Theacquisition of wealth is paramount to our financial
. Most Americans have historically depended on home ownership for
accumulation of wealth, the recent crisis notwithstanding. But most
people don't realize that there's a better way.
One of the greatest ways to compound wealth is to buy
dividend-paying stocks and reinvest the dividends. Each quarter
(some stocks even pay monthly), your dividends buy moreshares ,
adding to the total on which your nextdividend payment is
calculated. But investing in dividend-paying stocks that
consistently raise dividends puts the
effect on steroids.
Johnson & Johnson (
has increased its dividends for the past 48 straight years, at an
average rate of about 13.4% per year since 2000. If you purchased
200shares of JNJ in 1980 (an investment of $14,600) and never added
new money but just reinvested all the dividends, the position would
be worth $1.15 million today. That's a 7,868% return. In other
words, it's like buying a house in 1980 for $146,000 that today is
worth about $11.5 million. Home values didn't appreciate anywhere
near that much. That's the power of growing dividends.
Similarly, a 200-share investment in
-- which has also grown itsdividend consistently -- in 1990 would
have cost $21,420. With reinvested dividends, the position would
have grown to $759,000 today. Again, imagine buying a $214,000
house in 1990 that is worth about $7.6 million today.
Going forward, dividends are most likely to grow in markets that
are most likely to grow. Where do future markets look most
promising? The same place economies are growing at light speed --
Dividends and emerging markets seem like two terms that don't go
together. Emerging markets have been known for
and have typically not paid dividends. But things are changing. As
these markets mature, more and more companies are beginning to pay
dividends, returning more cash to shareholders than ever
before. In fact, about 634 equities in the MSCI Emerging
MarketsIndex paid dividends as of the end of September, according
to data compiled by Bloomberg and JPMorgan Chase.
Investors have been noticing. The
WisdomTree Emerging Markets Equity Income Fund (
exchange-traded fund (ETF)
that invests in 292 emerging-market dividend-paying companies (as
of December 31) and currently yields about 3.3%. Although DEM was
formed in 2007, it has since outperformed 99% of all
emerging-market ETFs, returning more than 30%.
In addition to strong growth, emerging-market dividends offer
something else --
from the U.S. dollar. As the dollar continues to decline, the
relative value of many emerging-market currencies appreciates,
increasing the value of dividends in dollar terms.
Here are a couple of promising
CPFL Energia SA (
is a Brazilian utility holding company and one of the largest
companies in South America, with a 13% share of Brazil's power
distribution market. The utility serves 6.4 million customers
concentrated in the affluent states of Sao Paulo and Rio Grande do
A boomingeconomy and population growth have led to consistently
rising power usage. Asearnings for CPFL have increased, so has the
dividend, which has grown by an average of more than 27% in the
past five years and by 37% in 2010. The stock currently yields a
solid 6.4%, with the next dividend payment expected in May. The
stock has returned a stellar average of more than 18% per year in
the past five years, compared with an average of less than 3% for
the S&P 500.
There is no withholding tax on the dividends. Payments are made in
Brazilian reals and converted to U.S. dollars. Brazil's stronger
relative economic growth bodes well for the future strength of the
real versus the dollar, which could help sweeten the dividend when
it is translated into dollars.
Philippine Long Distance Telephone Co. (
is the largest telecom provider in the Philippines, serving more
than 60% of the nation's fixed lines and about 55% of the cellular
market. The Philippines is one hot market. Theeconomy grew at a
whopping 7.3% in 2010 and the Philippine stock market was the
best-performing market in the world for the year, posting a 77%
The market has pulled back about 12% from its highs, and Philippine
Long Distance has also pulled back 18% from its yearly high.
Although the market has recently consolidated, the future appears
bright for the Philippine market. The government has forecast 8%GDP
growth for 2011.
The stock pays two dividends a year, which totaled $4.80 per
American depository share (ADS) in 2010, equating to ayield of
about 9%. This company also has a strong history of raising
dividends, which have risen more than 600% since 2005. Consensus
analyst estimates are calling for
growth of 9% in 2011.
Action to Take -->
Reinvesting growing dividends over time has proven to be an amazing
wealth builder. Emerging markets will likely provide strong
economic growth in the years ahead. Both of these stocks are
excellent candidates to provide consistent and growing dividends in
the years ahead.
-- Tom Hutchinson
P.S. -- I don't know if you've seen this or not, but a Texas man
has figured out how to collect thousands of dollars a month in
dividend payments alone. Last year he made $41,161 this way.
Whether you're on a fixed income or not, I'm sure you could benefit
by copying this man's formula for your own use. Here's everything
you need to know…
Disclosure: Neither Tom Hutchinson nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.