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Barring
a completely unexpected rise from the ashes, the Dow Jones
Industrial Average will record a sobering -35% loss for
2008. The Dow hasn't recorded a -30% loss since the first
half of the previous century. The average will likely finish
somewhere between 1930's -33% drop and 1907's -37% decline.
And the Dow, as the name implies, is an average -- many
individual stocks have seen far more dramatic declines of
-50%, -60%, -70%, or even more.
With such painful red ink in mind, serious investors are
getting past their shock at the global financial meltdown
and are beginning to formulate their first New Year's
resolution of 2009: To find a way to dig their portfolios
out of their current hole and find a safe, dependable way to
generate a solid return.
That's a good plan. And let's not make this any more
complicated than it needs to be. For your portfolio to have
a successful 2009, you need to focus on only one thing.
Dividends.
Many investors pine for the dramatic returns of
companies with explosive growth. But you may be surprised to
learn that the gains made by juggernauts like Apple
or Google are vastly outperformed by dividend-paying
companies in the long
run. A 2002 study in Financial Analysts Journal showed that if your forebears
invested $100 in the stock market in 1801 and reinvested
every cent of the dividends, the resulting fortune would
have added up to $37 million by 2001.
If you'd simply pocketed those dividends along the way,
however, you'd only wind up with a measly $2,099. The effect
of those non-reinvested dividends actually rendered the stock gains
statistically insignificant -- the mathematical term for
"too small to count." And think about this: There were lots of
high-flying companies that delivered huge gains to investors
during those two centuries. But in the final accounting, it
was the dividends that had the largest impact.
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In modern financial history, dividends have
represented about 40% of the market's total return. To illustrate how that plays out, take a look at the graphic to the right.
The top line, in red, shows the performance of the market's average total return, which
including
dividends is +12%. The lower line, in blue, strips out
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40%
of that performance (for a +7.2% annual return). As you can see, the
dividend-oriented investment reaches more than twice the value
of the blue line over 20 years.
That gap is your dollars, and over time it is only going to
grow wider. Even after only 20 years, the investment
that includes dividends has grown from $10,000 to $96,462.
The investment that fails to capture dividends only adds up
to $40,169.
Dividend Payers Hold Up in a Downturn
Looking for a safe, stable return? History shows
you're most likely to find it with dividend payers. Google
and Apple don't pay them, by the way. They're good
companies, sure, and their shares might continue up someday.
But you can't deposit that into a bank account unless and
until it happens. You can, on the other hand, put your
dividends to work as soon as you receive the check in the
mail.
That fact -- or, more precisely, that cold, hard cash
-- is why dividend-paying
stocks hold up better than non-payers when times get tough. Investors will take a loss on stocks that don't do
anything for them, but they won't bail out on companies that
have been sending them steady income.
This makes logical sense. After all, would you rather
have a lottery ticket that only has a chance at paying off
or would you rather have a dollar bill that you could
actually spend?
This premise was proven true after the 1907 panic, the 1929
and 1987 crashes, and dozens of other hiccups along the way,
from the 1997 "Asian Contagion" to the collapse of the
"Dot-com" bubble. In each of those cases, dividend
payers led the way to recovery.
Dividend-Paying Stocks Generate More Income
(And For a Longer Period)
Not only do dividend payers offer cash, they're
paying out more of it than anything else out there.
Three-month T-bills aren't yielding anything -- all you get is
protection, no return. A one-year CD will pay 3.2%,
which will just barely beat inflation. Highly
rated corporate bonds are doing a little better, but they're
still paying less than 5%. That kind
of a payout isn't going to help you make up much lost
ground, is it?
But a thousand common stocks in the U.S. alone can beat
that. Nearly 600 pay 7.5%, and some 370
stocks are yielding more than 10%. It's not uncommon to even find a company with a
dividend yield higher than its earnings multiple right now.
I've uncovered more than 30 names with a cursory screen.
And there's another factor to consider. CDs, T-bills
and bonds all are time-sensitive. The rate of return is
finite -- it will come to an end. But dividend payers are
hemmed in by no such restrictions. You can lock in a high
dividend and collect its rich payout stream for as long as
you choose. If it's going to change, the likelihood is that
it will go up. Strong dividend payers tend to get stronger
over time.
Supercharge Your Returns with Cash
After a terrible year like 2008, you can't afford to
settle for average yields. You need to be bring in the
all-star team that will not only add a margin a safety to
protect your portfolio from additional losses, but that will
also generate the standout returns you need to rebuild your
portfolio.
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A moment ago, our chart showed the performance of
dividend payers versus non-dividend payers.
There's just one thing. The top line used an average,
and that's not good enough. To make up for that, the
chart to the right adds a third line. This shows a
true snowball effect.
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It plots what could
happen to your portfolio if you put your money into
a stock with a 20.2% yield -- the exact sort of gem
High-Yield Investing has
just uncovered in a new report.
How You Can Find The Strongest Dividend Payers Available
If
you'd like to protect your assets, put your portfolio in
line to generate a substantial return and have access to
plenty of real income along the way, then I want to
invite you to learn more about using dividends to increase
your wealth in our
special
2009 Wealth and Income Report.
This just-released report focuses on the seven niches
of income investing that many investors overlook... but
offer amazingly rich yields of 16.0%... 20.2%... and even
22.4%. In addition, you'll learn why right now is
the best time in a decade to be an income investor; how to
find safe yields in a shaky market; the way you can profit
from a two-year tax holiday in Canada... and much more. You
can access your copy of this report
here.
Many
Happy Returns!
-- Andy Obermueller
Co-Editor
Global Dividend Opportunities
GlobalDividends.com
839-K Quince Orchard Blvd.
Gaithersburg, MD 20878-1614
P.S.
-- Don't miss a single issue! Add our address,
Research@GlobalDividend.com,
to your Address Book or Safe List. For instructions,
go
here.
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