I have never advised my readers to invest in Warren Buffett's
Berkshire Hathaway (NYSE:
And it's not because a single share of the class A stock costs
$130,300 or because I think it isovervalued , or any of the other
usual reasons for that matter.
The reason is actually quite simple...
It's because Warren Buffett has vowed time and time again to
never pay Berkshire shareholders a cent in dividends.
In the most recent quarter, Berkshire Hathaway collected
more than $1.34 billion
from its 31dividend paying holdings -- enough to pay $812 per
share. Yet none of that money made its way back to
Granted, Buffett's style is to try and turn that money into more
money. But for me, I'd rather collect a steady stream of cash that
I can do with what I please.
This is not to say buyingshares of Berkshire's class A or B
stocks are a terrible investment. In fact, it could be a nice
addition to an income portfolio for people also looking for capital
But investing in dividend paying stocks is one of the wisest
choices an investor can make.
Apparently I'm not the only one that feels with this way...
Other investors seem to prefer dividend stocks over non-dividend
payers as well.
From 1972 through 2011, U.S.-based dividend stocks in the
S&P 500 returned 7.1% annually, far exceeding the 1.5% return
for non-dividend payers.
This chart tells the whole story. $1,000 invested in 1972 in non
dividend-paying stocks would be worth just $1,700, at the end of
2011. The same amount in dividend-paying stocks would be worth
about $26,000. That's more than 15 times more.
This study supports my conviction that dividends are one of the
most powerful investing tools available. But, as Chief Investment
, I am biased.
So don't just take my word for it, listen to what another
investor had to say about dividend investing:
And one look at Warren Buffett's portfolio shows that the man
likes dividend paying stocks himself. Of his 38 holdings, 31 pay
dividends. Not to mention that many of those companies have a
proven track record of raising or maintaining dividends.
The simple fact is that if you're ignoring dividends, you're
missing out on one of the safest ways to make money in themarket
But not all dividend stocks are created equal. You can't just go
out and buy a stock simply because it sports a high yield.
Remember, there are two ways a stock's yield can go up... either
the company raises its dividend, or the company's share price
falls, thus the yield goes up.
When picking stocks to add to my
portfolio, these are some of the of the criteria I look at when
evaluating an income investment:
1. Long track record of paying consistent and rising
2. Matching history of improvingearnings
3. Strongcash flow sufficient to pay dividends and then some
4. High projected growth that can lead to dividend increases
5. Zero or little debt, because debt-free companies have more
cash to distribute
6. Noncyclical business models that canprofit in all markets and
at all times
Very few stocks actually possess all these criteria, but if
you're researching a company and it has one or more of these
metrics, you may have found a winner.
Even after passing this screen, there's noguarantee a pick will
put in solid returns. Any investment, short of a U.S.Treasury Bond
, can lose money... no matter how sound the investment may
But history clearly shows that investing in dividend-paying
stocks is one of the best ways to invest in the stock market.
-- Carla Pasternak
[Note: StreetAuthority has just identified 10 high-yield stocks
that could give you the second income stream you're looking for.
Not only do these stocks pay fat dividend yields up to 15.2%, but
they also have the potential to pay you an extra $25,000, $45,000,
and even as much as $55,000 a year... To learn more about these
stocks -- including several names and ticker symbols -- follow this
Carla Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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