Why is logging into a 401(K) such a hassle? It’s a circus when we try to log into my wife’s retirement plan. (Any task that starts with “logging into her company’s VPN” is off to a rough start.)
Most people I know don’t even bother checking these accounts. Which is probably good (and perhaps a big unintentional benefit of this user unfriendliness!). It is tough to beat the “set it and forget it” rhythm of regular retirement contributions, where dollar cost averaging works in our favor.
That’s what I did with my last 401(K). I set it once and forgot about it.
The dividend growth fund I plowed 100% of my allocations into, Vanguard Dividend Growth (VDIGX), delivered total returns of 116.2% since our retirement plan’s inception in 2016. VDIGX doubled the returns of my two colleagues who were scared of stocks and never got into the market!
Now, I did underperform the S&P 500 in the VDIGX, so my choice was not perfect. But I’m using this real-life example to illustrate two key points.
First, when in doubt, invest in equities—not cash! The stock market goes up two-thirds of the time. The deck is skewed in our favor. Plus, the dealer (the Federal Reserve) really wants us to win.
My second point is that most mutual funds are flawed. VDIGX is a well-run fund and so popular that it closes itself to new money from time to time. But you and I can do better, simply by cherry picking the current holdings of VDIGX.
Heck, we can even buy the stocks that manager Donald Gilbride should be buying!
I agree with Don on his top holding, UnitedHealth (NYSE:UNH). The largest health carrier in the US is one of the most consistent profit growers out there. It’s boosted EPS (earnings per share) at a 10% annualized rate over the last decade, enjoying its lucrative business niche of health care insurance.
Now, its perennial growth isn’t simply due to good fortune. The firm had the foresight in 2011 to start Optum, its own technology driven unit. Optum provides pharmacy benefits, runs clinics and supplies data analytics and other cutting-edge tech to streamline healthcare.
When we bought UNH in January 2020 in my Hidden Yields dividend growth service, Optum’s business had boomed so much that it accounted for nearly half of the company’s overall profits! We reasoned that with Optum’s earnings rising faster than the firm’s legacy business, it was a sweet inflection point for us to purchase shares.
Likewise, health care organizations are adopting the Optum platform to help sort through huge mounds of data to make better decisions. For example, there are reams of clinical patient data that could help establish industry best practices around treatments and techniques.
Problem is, until recently, much of it has still been on paper! As this information becomes digitized, Optum is able to model the data and provide answers to questions that health care providers may or may not have thought to ask, such as:
- Which pediatric asthma patients are most likely to visit the ER?
- Which heart failure patients are at highest risk of hospitalization in the next 6 months?
Source: Optum.com
Granted, we don’t need Optum or a supercomputer to model UNH’s share price. The stock simply follows its dividend higher over time. Since January 2011, the stock is up 1,130% (purple line in the chart below) thanks to its dividend (orange line), which gained more than 1,000% over the same time period:
No Optum Needed to Model This Payout-Price Path
(Please note, the total return for UNH—which includes dividends received—clocked in even higher at 1,380%.)
Any stock that climbs with this payout is one we want to own. UNH has doubled its dividend over the past five years, and management recently announced its latest 16% hike.
So…would I add new money to UnitedHealth today?
Ask me in two weeks, when we deliver our updated Hidden Yields best buy list to subscribers’ inboxes.
I wish VDIGX manager Don would buy some of these names—perhaps you can tip him off.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement."