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These Bargain Stocks Will Pay You Huge Dividends for DecadesBy
Friday, February 8, 2013
On Wednesday, I told you about a group of stocks that hold enormous wealth-generating power.
Despite their power, you rarely hear about them in the mainstream press... and large investment institutions rarely buy them.
They are the elite American small companies that pay their shareholders steady and rising dividends. These companies are so important to you as an investor because they allow you to harness the power of compounding.
Any sophisticated investor – including Peter Lynch and Warren Buffett – will tell you that "compounding" is one of the most powerful investment concepts known to man. Even Albert Einstein called it "the most powerful force in the universe."
Simply stated, compounding is reinvesting the money you make from an initial investment to make even more money. In short, you earn money on the money you earn... If you do this over a long period, you can earn staggering profits from your initial investment.
Let's say you put $10,000 in an investment that pays 10% interest per year. In the first year, you will make $1,000 in interest. But in the second year, you're not starting over at $10,000. The $1,000 you earned in the first year will be making money for you, too. In other words, in the second year, you will make $1,100... 10% interest on $11,000 ($10,000 plus the $1,000 from the first year's interest).
The following table shows you the compounding returns achieved from investing $10,000 at 10% annually over time...
After 10 years, your initial $10,000 investment grows to $25,937. After 40 years, your initial investment skyrockets to $452,592. That's 4,425% returns by compounding. (This example would occur in a tax-deferred account.)
Keep in mind: These totals assume you are not adding any new capital to your investment. If you contribute $100 to your investment each month (in the same example above) and compound your returns for 40 years... your initial investment grows an astonishing 11,594% to $1,169,414.
(You can plug in your own numbers by using the free compound return calculator here.)
Compounding can turn almost any investor into a millionaire. But it takes patience and commitment to make this strategy work. Holding an investment for 40 years is a long time. Plus, most investors may find it difficult to commit to this strategy through tough times like the market crash of 1987 or the recent credit crisis in 2008.
You also need a safe investment that generates interest, dividends, and steady capital gains. Most people who compound their returns will buy well-known staple stocks like Coke or McDonald's. These companies not only pay dividends, but they've managed to increase their payouts annually for decades. It takes a great business to produce dividends year in and year out.
Coke and McDonald's have also had steady returns for decades. In fact, high-dividend-paying, U.S.-based stocks have generated 7%-plus returns annually from 1972 through 2012. If you add in the annual dividend from these market leaders, your annual return jumps to 10%.
Owning an elite, large-cap, dividend-payer is a great thing. However, an investor can wait a long time for a chance to buy these businesses at bargain prices. That's why I encourage you to learn about America's best small-cap dividend-payers.
As I described on Wednesday, these companies...
The example I mentioned, Leggett & Platt (NYSE: LEG), is a $4 billion company. Granted, $4 billion is a lot of money. But a company that size is about 1% of the size of oil giant ExxonMobil, and about 1/25th the size of Home Depot.
There is a list of over 100 small-cap dividend-paying stocks that have been raising their dividends annually for more than 10 years. Most have been around for more than 25 years. In fact, the top two companies I am recommending right now have been in business for a combined 218 years.
Like Leggett & Platt... and like many large-cap, dividend-paying stocks, these companies generate tons of cash flow. They have competitive advantages in their respective industries. They are also very cheap right now.
These business attributes – and their attractive current prices – will allow you to harness the incredible long-term power of compounding. If you're interested in safely building a huge nest egg, now is a great time to get started.
Good investing,
Frank Curzio
Further Reading:
Many investors shy away from small-cap stocks in favor of elite, large-cap dividend-payers. But they're more similar than the average investor realizes...
"I encourage investors to learn about the class of elite, small-cap dividend-payers that also have great brand names... that also have competitive moats... that also have stable cash flows... and that also have long histories of uninterrupted dividend growth," he writes. Get the full story here: The Greatest Dividend Payments You've Never Heard Of.
Market NotesAMERICA'S ENTERTAINMENT COMPANY IS SOARING More evidence that the U.S. economy is doing better than the pessimists would have you believe...
Shares of Disney (NYSE: DIS) are soaring.
Over the past few years, we've profiled the big bull markets in retailers, hotel operators, home improvers, and transporters. We figure that if these sectors are enjoying rising profits and soaring stock prices, the economy can't be doing all that bad.
Another big piece of evidence is the recent business and share-price performance of Disney. Disney is one of America's largest media and entertainment companies. When folks have enough money to spend on cable TV, movies, and vacations, Disney prospers. It is THE iconic brand in American entertainment. Thus, its share price is a solid gauge of what's going on with the economy.
Today's chart shows things are going well. Our chart tracks the past three years' worth of performance of Disney shares. As you can see, Disney shares have skyrocketed to a big multi-year high. And what's good for Disney is good for America...
– Brian Hunt
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