dividend stocks
DRIPs: How to Invest in Dividend Reinvestment Plans
The real secret to long-term investing success is income – and with stocks, that means dividends.
Numerous studies, both academic and financial, have found dividends accounted for more than 60% of total U.S. stock market returns since 1870.
More recently, a study by Ned Davis Research covering the period from 1972 through 2008 found that dividend-paying stocks provided an annual return of 7.6% versus a mere 0.2% for non-dividend-paying shares.
What's more, companies with a record of steadily raising their dividends returned an even more impressive 8.6%.
But if you really want to boost your returns, investing in DRIPs – dividend reinvestment plans –is a safe, steady road to building true wealth.
Premium
Emerging Market Dividend Stocks Give Investors the Best of Both Worlds
In today's market, dividend investing is the best way to achieve a decent income stream without taking on too much risk.
On the other hand, this is also true: emerging markets give investors the benefit of the world's fastest economic growth.
Investors would be wise then to combine these two strategies by buying emerging markets stocks that pay steady dividends.
In practice, this is more difficult than it ought to be – but it's not impossible.
In fact, as you'll learn later I have found numerous ways to profit from this best of both worlds strategy.
What You Need to Know About Emerging Market Dividend Stocks
Dividend-paying stocks in emerging markets have the same advantages as they do in the U.S. market.
Just like here in The States, a sizeable dividend from overseas is not only money in your pocket, it's also evidence that the management is working in your interests as a shareholder.
And by paying dividends investors can be sure that at least some of the earnings the company is generating are real and not the result of an accounting flim-flam.
If a company in a fast-growing emerging market is able to pay a decent dividend and participate in local growth, then you can anticipate very good returns indeed, since the dividend itself is likely to grow on the back of the company's rapidly increasing profits.
Of course, there are always risks in emerging market investing, but a good yield gives your holding a solidity that isn't present in companies with mere paper earnings.
But here's what you need to know…
Cash-Secured Puts: Keep the Cash Flowing – Even After You've Sold the Stock
In January, I told you how you can double or even triple your yield by selling "covered" calls on your dividend stocks.
While this is a safe and highly effective strategy, selling covered calls does have a drawback – of a sort.
If the stock you're holding rises in price before the calls you sold expire, you could be forced to sell the shares at the option's designated strike price.
This isn't likely to be a huge problem since you'll be selling your stock at a profit. The problem is that if you no longer own the stock, you won't be getting the dividend.
Fortunately, this problem has an easy solution. It's a strategy called selling "cash-secured puts."
Using cash-secured puts, you can maintain your cash flow while you're waiting to repurchase the actual stock at a price equal to or below where you just sold it.
How to Use a Cash-Secured Put to Generate Income
Here's how it works.
The Best "Buy" of the New Dividend Aristocrats
If you are looking for a steady stream of safe dividends in today's troubled markets, the list of "Dividend Aristocrats" is a good place to start.
Compiled and tracked by Standard & Poor's, Dividend Aristocrats are companies that have consistently increased their dividend payouts for 25 consecutive years.
Currently, there are 51 of them, including the 10 new Dividend Aristocrats added this year.
That offers yield conscious investors a choice of 51 solid companies with a reliable track record of providing guaranteed payments-even during volatile markets and down economic cycles.
"The problem with going for capital growth is that you very often don't get it, and then you've got nothing – the investment just sits there," said Money Morning Global Investing Specialist Martin Hutchinson.
"Dividends" Martin says, "are easy."
Not only are they easy, they're also increasing.
Dividends on the Rise in 2012
Standard & Poor's reported that dividend increases for all their indices in 2011 almost doubled the dividends paid in 2010.
Total dividend increases hit $50.2 billion last year – an 89.2% rise over 2010's dividend increases of $26.5 billion – and are expected to climb even higher in 2012.
That's welcome news for investors searching for steady income sources in a zero-growth environment.
Few other assets – especially bonds – are expected to deliver an increased payout this year.
"With 10-year Treasury bond yields below 2%, bonds just don't give you the income they used to," said Hutchinson. "Dividend stocks can give you a better yield than bonds, and if you pick the right ones, will provide both protection against inflation and a chance to share in global economic growth. While they'll fluctuate with the market, dividend stocks of attractive companies are thus really a three-fer."
Dividend Aristocrats even go a step further than ordinary dividend stocks because of their lengthy payout history.
But before you dive into investing in these Dividend Aristocrats, the list needs some scrutiny.
Even though all 51 Aristocrats are known for increasing dividends, not all of them make for great investments in today's market.
"All you have to do is figure out which companies are run by sharpies – and are paying dividends out of capital – and which companies have genuinely solid business models that aren't going away," said Hutchinson.
In fact, there's only one of the freshly-minted Aristocrats that you should add to your portfolio right now.
How to Win Bernanke's War on Savers with a 19% Yield
There is no other way to put this… With his zero interest rate policy (ZIRP), U.S. Federal Reserve Chairman Ben Bernanke has declared a virtual war on the nation's savers.
That's why savings-conscious investors have been forced out into the markets these days in search of higher yields.
Between 10-year notes offering yields under 2% and CD rates hovering near 1%, savers have been left little choice.
It is one of the reasons why high-paying dividend stocks have been in demand ever since the ZIRP crisis began.
For savvy investors looking to boost their yield, there's only one place to look…
They're called mortgage REITs, and they offer investors the chance to collect some of the highest dividend yields available today.
In fact, one of these investments is actually paying a 19% yield, right now!
That's not a typo. Double-digit yields like those really can be found if you know where to look for them.
I'll tell you more about this company in a moment. But first I'd like to explain to you what mortgage REITs are all about.
Mortgage REITs Explained
Real Estate Investment Trusts, or REITs, came into existence because of U.S. President Dwight Eisenhower's "Cigar Tax Excise Tax Extension" of 1960. Under this initially obscure tax provision, REITs can avoid corporate income tax, provided they invest in real estate-related assets and pay out at least 90% of their income in dividends to investors.
Mortgage REITs, as their name suggests, invest in residential and commercial mortgages.
Within the residential mortgage REIT category, some invest in agency-guaranteed REITs while others specialize in REITs that are not guaranteed.
Given the recent default rate on home mortgages, investors would be wise to concentrate on guaranteed agency mortgage REITs. This is due in part to Ben Bernanke's monetary policy since 2008.
Let me explain…
RSS
