Customer Service 1 (888) 261-2693
Please enter Search keyword. Advanced Search

Turn an Ordinary Dividend Into a Double- or Triple-Digit Yield

By Tom Dyson, publisher, The Palm Beach Letter
Monday, October 13, 2008

Some folks are happy with a 2% dividend.

But that's probably because they don't know about a strategy that allows them to collect a 40% dividend... from the exact same stock.

This little-known income boost can make a huge difference. I call this strategy the "424 Dividend Boost" because companies that offer these plans detail them in prospectus-like documents called 424 documents. The technical name for these programs is "Dividend Reinvestment Plans" (DRIPs).

DRIPs are schemes where companies sell their stock direct to the investing public. It's like buying a pair of sneakers from a "factory direct" outlet instead of going to Foot Locker at the mall. The absence of broker fees is a popular benefit of DRIPs. By buying stock direct from the company, you avoid the commissions or fees brokers and money managers charge.

DRIPs offer many other benefits: discounted shares, automatic small monthly payments (even if the amount you pay buys only a fraction of a share), optional cash purchase of additional shares directly from the company, and automatic dividend reinvestment, sometimes at a discount.

DRIPs are a convenient, cost-effective tool for investing in stocks. But the real magic in DRIPs happens when you pick DRIP stocks that pay larger dividends each year.

Let's say you enroll in a DRIP. Shares trade for $10 each and you buy 100 shares. Total cost: $1,000. Let's say the stock yields 5% and the dividend does not grow. We'll assume the share price stays fixed at $10 for simplicity's sake.

After 12 years, your 5% dividend yield has turned into a 9% yield.

Now, let's assume this company grows its dividend by 10% each year. So the 5% dividend yield turns into a 39% yield within 12 years.

Financial data publishing firm Mergent releases a list of "Dividend Achievers" each quarter. Stocks with Dividend Achiever status have raised dividends for at least 10 years in a row. Out of 20,000 publicly traded U.S. stocks, around 300 meet the requirement for Dividend Achiever status.

Dividend Achievers are the perfect stocks to buy in DRIPs. They raise their dividends every year... They tend to be the strongest American businesses with the best franchises, like Johnson & Johnson or Altria... And right now – with the 30% plummet in the Dow in the last 12 months – is a perfect time to buy them for the long term.

You can buy Mergent's list of Dividend Achievers from Amazon. Pick the stocks with the highest 10-year dividend growth, enroll in their DRIPs, and hold them until you retire. The miracle of compound investing – the real secret behind 424 dividend boost plans – requires time. The longer you hold them, the better.

Good investing,

Tom




Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
Volatility Index (VIX)... start selling options! 

NEW LOWS OF NOTE LAST WEEK


Apple (AAPL)... iPods and computers
Boeing (BA)... airplanes
Cisco (CSCO)... networks
Disney (DIS)... entertainment
Energizer (ENR)... batteries
FedEx (FDX)... shipping
General Motors (GM)... the Chairman was right
Halliburton (HAL)... oil services
IBM (IBM)... technology
Johnson & Johnson (JNJ)... health care
Kansas City Southern (KSU)... railroads
Legg Mason (LM)... asset management
McDonald's (MCD)... fast food
Nokia (NOK)... cell phones
Occidental Petroleum (OXY)... oil & gas
Peabody Energy (BTU)... coal mining
Quest Communications (Q)... networks
Royal Caribbean (RCL)... cruise line
Starbucks (SBUX)... coffee
Teck Cominco (TCK)... base metal mining
United Parcel Service (UPS)... shipping
Visa (V)... credit cards
Walgreen (WAL)... drug stores
Xerox (XRX)... technology
Yahoo (YHOO)... search engine
Zimmer Holdings (ZMH)... orthopedic devices
Crude oil, Ethanol, Propane, Uranium, Corn, 
Soybeans, Wheat, Copper, Lead, Nickel, Zinc, Cotton 

Recent Articles


  • The Important Uptrend Nobody Is Talking About
    By Dr. David Eifrig
    Wednesday, October 1, 2014

    I've been on the inside... and this industry, I can tell you, is not as complex as people think. And more important for us... it's one of the most profitable industries on Earth.

  • Your Investment Script as Interest Rates Rise
    By Dr. Steve Sjuggerud
    Tuesday, September 30, 2014

    Interest rates are headed higher in 2015... and most investors see that as a bad thing for the U.S. stock market. But is it?
     

  • Risk $1… Potentially Make $11
    By Matt Badiali
    Monday, September 29, 2014

    It's one of the best risk/reward investments in the entire stock market. Risk $1... and potentially make $11...

  • A Timeless Lesson from This Epic Collapse
    By Matt Badiali
    Friday, September 26, 2014

    This is the secret to making money in cyclical resource markets... and to avoiding hyped-up story stocks...

  • A Potential Bounce in the Japanese Yen
    By Brett Eversole
    Thursday, September 25, 2014

    This is a trade you should keep an eye on. Investors hate the yen. And when it does finally begin moving higher, history says we could see a safe gain in just a few months.