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If you're a hardcore baseball fan and know about baseball history, you're likely familiar with the mantra "Tinkers to Evers to Chance" – a reference to one of the greatest infield double-play combinations in history.
I'm speaking, of course, about the Chicago Cubs infield of shortstop Joe Tinker, second baseman Johnny Evers and first baseman Frank Chance. The three men became teammates in in 1902, forming a double-play combo that lasted through April 1912. The Cubs won the National League pennant four times from 1906 to 1910 – and the World Series in 1908. All three men were enshrined in the National Baseball Hall of Fame in Cooperstown, N.Y.
The double play – also known as the DP or the "Hoover" (for clearing the bases like a vacuum cleaner of the same name) – is one of the most basic plays in baseball.
In other words, we're talking about "fundamental" execution.
Fundamentals can seem unsexy – even boring.
But as the story of Tinkers to Evers to Chance underscores, fundamentals win championships in sports, and can even get you to the hallowed Hall of Fame.
And in investing, fundamentals can make you rich.
Filthy rich, in fact.
And we want to share a "fundamental" wealth play with you today.
So let's get you started down the road to the Global Investing Hall of Fame.
A Rock-Solid Base
When we talk about "fundamentals" here, we're not referring to the schools of fundamental and technical analysis. Instead, we're talking about using basic investment insights to create a nice financial foundation on which to build your wealth.
Indeed, in the lexicon of investing, a "fundamental" investment is more often referred to as a "foundational" profit play – a stock, exchange-traded fund (ETF) or income security (like a bond) that you can hold for a long time and use as the basis for a wealth-focused portfolio.
I'm sure you understand what I'm saying here – in essence, I'm invoking the old maxim that says "every solid house has a strong foundation."
And the fundamental part of any portfolio – the foundation on which future wealth is built – is dividend-paying stocks.
We're going to show you one such "foundational" investment opportunity.
But this one has a twist. In fact, in homage to our "Tinkers to Evers to Chance" theme, it's an "investment double play." You see, in addition to the income you'll get from these dividend payers, you'll also grab some hefty growth – because we're focusing on dividend-paying tech stocks.
And one investment in particular gives you that "double-barreled/double-play" profit opportunity.
We're talking about the First Trust NASDAQ Technology Dividend Index Fund (NYSE: TDIV).
Let's show you why we like it – I think the stats will stun you – and then will talk about some of its holdings.
The TDIV ETF holds stocks that have a market cap of at least $500 million and have paid a dividend in the past 12 months. Radical Technology Profits Editor Michael Robinson and I zeroed in on the fund during an "investment reconnoitering" mission to find the best tech-dividend plays.
And we like this one a lot.
Launched in August 2012, TDIV is a relatively new ETF composed of roughly 80% technology and 20% telecom stocks. But the fund still gives us a lot of diversity:
- Semiconductors account for 20.9% of the fund.
- Hardware, peripherals and storage make up 17.2%.
- Software comes in at 16.4%.
- And communications equipment is 14.3%.
The rest of the fund's holdings are rounded out by such plays as information-technology services, diversified telecoms, electronic equipment and Internet software.
We all know that tech is a great area for growth.
But what most folks don't know is that it's also one of the best hunting grounds you'll find for dividends.
Michael Makes a Bet
Michael and I are going to let you in on a little secret: When it comes to "fundamental" or "foundational" investments, dividend-paying tech stocks are the most powerful profit opportunities that you'll find.
As I know from my years covering the markets – and making recommendations myself – there are specific categories of investments, all of which you need to have.
There's growth – which includes the small, innovative biotech and Internet-technology firms that you hope "explode" into big market leaders. There are the "special situation" plays – companies attempting corporate turnarounds, merger targets, spin-off candidates or firms that are seeking to grow via buyouts.
But to really maximize your long-term gains – and to give yourself some protection from the periodic downdrafts that come along – you also need a nice foundation of dividend-paying stocks.
Especially in tech.
"Bill, here's a fact that I'll wager a lot of investors just don't know," Michael told me last week. "The information-technology sector's dividend-growth rate has exceeded all other sectors over the last three, five and 10 years. And the sector currently pays more dividends than any other sector in the Standard & Poor's 500 Index."
