Daily Archives: June 21, 2018

Dividends

How to Double Your Money Every 3 Years With Safe Dividend Stocks

If you want to clobber the stock market – and double your money every two or three years – then buying companies with accelerating dividends is an absolute must.

And I’ve got good news for you: there’s never been a better time to buy them.

That’s because dividend growth is on a sugar high: research firm IHS Markit recently predicted that global dividends would jump 10% this year—a new record.

What’s more, if you’re looking to grow your nest egg fast, you’re in luck, because accelerating dividends are the beating heart of my personal 3-step system for banking 12% annual returns for life.

I’ll tell you all about this safe, simple approach, and why that 12% number is vital, in just a moment. First, let’s talk about why I’m so focused on an accelerating payout.

Getting a fatter income stream is an obvious reason, but it’s just the start. Because as I wrote in December, a rising payout acts like a lever on a company’s share price, prying it higher and higher with every single dividend hike.

The pattern is plain as day in this chart of NextEra Energy (NEE), a supposedly “boring” utility that’s been quietly sending its shareholders bigger and bigger dividend checks over the past five years.

Look at how NEE’s stock has jumped with each and every dividend hike NextEra has delivered—and how its latest monster payout hikes have magnified those gains:

Bigger Dividend Hike, Fatter Share Price Pop

NextEra just delivered a 13% dividend hike earlier this year. But you and I can do even better.

We’ll start by looking at each part of my 3-step “accelerating dividend strategy,” designed to uncover the stocks that will deliver that 12% annual return we’re craving.

Why 12%? That’s because, as I show you in my in-depth investment report, “The Simple (and Safe) Way to Earn 12% Every Year From Stocks,” it’s enough to double your portfolio every 6 years and throw off a dividend stream that’s 3 times larger than the experts say you need in retirement.

That’s more than good enough for a risk-averse dividend fan like me. So let’s get going, starting with…

Step 1: Build Your Own High Yields

Plenty of dividend hounds simply run out and find the stock paying a high current dividend yield (6%, 7%, 8% and more) and call it a day.

But that can be a recipe for disaster.

Take telecom provider CenturyLink (CTL), which is getting a lot of headlines these days because of its ridiculous 12.3% yield. But that’s entirely because, as I told you back in November, the shares have been walloped (as you calculate dividend yield by dividing the annual payout into the current share price). Check out how the dividend yield has risen as the share price has dropped through the floor.

CTL: The “Dividend Trap” Is Set

This is a textbook example of why you’re often safer with a lower-yielding stock that grows the yield on your initial buy over time.

Let’s again consider NextEra for a moment, if you’d bought that stock five years ago, you’d be pocketing a nice 5.5% on your original buy today, thanks to the company’s accelerating payouts. That’s more than double NEE’s current yield of 2.8%.

Or better yet, you could go with a stock like Lam Research (LRCX), which dropped a fat 120% dividend hike on shareholders in March and has plenty of room for even bigger raises, thanks to another misunderstood measure (2, actually) I’ll show you now.

Step 2: Know Your Ratios

If you’ve been buying dividend stocks for a while, you probably know about the payout ratio. You calculate it by dividing the total amount of dividends paid out by the company’s last 12 months of net income.

If the result comes out to, say, 50% or less, you’ve got a safe dividend that’s likely to grow. As you get climb closer to 100%, the noose around the payout gets tighter.

Simple, right?

Problem is, earnings are an accounting creation and can be easily manipulated to overstate cash flow generation. But they can, at times, understate it, too.

Right now, for example, Lam has a net income–based payout ratio of 15.9%. That sounds great, but it doesn’t tell the whole story, because the company’s free cash flow payout ratio clocks in at a minuscule 12.3%!

Why the difference?

Because free cash flow (FCF) tells you how much cash a company is generating once it’s paid the cost of maintaining and growing its business. You calculate it by subtracting capital expenditures from cash flow from operating activities.

The bottom line is that FCF is a much better snapshot of how much cash a company is truly making. And while Lam gets a fantastic grade on both ratios, its higher net income–based payout ratio masks its even-higher dividend-growing power. And that’s why I expect more massive payout hikes out of this stock for years to come.

By the way, this is precisely the opposite of the almost certain payout cut our long-suffering CenturyLink investors can expect. That company’s FCF payout ratio is 128%—so it’s paying out way more in dividends than it generates in FCF.

Step 3: Buy Growth Instead of “Bond Proxies”

Lazy financial writers like to say that higher bond yields will hurt dividend stocks. This blanket statement may sound reasonable, but it’ll cost you money if you take it at face value.

