Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

The Simplest, Safest Way To Earn 14.6% Per Year From Stocks

By Contrarian Outlook (Brett Owens)Stock MarketsMay 19, 2021 05:10AM ET
www.investing.com/analysis/the-simplest-safest-way-to-earn-146-per-year-from-stocks-200581076
The Simplest, Safest Way To Earn 14.6% Per Year From Stocks
By Contrarian Outlook (Brett Owens)   |  May 19, 2021 05:10AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Let’s chat about making some real money in stocks. I’m talking about 14.6% returns per year, every single year.

I know, my 14.6% annual number sounds pedestrian in a world where peddlers are hawking virtual (pretend?) coins with pups on the cover. But my returns are real—and spectacular for investors who are patient.

With this method we can double our money every four years and ten months (the wonderful Rule of 72 says so!). And we can achieve these gains safely—without gambling or buying and hoping—because these profits are fueled by dividends.

The only twist from the traditional income investing that we both know and love is that we’re playing the dividend growth plus the current yield. In a way, we can think of it as “second-level” dividend investing.

Here’s an example. I recently pointed out that hospital landlord Medical Properties Trust (NYSE:MPW) is poised to deliver 9.4% to 10.4% returns per year, every year, for the foreseeable future.

But the stock only pays 5.4% today. So where did I come up with the extra coin?

Well, MPW raises its dividend every year. In fact, the company has hiked its payout six times in the last five years. It is skillfully playing a game of “Hospital Monopoly” where it adds assets regularly. These new hospitals boost the firm’s cash flow and then management, in turn, hikes the dividend:

MPW Raised Dividends Six Times In Five Years
MPW-Dividend-Growth
MPW-Dividend-Growth

Going forward, I have MPW penciled in for another “penny per share” raise next year. And the year after that. And so on.

These pennies add up. They represent 4% to 5% annual gains on the stock’s payout. Which means that by 2025, shares will pay $1.28 per share, a sweet jump from today’s $1.12.

When 2025 comes around, and we wonder where the first half of the decade went, MPW’s yield will have grown to 6%+ thanks to these annual gains. But it’s unlikely we’ll be able to bank 6%+ on new money. This “yield on cost” will be a deal that can only be snagged by forward-looking investors who bought shares today.

Over time, MPW’s share price tends to rise along with its payout. Let’s rewind even longer to 2013—a full eight years—which is when MPW began boosting its payout. And its dividend staircase has been a guiding light for its stock. The price can spike higher or lower, but over time it simply follows the dividend:

Dividend Growth Means Price Appreciation
MPW-Price-Dividend-Chart
MPW-Price-Dividend-Chart

(Please note that the price line above means price only, not total return, which includes the dividends you are paid and is, of course, higher.)

The reason I don’t think we’ll see a 6%+ dividend yield deal on MPW in 2025 is that, over the long haul, this stock’s price tracks its payout. By then, new investors will probably see a yield of 5% or less, because income investors will continue to realize they should ditch their lame 2%-paying blue chips and hop aboard this hospital landlord.

Which means anyone who owns shares right now is poised to enjoy 4% to 5% annual price gains per year. Shares should cruise north of $25 by 2025, thanks to these dividend increases that will attract new income investors.

MPW-Total-Returns-Calc
MPW-Total-Returns-Calc

Want to make more than 9.4% to 10.4% per year? (I did promise 14.6% above, after all.) We have two choices:

  • Find a double-digit yield that is not only secure, but also growing. (Difficult.)
  • Find a dividend that is growing by double digits (Doable.)

Texas Instruments (NASDAQ:TXN) is a textbook example of a breakneck payout driving a stock price higher. We added this Hidden Yields hall-of-famer to our HY portfolio nearly four years ago. The technology firm was raising its dividend so fast that our mission was simple:

Buy this dividend and hang on.

In the three years and 11 months since, TXN’s dividend has already doubled:

A Quick Dividend Double

TXN-Dividend-Double
TXN-Dividend-Double

So, did we make 104% from TXN? No. We did even better, thanks to the power of its dividend magnet.

We bought TXN when its price was lagging its payout curve. A dividend like this leaves dust in its tracks. Our gains are 156% (and counting) thanks to this runaway magnet:

How We Calculate 156% Returns (And Counting)

TXN-Price-Dividend-Chart
TXN-Price-Dividend-Chart

(Note: We added TXN to our HY portfolio on June 16, 2017.)

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."

The Simplest, Safest Way To Earn 14.6% Per Year From Stocks
 

Related Articles

Lance Roberts
Is The Omicron Selloff Over Yet? By Lance Roberts - Dec 05, 2021 5

What’s Really Driving The Omicron Market SelloffWhile the media is running around trying to pin headlines on the market moves from the Fed to the Omicron variant, the reality...

The Simplest, Safest Way To Earn 14.6% Per Year From Stocks

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email