Earn More Income By Avoiding These Mistakes

Everyone makes mistakes, especially when it comes to investing.

Some errors simply come with the territory. Others are so detrimental they could be costing you upward of three, eight, even as much as 21 times the returns you would have earned by not making them.

Today’s essay is dedicated to identifying two of the deadliest investing mistakes you might not know you’re making.


Mistake #1: Growth stocks are not the fastest or safest way to grow your retirement.

Ask ten investors the best way to grow your wealth in the stock market, and I’m willing to bet nine of them will tell you the answer is long-term growth stocks.

After all, growth stocks are plowing their cash back into the company, so surely they must be growing faster, right?


The truth is that dividend stocks — not growth stocks — have proven to be the best tools for building a robust nest egg.

Not only have dividend stocks grown faster over time, they’ve also shown considerably more resilience in bear markets than growth stocks. In fact, Ned Davis Research found that from 1972 through 2014, dividend-paying stocks in the S&P 500 returned 9.3% annually.

That’s more than three times the 2.6% annual return from non-dividend-paying stocks in the S&P 500.

The fact is the growth potential for dividend stocks is much higher than non-dividend payers. So what better place to put your money than in a stock that solely invests in the market’s best dividend payers?

iShares Core High Dividend (NYSE: HDV) is an investment fund unlike any other. By investing strictly in the market’s most dominant dividend-paying companies the firm has delivered consistent returns for shareholders, rising more than 46% since being launched in 2011.

Unlike other funds, HDV limits its holdings to only the market’s biggest and most reliable dividend-paying stocks.


HDV’s Top 10 Holdings
Company % Of Assets Dividend Yield
Exxon (NYSE: XOM) 8.1% 3.6%
AT&T (NYSE: T) 7.2% 5.4%
Verizon (NYSE: VZ) 6.5% 4.7%
General Electric (NYSE: GE) 6.4% 3.5%
Johnson & Johnson (NYSE: JNJ) 6.2% 2.8%
Procter & Gamble (NYSE: PG) 5.1% 3.5%
Chevron (NYSE: CVX) 5.0% 5.1%
Pfizer (NYSE: PFE) 4.9% 3.1%
Philip Morris (NYSE: PM) 4.8% 4.7%
Coca-Cola (NYSE: KO) 4.0% 3.0%
Source: Morningstar


These top 10 holdings make up more than 59% of the firm’s portfolio and pay an average dividend yield of 3.9%. That’s double the S&P 500 average.

Considering HDV is invested in some of America’s best dividend stocks — each of which has the potential to continue delivering long-term gains to shareholders — there’s no doubt it’s one of the best ways for you to take advantage of the strength in today’s dividend market.

Mistake #2: Chasing an outrageous dividend yield will not bring you more returns.

After reading mistake number one, you might be asking yourself: If dividends are so good, why not focus on those stocks with the highest-dividend yields? After all, isn’t a stock that’s paying a bigger dividend better than one that isn’t?

Again, wrong.

A stock can have a high dividend yield for a variety of reasons. Sometimes those reasons are bona fide, other times it’s because of something more sinister.

Often a mile-high dividend is the result of a falling stock price, or a sign that a dividend cut is on its way. Simply put, it’s just too hard to know what the problem is by only looking at the dividend yield.

That’s why, instead of focusing on stocks with the highest yields, it’s better to own stocks that are increasing their dividend at a steady pace, even if that means the firm has a smaller yield initially.

Over time, that dividend growth can turn lower-yielding stocks into big income producers.

For example, Proctor & Gamble (NYSE: PG) pays a dividend yield of 3.5%. That’s not bad, but also nothing special. However, in the past 20 years, the company has raised its dividend 658%.

That means if you had bought the stock back in 1995 for $12.15, not only would you have enjoyed tremendous capital gains of more than 500%, but you would be currently earning a 28% yield based on your original purchase price.

And dividend-growers can deliver huge capital gains too. In fact if you had invested $10,000 in 1972 into stocks with a history of increasing their dividends, you would have nearly $560,000 today. That’s 21 times more than if you’d invested in non-dividend stocks.

You can see why I decided to scour the investing universe trying to find the market’s best “dividend-growers.” And after looking through thousands of companies in dozens of industries, I think I finally found the best one.

Starbucks Corp. (Nasdaq: SBUX) is the world’s largest retailer of specialty coffee, with locations popping up on every street corner in the United States and all across the globe. That growth has enabled the firm to increase its dividend by more than 300% since 2010.

Currently SBUX only yields about 1.1%, but if it keeps raising its dividend at a similar rate, then investors who buy today could be earning a much larger paycheck in a few short years.

That dividend growth has been followed by fantastic returns over the past five years, with shares rising 354% compared to the S&P 500’s 85% return in that same time.

The company is firing on all cylinders, which includes raising its revenue every year since 2009 and its plan to continually open new stores around the world. For those reasons, I fully expect Starbucks’ market dominance and dividend growth to continue for years to come.

Reliable companies that often pay and steadily grow dividends like the ones mentioned above are exactly what I look for in my premium service Top 10 Stocks. Dividend growers are such a key aspect of a company because it’s proof that a firm is healthy and its cash flow is steady and robust.

The bottom line is that if you are committing these mistakes, then you are truly missing out on the best of what the market has to offer. Follow this basic advice and your portfolio results will speak for themselves.

Good investing,

Dave Forest
Chief Investment Strategist
Top 10 Stocks

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