Get Rich Quicker: Dividend Edition
“THIS IS A GIFT!”
That was the coach’s message to my son’s soccer team just as they were about to take the field. It turned out not everyone was available to play, and the team realized it had zero substitution players just before game time.
The “gift” was that the boys would get to play the entire game, so the coach was naturally trying to shine a positive light on a challenging situation (find out what happened at the end).
That made me think about this ongoing bear market in stocks, and how incredibly difficult it’s been to navigate. But lurking in the market’s mess is a reward you shouldn’t let pass by!
Part of that gift is the opportunity to scoop up stocks on sale, but there’s a certain type of stock where the gift will keep on giving…
Buy Low, Yield High to Grow Your Income
The Bauman Letter subscribers know we love income-producing securities, particularly stocks that pay dividends. That’s why we have an entire section of our model portfolio dedicated to Endless Income.
And when Ted and I are evaluating dividend payers, our analysis ultimately comes down to maximizing one key number: yield on cost (YOC).
YOC measures how much income you collect from an investment compared to how much you paid for that investment.
The “get rich slow” version of YOC is when you find a quality company able to grow its dividend over time. Take AbbVie (NYSE: ABBV) for example. If you bought the stock back in October 2017 at $88.86, over the next 12 months you collected $3.34 in dividends for a yield on cost of 3.7%.
But now, ABBV is on track to pay $5.64 in annual dividends. Based on your original cost to pick up the shares, your YOC is now 6.3% … a 71% jump in under five years!
That’s the power of growing dividend payments. It takes some time, but your yield will consistently rise even though your cost basis stays the same.
If you’d rather not wait, there’s also a “get rich quicker” version of YOC, and this is where the bear market’s gift is delivered.
2022’s BIGGEST Hidden Gems
Smart investors know that bear markets create opportunities to profit where others panic.
The same goes with investing in income. That’s why back in May 2020, as stocks were still recovering from the last bear market, Ted added Cohen & Steers Quality Income Realty Fund and instantly locked in a YOC of 9.1%. Then, less than a month later, he added Owl Rock Capital … generating a YOC of nearly 10%!
Prices fell, but payouts remained the same … which means YOC shot up. And right now, we’re seeing the exact same opportunity.
Because when investors panic and sell quality companies paying big dividends, they’re actually giving you the gift of an already high YOC that you don’t have to wait around for. And as a result of cratering share prices, Ted has been able to zero in on EXTREME Dividend payments as high as 40%! (It’s all outlined in his new video presentation here).
THAT is the gift of a bear market. And that’s how to turn a challenging market into a fantastic income stream.
Oh, and the soccer team? Despite playing without any subs, they embraced the gift and won their match!