The Simplest Way to Earn Double-Digit Yields and Triple-Digit Gains
In just a moment, I am going to show you one of the most important charts I’ve ever made.
It’s also one of the most basic charts I’ve ever made. But the data that goes into it shows that this investing strategy is the best way to make money in the stock market.
Additionally, it’s as close to a “sure-fire” strategy I know of that can earn investors upward of 1,000% on a stock.
#-ad_banner-#Before I show you the data and the chart, let me explain a little first…
You’ve probably heard of this investing strategy before. However, it’s so crucial that I decided to reiterate it again: Buying solid stocks that consistently grow their dividends is the best way to make money in the stock market.
While it’s tempting to buy stocks offering ultra-high yields, many of those names are risky firms likely to slash their payouts in coming years. And nothing sends an income stock tumbling faster than a large dividend cut.
Buying and holding dividend-growing stocks is not just a theory or something that worked for your grandparents… this strategy is as important today as it’s ever been.
To prove my point, I recently ran two stock screens on StreetAuthority’s Bloomberg Terminal. The results were even more profound than I expected.
In my first screen, I looked for stocks with market capitalizations above $500 million, yields more than 8% and ranked in the top-10 percentile of all publicly-traded stocks based on dividend yield. To calculate returns, I rebalanced this portfolio at the end of each month, kicking out stocks that no longer met my criteria and adding new names.
In the past decade, this basket of stocks returned 183% compared to 114% for the S&P 500 (including reinvested dividends).
That’s not bad.
In my second screen, I also started with a similar universe of stocks — companies with market capitalizations above $500 million and yields in the top-10 percentile of all stocks. However, I added two additional criteria — a 3-year dividend growth rate in the top 25th percentile of all stocks and projected three-year future dividend growth in the top 50th percentile of all stocks.
The result: this basket of stocks returned 619% during the same time period, trouncing the S&P 500 by a more than 5-to-1 margin.
This is why dividend growers that offer solid and sustainable yields are such an important aspect of the real-money portfolio of my Top 10 Stocks advisory.
Case in point: Enterprise Products Partners (NYSE: EPD), the largest master limited partnership (MLP) in the country (with over 50,000 miles of pipelines). [Enterprise is one of the stocks named by StreetAuthority as a Top 10 Stock for 2013.]
Though Enterprise’s 4% yield isn’t something that would normally catch the eye of most income investors, it’s the growth potential that gets me excited.
In the past year, Enterprise has paid more than $2 billion in distributions. And since going public in 1998, the partnership has increased its distribution 40 times. In fact, the company has increased its dividend each quarter since 2004.
Since going public, the MLP has returned 433% — 1,333% if you include dividends. Even with that return, I still think there is plenty of upside.
Enterprise has an established history of dividend growth, and I think it is likely to continue…
You see, the United States is expected to become the largest oil producer in the world by 2020, surpassing even Saudi Arabia. Much of that oil will be moved by pipelines owned by Enterprise.
On top of that, as an MLP, Enterprise is required by law to distribute 90% of its earnings to shareholders.
Action to Take –> Buying this stock today (and others like it), holding it for years and letting the dividends roll in is one of the safest ways to make a lot of money in the market.
Of course, nothing in investing is 100% certain. A global economic slowdown could send oil prices crashing and affect Enterprise’s pipeline business.
But I think global energy demands will only increase between now and 2020, making Enterprise a top pick for 2013 and beyond.
[Note: Dividend growth is one of the most important ways for investors to get outsized returns… And StreetAuthority has just come out with a list of 13 companies with enough cash sitting in the bank to pay $30.9 billion in dividends in 2013. To learn more about the “Dividend Vault,” click here.]