The markets continue to circle around the Dow 13K level as investors (and the media) root for the index to break through that big psychological barrier. Economic data was fairly quiet today, with the weekly jobless claims number coming in slightly better than expected.
Earnings took center stage today with a bevy of retailers reporting. Seeing positive investor sentiment were shares of Dillard's ( DDS ), Target ( TGT ) ( report here ) and Tim Horton's ( THI ). On the flipside, investors reacted negatively to results from Safeway ( SWY ) and Kohl's ( KSS ) ( full report here ). Also moving lower was shares of Hewlett Packard ( HPQ ) ( report here ). We did get a dividend increase from Kohl's as well as Analog Devices ( ADI ) ( more here ), which also reported earnings today.
Living to 100 Will Require Help from the Compound Interest Gods
Yesterday, Smart Money ran a piece highlighting data from the Bureau of Labor Statistics that estimated an American who lives to the age of 100 will spend $3.5 million in his or her lifetime. In fact, those in their 60′s spend more than older age groups, on everything from housing to clothes. The latest health statistics indicate the average 50 year-old today can expect to live until 81.
Here's an example of the beauty of compounding interest that dividend stocks can provide: Investing just $3,000 into dividend-paying stocks over the course of 5 years and re-investing the dividends over the course of 56 years will grow to over $1 million (based on historic 11% annual returns). Most people probably aren't thinking that far out, but consider the fact that we're talking about just a $3,000 total investment.
I can't stress enough the power of compound interest. You take a small amount of money and turn it into a large amount over time. Patience and consistency is required, but we all need to begin practicing some discipline if we are going to get the financial ship headed in the right direction.
About That Real Estate Data…
We heard a bit of positive chatter about the pick-up in existing home sales reported yesterday. While the uptick in sales volumes was a positive, the reality is that home prices also fell to their lowest levels in a decade. Distressed home sales, which includes homes in foreclosure and so-called "short sales" in which the home is sold for less than what is owed on the mortgage, made up 35% of sales in January.
These trends don't exactly indicate any sort of strength in the real estate market. If you just focused on yesterday's headline about sales volumes rising, however, you'd be inclined to think otherwise. I'm not here to beat up on real estate, but from an investment standpoint, I suggest folks look at homes only as places you want to live in. Only if real estate prices stabilize over the long term can a home purchase really be considered any sort of "investment."
The only proven investment tied to real estate are properties that throw off positive cash flow(multi-family buildings, office buildings, other commercial property). Most seasoned real estate investors look mainly at the cash flow when evaluating a property's investment potential. In some areas, you may see a premium added to the equation due to an expectation of price appreciation, but those are few and far between.
54% of Americans Have More in Emergency Savings Than Credit Card Debt
Bankrate just released results from a study that indicates Americans are beginning to save a bit more than they have in the past.
One key point that stood out was that high-income earners were the least likely to report more credit card debt than savings. It seems obvious that the more money you make, the less likely you will run into financial trouble, which is why I like to often write about the importance of career choices. When you understand what industries had the best earning potential, and what education and skills you should acquire to get those positions, you'll be set up for a strong financial foundation. In turn, that foundation allows you the comfort level to live well and invest. You can get by without a college education of course - just be prepared to work extremely hard to build up wealth over the long term.
New MLP Report Just Released!
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25 Years of Dividend-Increasing Stocks
We recently updated our list of dividend stocks that have been paying out dividends for 25 years or more. Be sure to check out the latest list of names here .
Dividends Really Matter
Financial blog DailyReckoning.com recently took a look at the difference dividend payouts made in the overall return investors saw throughout the prior decades. Here are some of the highlights:
- The Nasdaq is down 28% since the end of 1999. Even the "blue chip" S&P 500 stocks are down 15% during that time frame…until you add back those "boring" dividends. With dividends included, the S&P 500′s 15% loss flips to a 6% gain.
- Without dividends, the S&P 500 index would have produced a loss for the 25 long years from August 1929 to August 1954. Then again, without dividends, the S&P 500 produced a 5% loss during the 13 years from September 1961 to September 1974. But with dividends included, the S&P's loss became a 46% gain.
- Over the course of the last half-century, dividends have contributed more than half of the stock market's total return - 56%, to be exact.
Of course, you can't discuss the potency of dividend investing without making mention of how awesome compound returns are. I can't stress enough the power of compound interest: you take a small amount of money and turn it into a large amount over time. Finding the right companies at the right price points which not only grow earnings, but also grow their dividend payouts as well!
New Watchlist Article Out Today
Be sure to check out our weekly Top 50 High-Yield Watchlist Names post that is out today, exclusively for Dividend.com Premium members. This list gives readers a good idea of what stocks we're watching behind the scenes here for potential upgrades.
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