Think of where you'd be right now if you'd made this move 10
The S&P 500 is up only 41% during that time (a 3.5% average
annual gain). Meanwhile,
Reynolds American (NYSE:
is up 403% during the same span.
Energy Transfer Partners (NYSE:
has returned 664%.
Entertainment Properties Trust (NYSE:
is showing a return of 356%.
And these are some of the most boring companies you can think of --
real-state investment trusts (REITs), pipeline operators and
cigarette makers. But they all have one thing in common.
They pay solid dividends.
As the chief investment strategist behind
, I'm biased. But I think dividends are the most powerful tool in
investing. You don't have to take my word for it. Other investors
"I have made more money in retirement than I did when I was
working. Income from dividend-paying stocks (which I collect every
month) is even better than my greatest expectations."
subscriber, William B.
Even John D. Rockefeller once quipped that the only thing that gave
him pleasure was to see his
The simple fact is that how you treat the dividend -- often the
forgotten step-child among investors -- is the most important
investing decision you'll make today... in the next year... even
the next decade.
Let me show you what I mean.
Take two portfolios, each worth $100,000. The first one earns 8% in
capital gains each year. The second one earns half that amount in
capital gains -- only 4% each year -- but earns a 6% dividend
I chose these numbers as they illustrate a choice investors can be
faced with -- invest in a faster-growing stock that doesn't pay a
cent in dividends, or earn a nice yield and see slower growth.
Here's the best news -- you'll end up earning more with the
dividend, and typically have fewer ups and downs as you would with
a riskier growth stock.
In fact, in 10 years your portfolio would be worth $265,089 if you
went with the dividend-paying holdings, compared with $215,892 with
the growth-only portfolio.
During a longer period, the difference is more dramatic.
Wait 20 years and your dividend portfolio would be worth more than
$702,000 compared with $466,096 -- a difference of more than
And here's the best part. The misconception is that dividend payers
are boring, stodgy securities. They might pay a few percent, but
they won't grow enough to really make a difference.
That couldn't be further from the truth...
• Shares of
Sun Communities (NYSE:
yield 6.1%, but they've returned 623% since the March 2009
• During the same time, the
Reaves Utility Income Fund (AMEX:
has returned 364%, while paying monthly dividends that now equal a
• And the
NuveenReal Estate Income Fund (AMEX:
has returned 459% in addition to its 8.2% yield.
But that's during a strong market rally, and coming off of
multi-year lows. What about in different conditions?
• Terra Nitrogen (NYSE:
is paying 7.1% and has a total of return of 100% during the past
year (a time when the S&P 500 is up only 4%).
• Altria (NYSE:
, which pays a 5.8%
, has returned 28% in the past year.
That's not to say every dividend payer will be a big winner. It
won't be, and I wouldn't listen to anyone who says they can
a stock's gains.
Action to Take -->
But in the sizzle of the mainstream financial media, it's the
fast-moving names like
that get most of the headlines. As you can see, it may just be the
dividend-payers that are most important to your success.
-- Carla Pasternak
Carla Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of SUI, GOOG in one or more if its "real money"
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