Let’s beat back this Fed-fueled market—where everything seems pricey—with three proven strategies that prime us for 100%+ gains, and 100%+ dividend growth, too.
One of them is a nifty ploy that sets us up to “front run” a 100%+ return by getting in companies about to split their businesses. At the end of it all, we’ll end up with two growing dividends instead of just one! (We’ll cover the two telltale signs of a looming split in a bit.)
These three strategies are the inner workings of my Hidden Yields dividend-growth service, which has delivered a 14.7% annualized return since launch in September 2015. That return, by the way, is exactly what we aim for, because it’s enough to double your nest egg in about five years—and double your dividend income, too!
Start With Dividend Growth
The straw that stirs the drink here is our first strategy. I call it the “Dividend Magnet,” because it refers to the predictable pattern of a rising dividend pulling a company’s share price higher.
It’s the kind of overlooked catalyst we love at Hidden Yields. You can see it in action with dividend stocks like Texas Instruments (NASDAQ:TXN), which our members bought in June 2017. Since then, they’ve doubled their investment in much less than five years as the company’s share price tracked its dividend higher, point for point.
TXN’s Share Price Gets A Payout Push
Those who reinvested their payouts did even better—driving a 164% total return!
Let Your Yield On Cost Help You Build The Highest—And Safest—Payouts
Fast payout growth like this ties into the second catalyst we use to uncover winners: a little-used metric called yield on cost. Funny thing is, this one is hidden behind the yield everyone focuses on: the current yield, which you’ll see on every screener out there.
TXN is a great example of why yield on cost is the real yield to watch: when we Hidden Yielders bought the stock in 2017, it yielded just under 2.4%. Fast-forward to today, and we’re yielding 5.8% on our original buy—more than double TXN’s current yield—thanks to the company’s explosive payout growth.
The takeaway?
Forget about current yields! The key is to think about the income stream you’d like to draw from the stock in retirement and the number of years till you plan to clock out. Then look back that far in the company’s history. Take the current annual dividend payout and divide it into the price from back then—that’ll give you an estimate of the real yield you can expect.
Finally, Use These 2 Signals To Grab Huge Spinoff Gains
The dividend magnet and the yield on cost are two of the overlooked numbers we use to set up our returns. And to be honest, they’re the showstoppers.
But there are plenty of other signals you can use to boost your shot at big returns. One of my favorites: picking up on a corporate spinoff before it’s announced—and tapping the parent and “baby” company for big gains (and surging payouts)!
To pull this off, you’ll want to look for stocks with:
- Histories of growing by acquisition, and
- Divisions that don’t overlap (or only minimally overlap)
We can see No. 2 in the latest corporate spinoff, announced last week, when Johnson & Johnson (NYSE:JNJ) announced it will spin off its consumer products division (maker of Band-Aids, baby powder, moisturizer and other things you’d find in pretty well any family’s bathroom) from its pharmaceutical business.
Combine either (or both!) of the above two traits with a history of strong dividend growth and you’re primed for a spinoff that hands you an easy double (or more) in just a few months.
How A Spinoff Delivered A 126% Gain In Less Than A Year
We love spinoffs because they offer the upside of IPOs, but unlike IPOs, many spinoffs have proven themselves to be profitable businesses already.
Plus, spinoffs come with the backing of a parent that will do everything it can to make the new firm successful. A spinoff, after all, is a testament to the parent’s management acumen, and no one wants the embarrassment of a failed split. To avoid that fate, spinoffs are often priced lower than they’re worth, to give them more upside in the early going.
This strategy paid off nicely for us when we added IT manager Synnex (NYSE:SNX) to our Hidden Yields portfolio in October 2019. Since then, the stock has delivered an 87% total return. Synnex had a high likelihood of handing us a spinoff because it’s made 24 acquisitions in its 40-year history.
In other words, that one buy has handed us $43,500 for every $50K invested in a little over two years. Then our “bonus” spinoff-generated 126% return—or $63,000 on each $50K—kicked in, starting on Dec. 1, 2020
That’s when Synnex spun off Concentrix (NASDAQ:CNXC), which provides customer-service solutions and works with many of the top tech companies in the US. We received one Concentrix share for every Synnex share we owned—and one year later, those “freebie” shares have handed us that 126% return.
Synnex Spinoff Delivers A Windfall
Now Concentrix is firing up its own dividend magnet, with management recently announcing a $0.25-a-share quarterly payout. That only gives the firm a 0.6% forward yield, but more important, it sets the stage for further payout growth, and that’s the key here: who cares about Concentrix’s measly current yield if we’re yielding 4%+ on our original holding five years out?
And there’s always the possibility that Concentrix, having been born of a spinoff itself, will split off one of its businesses in the future—handing us another opportunity to “front run” big gains (and dividends!).
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."