He's right. There are more dividend-paying stocks in the Standard & Poor's Information Technology (IT) Sector (46) than there are in energy (39), consumer staples (38), healthcare (34), materials (29) and telecom services (5).
Of course, the tech sector is made up of more than just IT. But those statistics are a good "proxy" for the biotech, healthcare, materials and telecom companies that also pay dividends. Like their brethren in the IT sector, lots of companies in biotech, telecom and the other tech markets are also "mature" businesses, meaning they're rich in cash and willing to share that wealth via dividend payouts that are increased on a consistent basis.
So dividend-paying IT stocks are an example to learn from.
Unfortunately, most investors are missing out on the tech-dividend bonanza.
"Bill, you and I go back a long ways, so we know how the investment 'landscape' has changed," Michael said. "Years ago, folks mostly bought conventional mutual funds. But as we all know, exchange-traded funds (ETFs) have become the investment of choice for the masses."
That change isn't the issue. In fact, ETFs provide investors with options they never had before.
But if you want to reap the maximum benefit, you really understand what it is that you're buying.
If you don't, you'll be short-changed – in a big way.
To show you why, let's return to our example of the dividend-paying IT company.
A Stunning Differential
Right now, IT firms account for 19.7% of the stocks in the S&P 500. But dividend-focused ETFs, on average, only allocate 9.5% or their portfolios to these shareholder-focused stocks, meaning dividend-paying IT stocks are underweighted by 10.2 percentage points – despite their strong payout prospects.
Expect the tech sector to keep setting the pace when it comes to dividend-payout growth. After the financial crisis of 2007-'08 – and the "Great Recession" that followed – S&P 500 IT sector- companies set out to strengthen their financial foundations.
And they did that by hoarding cash.
From September 2008 to the same month this year, those companies nearly tripled their holdings of cash and marketable securities – from $245 billion back then to $732 billion today.
Just as steel and aluminum serves as the "raw material" for factory-made products – you know, the basic "ingredients" that make the wares possible – big caches of cash are the raw material for ongoing dividend increases.
And the cash-rich companies that have strong, continuing cash flows are also the firms most likely to maintain their record of ongoing dividend increases.
Here again, tech is where you want to be.
As of the end of the third quarter, S&P 500 IT Sector companies had an "earnings yield" of 5.2% and a 6.5% "free-cash-flow (FCF) yield." Both ratios are much higher than the sector's 1.5% dividend yield, meaning there's also lots of room for increases, according to Nasdaq.com.
And companies that ramp up their payouts are the income stocks we want to own.
"One study that I looked at – one conducted by Ned Davis Research – looked at the three-decade period that concluded at the end of 2013," Michael told me. "It said that U.S. stocks that elevated existing payouts – or that started paying dividends for the first time (both viewed as 'increases') – generated an average annual return of 10.1% over that 30-year stretch. But stocks that didn't pay dividends at all – or that were content to 'stand pat' and keep their payouts where they were – returned only 7.6%."
Over 30 years, that's a hefty difference – and one that will determine whether you are "okay" in retirement, or are able to take all trips and do all the other things you've always dreamed of.
To show you what we mean, assume you invested $5,000 in each group – and never added another dime. At the end of 30 years, the $5,000 deployed in non-dividend-paying stocks would have grown to $38,068. But the same amount staked to dividend payers would zoom to $89,682.
Dividend stocks also offer folks a lot of safety. In a low-interest environment, dividend stocks can act as a kind of "portfolio insurance." That's because, in a correction, investors are more likely to hold onto stocks with decent yields than they are riskier plays that don't.
And by buying an ETF, we can grab a whole bunch of those stocks with a single purchase.
But it has to be the "right" ETF – like the Technology Dividend Index Fund.
Strategic Profit Plays
The TDIV portfolio is apportioned across a nice array of companies – including a number of Private Briefing recommendations.
According to the fund's most recent filing, Apple Inc. (Nasdaq: AAPL) was its largest holding in the most recent quarter. The Cupertino, Calif.-based iDevice king notes that its annual dividend payout of $11 billion makes it "among the largest dividend payers in the world" on a dollar basis.
And it's a stock we like, too: Indeed, Apple has gained 96.9% since Capital Wave Forecast Editor Shah Gilani recommended it to you folks back in July 2013. With dividends, we have a "double" in the shares. And Shah believes there's more to come.
