With $200,000 in actualcash fronted by StreetAuthority, I was
given the go-ahead to build a real-money portfolio using the
The strategy is straightforward. I'm building a portfolio ofincome
stocks that pays me adividend for every day of the month. And
because I want to make those dividends grow as large as possible,
I'm also reinvesting every cent of the payments.
It's a simple way to invest and many investors have heard about it
before. But until now, most have only seen this sort of strategy
backtested -- notput in place in real life.
The good news is that while we all know being paid dividends
regularly -- and reinvesting those payments -- is "supposed" to
work, the actual results have been much more exciting than even I
For instance, I'm now averaging more than $1,357 per month in
dividends and have earned more than $40,900 in total dividends.
But this strategy has also uncovered something surprising that
could have a big effect on how you invest.
My portfolio holdings are separated into three different groups.
Those securities in the high-yield opportunities are the highest
yielders. Theseinvestments pay more than 10% on average. The fast
dividend growers are those companies increasing their payments
quickly. And the steady income generators are the holdings that can
simply be counted on to pay stable dividends year after year,
without much change.
What's surprising is which of these groups has performed the best.
The fast dividend growers have the lowest averageyield of the
three. These holdings pay an average yield of 4.9%. But this group
has an average total return of almost 50%. Compare that to an
average total return of roughly 39% for all the portfolio holdings.
In other words, the fast dividend growers have returned more on
average than the portfolio as a whole... despite paying yields
lower than most of the other holdings.
Altria Group (NYSE:
, one of the holdings in my fast dividend growers group. Thestock
pays a 5.3% yield -- solid, but not eye-popping. But since
mid-2008, the company has raised the quarterly dividend from 29
cents per share to 44 cents. That's an increase of nearly 52%
during the most turbulenteconomy in generations.
With that sort of stability, it shouldn't be a surprise the stock
has returned more than 85% since I first added it to my
portfolio in April 2010, compared to the S&P 500's roughly 34%
return in the same period.
So what can you take away from this finding?
Action to Take -->
First and foremost, it proves what you've always heard. Investing
in dividend-paying securities -- especially those paying increasing
dividends -- and reinvesting those dividends can be a very
lucrative strategy, especially in a trickymarket .
But more than that, it proves that often it isn't the
highest-yielding dividend payers that give you the highest return.
High yields are tempting, especially if you are after current
income. However, more often than not those companies able to
consistently increase their dividends turn out to be the better
-- Amy Calistri
P.S. -- Stocks like Altria Group are perfect for what I call a
"Dividend Trifecta" strategy. Simply put, it's a three-part
approach to dividends that multiplies the effectiveness of every
dollar you invest. The plan is specifically engineered for people
who want to retire sooner or for those who would like to get a
steady stream of extra income now. Go here to learn more...
Amy Calistri does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of MO in one or more of its "real money" portfolios.