grow each quarter, spawning new shares. That’s the recipe for methodical wealth creation.
Today, I want to provide an update on the master limited partnership (MLP) – in order to really drive home just how important holdings like this can be for long-term wealth creation.
How To Get A Raise Every Three Months
What’s better than a steady paycheck? One that grows with each passing quarter.
Few stocks on the planet have fulfilled that goal better than EPD. The company has hiked its distributions with regularity over the past 15 years – not annually, but every 90 days. The next payment scheduled for August 13 will mark the 60th consecutive quarterly dividend increase.
EPD’s portfolio of midstream assets has blossomed from $715 million in 1998 to $57 billion today. Those assets include 49,000 miles of pipelines to carry natural gas, natural gas liquids, crude oil, refined products and petrochemicals.
The company also operates several deep-water marine loading and export terminals in busy coastal waterways like the Houston Ship Channel – where expansions are now underway to meet the growing demand for products such as liquefied petroleum gas (LPG).
We first took a position in EPD back in May 2011, investing roughly $3,500 to purchase 85 units (the MLP equivalent of shares). At the time, the company had just raised its distribution for the 27th straight quarter to $0.30 per unit. A subsequent 2-for-1 stock split a few years later doubled our position size to 170 units. By then, the dividend was up to $0.36 per unit.
Today, the quarterly payout has climbed to $0.44 per unit. That’s nearly a 6% yield at today’s prices, but it represents a yield-on-cost of nearly 9% on our initial investment. Meanwhile, the steady reinvestment of all those quarterly paychecks has allowed us to accumulate 85 more units, boosting our stake from 170 to 255.
Those new units are now earning dividends of their own – the magic of compound interest at work. Along the way, the unit price has also appreciated from the low-$20s to near $30. So, our modest $3,500 outlay has more than doubled to $7,500.
This is a microcosm of the Daily Paycheck system. Multiply the effect by 40 or 50 holdings, and you’re well on your way to financial independence.
Action To Take
I still have EPD rated as a “buy” today. My advice? Build a portfolio full of securities like this. You’ll not only sleep better at night — you’ll also steadily grow wealthy over time.
If you’d like to find more great high-yield stocks like this, then you should check out the updated report I just released for my other newsletter, High-Yield Investing. It’s the easiest way to learn more about the highest yields the market has to offer… To access it now, go here.