Pundits have called sleepy dividend stocks like General Mills (GIS) “bond proxies” in recent times. GIS has paid 3% (more or less) over the last three years. That compared favorably with the 10-year Treasury note, which paid 2% (more or less) over that time period.

So, the story goes, investors had been buying stocks like GIS instead of safe bonds like Treasuries to scrape an extra 1% or so. But with Treasuries rallying to 3%, these same investors have “demanded” a higher yield from GIS. It now pays 4.6%, which means its stock price has dropped as the Treasury’s price has risen:

Bonds and Their Proxies: Like Oil and Water

This is a waste of time. It begs the question:

Who the heck was buying GIS for an extra stinking percent per year? Not contrarian income seekers.

Green Giant peas? Cheerios? Seriously? This company dominates food staples of yesterday. GIS is behind the curve on every current food trend. The numbers don’t lie – it’s been evident in the firm’s slowing dividend growth and falling revenue:

Beware the Slowing Dividend

What does GIS have to do with dividend growth tomorrow? Not much.

Remember, share prices tend to move higher with their payouts. So there’s a simple way to maximize our returns and hedge against higher interest rates: Buy the dividends that are growing the fastest.

Let’s take internet landlord CoreSite (COR). Its dividend has “lapped” GIS over the last three years. No matter how much trash the bond market talks, it will never catch this runaway yield:

Proxy? Please.

When Hidden Yields subscribers bought CoreSite on my recommendation in March 2016, it paid a $0.53 quarterly dividend. That was a 3.1% starting yield for us based on our purchase price.

In less than two years, the firm has nearly doubled its dividend. It now pays $0.98 per quarter, which means we’re earning more than 5.8% on our initial capital.

Plus as our income stream was rising, other investors were bidding up the price of our shares to keep pace with the increasing yields.

This combination of rising dividends and capital appreciation is what earned us 73% total returns in just 26 months – with no active trading beyond our initial purchase.

CoreSite Cooks the Bond Proxies

The 10-year’s yield is up about 1% since we bought CoreSite. Our stock gains haven’t been slowed by the bond bully because our dividend simply outran it.

And there are plenty of dividend growth stocks like CoreSite ready to run 70%, 80% and even 100%+ higher in the year or two ahead. Seven are particularly compelling buys today, to be specific!

7 More Buys to Double Your Nest Egg Fast

Of course, you can use the 3 steps I just showed you yourself, by using an online stock screener and poring over corporate earnings reports on your own.

But it can take hours to run an analysis like that on just a handful of stocks (and of course, you’ll also want to take a peek at dividend, earnings and FCF history, as well as valuation measures like price to book value and price to free cash flow).

Plenty of folks (myself included) love the challenge! But if you’d rather just cut to the chase and start pocketing your 12% annual return for life now, I’ve got you covered there, too.

Because my team and I have discovered 7 stocks set to deliver that steady 12% yearly return. All 7 boast an explosive mix of accelerating dividends, timely buybacks, strong current dividends and absurdly low valuations that just can’t last.

Here’s a glance at 3 of the 7 dividend-growth plays I’ll reveal when you click here:

  • The US company that’s cashing in on surging Chinese water demand. This is one of the most boring businesses you’ll find—making water heaters—but its dividend hikes are anything but: the payout has soared 167% in just 4 years! And there are far bigger payout hikes to come!
  • The 800% Dividend Grower. This unsung company has boosted its dividend eightfold since a new management team took over just 5 years ago! This stock is a complete no-brainer for anyone looking to get bigger and bigger dividend checks from here out.
  • And a “double threat” income-and-growth stock that rose more than 250% the last time it was anywhere near as cheap as it is now!

Please don't make this huge dividend mistake... If you are currently investing in dividend stocks – or even if you think you MIGHT invest in any dividend stocks over the next several months – then please take a few minutes to read this urgent new report. Not only could it prevent you from making a huge mistake related to income investing, it could also help you earn 12% a year from here on out! Click here to get the full story right away. 

Source: Contrarian Outlook 

Uncategorized

3 Trade War Stocks for a Knock-Down, Drag-Out Fight

Source: Shutterstock

In 2018, the stock market has been presented with two major risks:

  1. Inflation
  2. Trade

These risks have reared their ugly heads from time to time, and caused broader market volatility. Each time, though, the market has shrugged off the risk to ultimately head higher.

Right now, inflation concerns are subdued as the 10-Year Treasury yield has backed off 3%. But trade risks are at all-time highs as President Donald Trump continues to impose tariffs. Simultaneously, no one on the global political landscape appears willing to stand down, so tensions are escalating and the likelihood of a trade war breaking out is rising.

If things go on like this, trade talk will get ugly and the stock market will suffer.

