The Simplest Way to Beat the Market in 2013

It’s all in the interest of research: This week I asked people around the office what brands they’re loyal to.

StreetAuthority Chief Operating Officer Jack Lizmi pledges his allegiance to TVs by Samsung (London: SMSN) and cars by Toyota (NYSE: TM). Business Development Manager Karie Meltzer remains a fan of Cole Haan high heels, despite Nike’s (NYSE: NKE) decision late last year to sell the iconic brand to a private-equity firm.

Among StreetAuthority’s editors, Brad Briggs fills his car at Exxon Mobil (NYSE: XOM) Exxon stations whenever he can. Anthony Haddad uses razors by Gillette, a product of Procter & Gamble (NYSE: PG), and Rosie Hatch is a devotee of Coca-Cola’s (NYSE: KO) namesake brand. Francisco Bermea half-heartedly laments that “the most consistent thing” in his life these days is Pert Plus, the shampoo, another product of P&G.

Brand loyalties matter, to consumers and to the companies that typically spend anywhere from a few dollars to a few hundred dollars or more to acquire just one new customer.

In his September 2012 book “The Fusion Marketing Bible” author Lon Safko says (Nasdaq: PCLN) spends about $7 in marketing and advertising per new customer. The expenses go up to $10 for, and to $175 for TD Waterhouse. Sprint’s (NYSE: S) Sprint PCS customer acquisition cost amounts to $315 per capita.

Of course, every company is interested in acquiring new clients, but from a net revenue perspective, the advantage goes to those businesses whose customers keep coming back for more.

Another advantage of customer loyalty: retained customers often offer business referrals and word-of-mouth recommendations. In this age of Yelp, Facebook and other social media, it pays to be “liked.”

Add it all up and it only stands to reason that the companies that retain their customers for a long period of time stand a better chance of delivering consistent, outsized profits for investors.

So noted Paul Tracy in the January mid-month update of his Top 10 Stocks advisory.

“It makes perfect sense,” wrote Paul. “Existing customers are several hundred percent more likely to buy when compared with new prospects.” Moreover, Paul said, “Businesses that enjoy strong customer loyalty also have an easier time raising their prices, which can lead to fat profit margins.”

One Top 10 Stocks holding that fits the customer loyalty mold to a “T” is Starbucks (NYSE: SBUX), the global coffee giant whose shares have risen more than five-fold since late 2008.

The average Starbucks customer visits one of the company’s 18,000 stores six times a month, and its most loyal customers visit 16 times a month.

“Its customers are fanatical about their beverages, and they stay loyal to Starbucks for the brand, the customer experience and the consistency of the company’s drinks,” said Paul.

Fueling the fanaticism is “My Starbucks Rewards,” a customer loyalty program industry consultant LoyalMark unreservedly called “the most successful loyalty program in the U.S.”

The bottom line for investors, according to Paul, is this:

“Customer loyalty comes in many forms. Sometimes a company’s customers are locked in under long-term contracts. In other cases customers face significant switching costs… or they’re extremely loyal to their favorite brands. Whatever the reason, if you invest exclusively in companies that keep their customers happy — and keep them buying for years… decades… even for a lifetime — then you’ll increase your odds of beating the market.”

While many companies enjoy strong, lasting customer loyalty, not all of them return the favor by returning money back to shareholders via dividends and buybacks — two “rewards” for investors that can often make the difference between meeting the market and beating the market.

With that in mind, Paul recently released a new report revealing what he calls the “Dividend Vault”, a massive $1.7 TRILLION cash hoard many U.S. companies — including some of the country’s most popular brand names — are sitting on right now.

It started during the height of the 2007-2008 financial crisis. Acting out of fear, companies started hoarding cash as banks stopped lending and the economy came to an abrupt halt. Corporate America has spent the past few years hoarding this cash like it was going out of style. And now this “Dividend Vault” is so large, many companies simply can’t decide what to do with all that cash.

Corporate America has spent the last few years hoarding this cash like it was going out of style.

The only solution: Start paying that money out to shareholders as dividends.

Of course, these companies aren’t going to pay it out all at once, but you’d be surprised by the sheer magnitude of this opportunity.

For example, S&P Senior Index Analyst Howard Silverblatt recently told The Wall Street Journal that S&P 500 companies paid a record $281.5 billion in dividends in 2012 — up 17% from 2011 and 14% higher than the previous record set in 2008.

And Silverblatt says, “the only way for there not to be a record in 2013 is for mass cuts in dividends…” But with all that extra cash sitting in the bank, we don’t expect that to happen.

Paul has already gone on record saying that we’re headed for a “Dividend Decade” — a period where ALL of the market’s returns in the next decade will come from dividends and is convinced that shares of companies that are tapping into their huge cash balances, or “Dividend Vaults,” are the way to go.

Paul and his team have identified 13 “Dividend Vault” companies that are likely to pay out billions for years to come. He predicts that these 13 companies will account for roughly 10%, or $30.1 billion, of all dividends paid by major U.S. corporations in 2013.

But this isn’t the only reason Paul likes these companies. In his latest research video, Paul goes on to explain why these companies are not only likely to pay out hefty dividends for years to come, but also have the potential to deliver big share price gains.

Action to Take –> You can watch Paul’s latest presentation, and learn how to get a piece of the next round of cash payouts — payouts that will be sent to investors in the next several weeks — here. (If you’d prefer to read a transcript, click here.)