When Shah recommended Apple, he also recommended Microsoft Corp. (Nasdaq: MSFT) – the world's No. 1 software maker. And, like Apple, Microsoft is a major TDIV holding. Back on Nov. 3, the world's largest software firm's reported fiscal first-quarter sales and earnings that smoked analysts' expectations.
The company ended the period with $90 billion in cash and securities on hand and has a dividend yield of 2.6%.
In all, TDIV holds nearly 100 stocks. And it's clearly capitalizing on such major tech growth areas as the Mobile Wave, the Internet of Everything (IoE), Miracle Materials and mass storage. Other Private Briefing recommendations in the ETF include:
- Qualcomm Inc. (Nasdaq: QCOM), a leading semiconductor firm focused on the mobile revolution and the Internet of Everything (IoE). The company's Snapdragon smartphone processor combines multiple functions into a standard-sized chipset. And the firm is stepping up its IoE operations. Qualcomm recently agreed to buy U.K.-based Cambridge Silicon Radio for $2.5 billion. The company is an innovative force in Bluetooth technology and machine-to-machine (M2M) communications. It has a strong presence in automotive and wearable devices, and its chips are featured in Beats headphones, a hit product line owned by Apple. Qualcomm has gained a modest 5% since we recommended this stock back in 2012.
- Corning Inc. (NYSE: GLW) is a maker of tech-focused glass substances, as well as ceramic products for industrial and scientific purposes. Corning is one of the world's top materials sciences companies. But it's a mainstay of the mobile revolution: Corning's Gorilla Glass is used in the iconic Apple iPhone line and several other major brands. It's up 70% since we recommended it back in July 2012.
- And América Móvil SAB de CV (NYSE ADR: AMX) gives us access to the burgeoning foreign mobile market. The firm is the leading wireless services provider in Latin America. It also ranks as the third-largest in the world in terms of wireless subscribers. Based in Mexico City, the company operates in 18 countries and serves more than 265 million mobile customers, more than 19 million TV subscribers and a combined population of 852 million people. The stock has gained about 22% since we told you about it back in May.
The bottom line: The TDIV ETF gives us access to the dividend payers we seek – and the growth areas we've identified as the biggest strategic profit opportunities in high-technology.
How to Make the Hall of Fame
At a recent price of $28, TDIV is a cost-effective way to execute a stock-market "double play" – grabbing the growth that tech companies provide, while also capturing the dividends the cash-rich leaders pay out.
The fund itself pays a dividend with a current yield of about 2.5%, or 59.6 cents a share.
"On this ETF, the yield itself changes based on the entry price at the time you buy it," Michael told me. "Plus, the yield also can vary throughout the year as the managers readjust the fund's holdings every quarter. But bear in mind, this is a standard practice among many dividend-paying ETFs. Over the past year, TDIV has basically matched the returns of the broader market despite a couple of recent tech sell-offs. But that doesn't take into account the impact of the dividend payouts – after which it trounces the S&P 500 by 16.5%. "
And we believe it will do even better in 2015 as tech-sector payouts continue to outpace the dividend allocations we see from other sectors. And you also need to look past next year – because that differential can make a big difference in your wealth over a two-, three- or four-decade investment horizon.
With most investments, we recommend investors employ a 25% "trailing stop." Don't do that here.
You can buy this ETF and then look to add more as you accumulate cash.
Or, even better, you can use a version of the "autopilot" strategy we detailed in the September report "How to Become Wealthy Automatically." Make an initial, upfront investment, and then establish a plan that has you make regular investments of the same dollar amount at predetermined intervals.
The result: You'll buy more shares when the fund is cheap and fewer when it's expensive.
That'll make this a true "foundational" investment for you.
In baseball, executing on the fundamentals wins. In the investing realm, that same basic "execution" can make you wealthy – or even rich enough, in fact, to make you part of the investing elite.
Executing on the fundamentals took Joe Tinker, Johnny Evers and Frank Chance all the way to the Hall of Fame.
It can do the same for you.
See you all tomorrow.
[Editor's Note: Unless otherwise directed, as we've done here, we recommend investors employ a 25% "trailing stop" on all holdings.]
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