The Data Proves This Is The Best Way To Build Wealth
Currently, the Federal Reserve is crushing savers and income investors by keeping interest rates near zero.
But the good news is that there are dozens of safe ways to make many times more than you would by investing in a CD or a Treasury bill. In fact, there are currently 219 stocks on the NYSE that yield more than 10%.
While not all stocks yielding double digits are good investments, owning a handful of reliable dividend payers is the safest, easiest way to build wealth.
What The Data Says
In fact, according to Morningstar, 42% of the S&P 500’s total return since 1930 is due to dividends. And Ned Davis Research has found that $1,000 invested in dividend payers of the S&P 500 in 1972 would have grown to $66,070 by the start of 2010. Anyone who invested in non-dividend paying S&P stocks would only have $3,880 to show for it over the same time period.
So why does investing in dividend payers make such a difference? Because these are the stocks that often perform the best, even during periods of extreme market turmoil.
Take the vicious bear market from 2000 to 2002 for example. Companies that didn’t have a dividend sank 33.1% on average, while dividend payers actually raised an average 10.4% over the same period.
When you can traverse bear markets like this, you end up way ahead of the crowd over the long haul.
Not All Dividends Are Created Equal
Clearly, stocks with a dividend give you a huge edge. But it’s not as simple as buying anything with a double-digit yield.
Now and then you’ll see stocks, bonds and funds sporting outlandish dividends of 25% — sometimes even higher.
Please don’t rush out and blindly buy these super-aggressive yielders. Chances are the share price is in the gutter… and for good reason. Nine times out of 10, a stock yielding more than 15% is in big trouble.
MCI was a great example of this. There was a period when the stock paid a 30% dividend yield. It paid that enormous yield for a few quarters, but that was about it. The company eventually went bankrupt and investors lost everything.
That’s why I spend countless hours each month sifting through SEC filings, annual reports and financial statements to identify the safest, most reliable companies in the market. Some often yield double-digits, while many sport a modest 4% or 5% dividend yield.
Either way, you’re still besting the S&P 500’s yield of 2%.
To further my point, look back to the market crash and recession of 2008-2009, which was a brutal period for investors — even dividend lovers. In fact, 2008 was the worst year ever for dividend cuts in the S&P 500.
As the recession ate into profits, some of the biggest corporate names in the country cut their dividends — or eliminated them altogether.
Even so-called blue-chips like General Electric felt the swing of the ax. The company’s dividends were once considered untouchable…
But it was a different story for those following along with my premium advisory High-Yield Investing. At the worst point of the stock market rout in October 2008, the dividend payouts of the 19 companies in our portfolio at the time had actually increased 16.2% over the previous year.
That’s quite a feat considering 61 companies in the S&P 500 eliminated $41 billion in distributions that year.
Even Bank of America, which had increased its dividend for 25 straight years, was forced to cut back. But only one of our portfolio picks cut its dividend (by 7.8%). The other 18 either held flat or rose, by as much as 111.5%.
Action To Take
Keep this in mind as we navigate the current situation in the market. The Covid-19 pandemic brought a lot of uncertainty to the economic picture. A lot of companies were hit hard — and there may still be some pain to come. But by focusing on companies with a solid history of rewarding shareholders with rising dividends, you’re more likely to come out ahead in the long-run.
In the meantime, I urge you to check out my latest research report, which goes into depth about how to put high-yield stocks to work for you. Go here to check it out right now.