But not all stock should be treated equally. Indeed, there are certain “trade war stocks” out there which should be largely immune to tariffs and trade talk. These stocks should head higher regardless of what happens on the trade front.

With that in mind, here’s a list of my three favorite trade war stocks to buy if all this trade talk takes a nasty turn.

Trade Wars Stocks to Buy: Facebook Inc (FB)

Source: Shutterstock

The FANG stocks are largely insulated from trade war risks for two major reasons: 1) they are giant internet companies that benefit consumers globally via services that won’t be affected in a trade war, and 2) they don’t have a presence in or reliance on China.

Of the FANG stocks, perhaps the one best positioned to succeed amid rising trade war fears is social media giant Facebook (NASDAQ:FB).

Facebook is a global digital ad giant that benefits everyone, everywhere, regardless of nationality. Facebook’s ad services won’t be adversely impacted by tariffs, nor will the volume of ad dollars that flow through the company’s ecosystem or the amount of people who access Facebook every month.

Instead, Facebook will keep doing business as usual. They will keep providing the best, most robust, and most effective digital advertising solutions in the world, and they will continue to roll out new growth initiatives like Messenger/WhatsApp monetization, Workplace, Marketplace and smart home products.

Last quarter, “business as usual” was represented by 50% revenue growth. Trade war risks won’t affect that growth rate. Instead, over the next several years, growth will remain in the 30%-plus range because of the company’s multiple growth catalysts.

Facebook stock trades at less than 30-times forward earnings. A 30 multiple for 30%-plus revenue growth is a bargain, especially considering that the big growth isn’t at-risk to prevailing trade war fears.

As such, Facebook stock is definitely one of the top trade war stocks to own here and now.

Trade War Stocks to Buy: Alphabet (GOOG)

Source: Shutterstock

The other top trade war stock from the FANG group is Alphabet Inc (NASDAQ:GOOG).

Much like Facebook, Google is a global digital advertising giant that benefits everyone, everywhere. The company’s advertising services will not be materially affected by trade war fears or tariffs. The amount of money being pumped into the Google ad machine also won’t be affected, nor will the number of people using Google search.

Instead, much like Facebook, Google will keep doing business as usual. All the trade war talk is just noise in the background.

The upside in Google stock comes from valuation and the company’s unparalleled data-set, which positions it to be a leader in tomorrow’s data-driven and an artificial intelligence-dominated world.

Google has forever been a 20%-plus revenue growth company thanks to its robust digital advertising platform. But that growth could be super-charged over the next several years as Google turns its unrivaled database on consumer searches and preferences into unrivaled AI and automated technologies.

Indeed, at the current moment, Google is the innovation leader in tomorrow’s big growth spaces like self-driving (Waymo) and AI (Google Duplex). Google’s leadership position in these markets will only grow over the next several years since data is what powers advancements in AI. Accordingly, Google’s growth could get a super-charged lift over the next 5-plus years.

But like Facebook stock, Google stock trades at under 30-times earnings. That multiple is just too cheap. Consequently, Google is not only one of the best trade war stocks to own now, but also a great long-term investment.

Trade War Stocks to Buy: Verizon (VZ)

Source: Shutterstock

Perhaps the best trade war stock to own amid rising trade-related fears is telecom giant Verizon Communications Inc. (NYSE:VZ).

At its core, Verizon provides telecommunications services exclusively in the United States. This business inherently has mitigated exposure to tariffs and trade. Consequently, regardless of what happens on the global trade stage, Verizon’s U.S.-based telecom business will be largely unaffected.

Moreover, Verizon is a big dividend payer with a yield of nearly 5%. As broader market fears escalate, investors tend to flock to dividend safe-havens with big and sustainable dividends. Verizon is exactly that.

And then there is the whole improving fundamentals part of Verizon stock.

For years, the wireless service industry was one defined by ruthless competition, price cuts, market saturation, and margin erosion. But those fundamentals are starting to change, mostly due to the forthcoming roll-out of 5G coverage. That will allow Verizon to differentiate itself from the pack, thereby allowing Verizon to lift prices and grow market share. Revenues, margins, and profits will trend higher as a result.

Overall, then, Verizon is one of the best trade war stocks to own right now given its lack of international exposure and huge dividend yield. Moreover, improving fundamentals in the wireless services industry pave the path for meaningful earnings growth and stock price appreciation over the next several years.

As of this writing, Luke Lango was long FB, GOOG and VZ.

Get up to 14 dividend paychecks per month from safe, reliable stocks with The Monthly Dividend Paycheck Calendar, an easy-to-use system that shows you which dividend stocks to pick, when to buy them, when you get paid your dividends, and how much.  All you have to do is buy the stocks you like and tell them where to send your dividend payments. For more information Click Here.


Source: Investor Place