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Less Stress. More Money.By
Tuesday, November 12, 2013
It was a "Eureka!" moment for me as an investor...
It was such a simple, brilliant idea... with such a foundation in common sense that I was embarrassed I didn't think of it on my own.
Every investor should know this idea... and use it as often as possible.
It will save you a huge amount of time and worry. It will also drastically improve your investment results.
While this idea goes by a few different names, I often call it a "cheat sheet" for finding world-class stock investments...
Standard & Poor's tracks a list of "Dividend Aristocrats." Stocks that qualify for this list have raised their dividends for at least 25 years in a row. (You can access the current list here.)
Out of the more than 10,000 publicly traded businesses, less than 100 qualify for the list. These companies are the "best of the best." Some legendarily profitable and stable members of the list include McDonald's, Wal-Mart, Procter & Gamble, Target, Coca-Cola, and ExxonMobil.
Remember, dividends are cash payments distributed to a company's shareholders. Only super stable businesses with great competitive advantages can pay steadily increasing dividends for decades.
The members of S&P's list have paid their dividends through wars, recessions, and bear markets. They're like the guy who shows up for work every single day for decades.
Why is this list of companies so important? And why should you consult it when looking for stocks to buy?
For me, the answer is "safety and reliability."
When I buy a stock with the goal of holding it for the long term... or even if I'm looking to structure a short-term trade around it, I prize safety and reliability.
Dividend Aristocrats are the strongest, safest companies in the world. They tend to sell "basic" products, like burgers, soda, mouthwash, and toothpaste.
Ordinary, risky stocks can't raise their dividends for 25 years in a row... or even 10 years in a row. This is because their business models are shaky, unpredictable, and vulnerable to competition.
I like the predictability of owning robust, reliable businesses like McDonald's and Coca-Cola. I know it's very, very likely that folks will keep eating burgers and drinking soda.
I don't like to buy a stock only to see it fall 30% in a few days because its fad product is going out of style... or because the cancer drug it bet the company on got rejected by government regulators.
Reliable dividend-paying companies like McDonald's and Coca-Cola are great vehicles for compounding wealth.
Compounding is the most powerful investment force on the planet. It occurs when you place a chunk of money into an investment that pays you a return on your money. But instead of taking the returns and spending them, you reinvest them... and buy more of the investment.
By doing this, your dividends earn more dividends and your interest earns more interest.
You can think of compounding returns like rolling a money snowball down a hill. As the money snowball gets larger, it's able to gather more snow... which enables it to get larger... which enables it to gather more snow... and so on.
Eventually, you build a snowball the size of a house.
Given enough time, a good compounding vehicle like a Dividend Aristocrat will turn tens of thousands of dollars into millions of dollars. It's the ultimate way for the "little guy" to safely build wealth in the stock market.
Over his career, the average investor will spend lots of time chasing hot tips from brokers, coworkers, and relatives. He'll chase investment fads.
He'll stay up at night worrying about his latest harebrained stock story that could fall apart at any moment. It's bizarre behavior when you realize there is a group of world-champion, dividend-paying businesses available to him. He's choosing SPAM over filet mignon.
If the average guy focused ONLY on buying Dividend Aristocrats at good prices, he'd save himself years of worry and stress. And he'd make a heck of a lot more money.
Less stress.
More money.
Learning about this "cheat sheet" – the list of companies that have continually raised their dividend payment for decades – was a "Eureka!" moment for me...
I hope it is for you.
Regards,
Brian Hunt
Further Reading:
Find more of Brian's timeless lessons on stress-free wealth-building here:
A Worry-Free Way to Supplement Your Income in the Stock Market
If a market decline arrives, there's an exclusive group of investors who couldn't care less. They know how to use the greatest power in all investing... The One Question That Leads to Long-Term Wealth in Stocks
"Most everything you need to know about building long-term wealth in the stock market you can learn with one simple story." Market NotesMORE PROOF THE "BAD TO LESS BAD" TRADE WORKS One of our favorite trading strategies is playing out again... this time in the resource sector.
Longtime readers know we're always on the lookout for sectors that have been "left for dead" by investors. The reason is simple. When everyone has given up on a sector, there's a lot of room for gains. All you need is for conditions to get a little "less bad." The strategy had already paid off this year in airlines and steel stocks. And now it's paying off in resource stocks.
Over the past few years, the sector has taken a beating. A sluggish economy has caused commodity prices to plummet – taking the share prices of miners with it. For example, copper miner Freeport-McMoRan (FCX) lost more than 50% of its value over the past couple years. As Steve noted a few months ago, the downtrend left mining giants at "stupid cheap" levels.
But now things are getting "less bad" for resource companies. Iron and copper prices have stabilized. And as you can see below, resource stocks are back in an uptrend. Freeport-McMoRan has jumped 26%-plus over the past four months. It's the latest proof that "bad to less bad" works.
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