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A few months ago, right here in Money and Markets, I said utility stocks that boast steadily rising dividend payments are better income investments than bonds.
And as the credit crisis unfolds, I believe that more than ever.
In fact, I’d now go so far as to say that utility stocks — and other solid dividend payers — are better than most CDs and money market funds, too.
Sure, stocks carry plenty of risk. But that risk is known. What’s more, as I showed you last week, it’s easily counteracted with inverse ETFs.
On the other hand, many so-called “safe” investments come with all kinds of hidden risks.
Let’s start with one of the most blatant examples — the fact that America’s oldest money market fund recently told its investors, “NO WITHDRAWALS.”
That was the first time in history that a large money market fund was forced to freeze out its customers from their deposits.
And what were investors getting for that unadvertised risk? An average annual return of 2.8%.
That’s not even enough to keep pace with rising costs for gasoline, health-care, food, and other daily necessities!
Moreover, in a money market fund, your principal never grows. If you’re lucky, you will end up with exactly what you started with — that’s the best result you can hope for. And because of inflation, what you started with will buy you a lot less than it does today.
You have the exact same problem with CDs and bonds. You take on risk, get low yields, and the value of the principal will get eaten away by inflation.
Yes, I DO still suggest you keep a large chunk of your cash parked in Treasury-only money funds for liquidity, safety, and future investments.
But when it comes to your income investments, money funds, bonds, and CDs give you zero growth in your nest egg … they add nothing to your retirement fund … your child’s college fund … or your “just let me enjoy life” fund. They’re a dead end precisely when you need an open highway.
In contrast …
America’s Top Dividend Superstars Have Been Writing
Rich, Steady Dividend Checks for Decades!
A handful of companies have been paying out big, fat dividends through past crises, recessions, and two World Wars!
And in today’s market, they can immediately double or triple the investment income you’d get from CDs, bonds, or money markets.
I’m talking about prosperous, conservative companies with solid dividend yields well above 5%.
Take Integrys Energy, for example, the old Peoples Gas & Light, which serves Chicago. It’s sending out big, fat dividend checks that add up to 5.3% annually.
To put that in perspective, that’s just about double what you’d get with a money market fund, CD or bond.
And while bonds default, bank CDs fail, and now money market funds are starting to freeze up, Integrys has paid investors dividends for 68 consecutive years. It’s never missed a single payment.
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| Despite the economic crisis, a number of companies pay big, fat dividends that can double or triple your investment income. |
In fact, it has increased its dividend checks in each of the last 50 years. That’s extraordinary!
And it means Integrys investors are getting bigger and bigger dividend checks every single year. Those small, steady dividend increases compound with amazing power.
Someone who bought Integrys just ten years ago is now earning an effective dividend yield of 14.3%, about four times what you can get on a CD or Treasury bond today. That’s the power of investing in companies that steadily raise their dividends.
So while millions of investors are worrying about their “minimum wage” investment income from CDs, money funds, and Treasury bonds — you could double that immediately and then go on to do three, four, even five times better by investing in companies like Integrys with steadily-rising dividends.
Plus, Reinvest Those Dividends And
You Can Boost Your Income Even More …
If you don’t need the income now, you can continually compound your gains — which multiplies your dividend payments.
Let’s say that you put $10,000 into the dividend reinvestment program of Integrys and the stock price remains constant.
Since it’s paying 5.3%, you’ll have $10,530 after one year. Next year, you’ll be earning 5.3% on the $10,530, not just the original $10,000. It might not seem like a big deal at first, but the effects over time can really add up.
Five years later, you’ll have $12,946.19 worth of stock, 29% more than you started with. Ten years later, you’ll have $16,760.38 — more than a 67% increase of your initial investment.
And if you started with a $100,000 portfolio, that will have grown to $167,600. Plus dividend checks that come to more than $8,800 a year!
So you can see that this compounding effect packs a real wallop. And this isn’t mere theory. Indeed, one reader recently wrote in and told me,
“I never traded stocks; I bought utilities that had a dividend reinvestment plan; did that for 32 years. I retired with $2 Million! My dividend income is $100k+ annually. I started my plan at age 28 and retired at age 60. I have a good wife, a school teacher who also contributed to our plan. Market crashes never bothered us. Compounding dividends every 12 weeks is a working man’s way to financial security.”
I couldn’t give you a better example than that! In fact, that simple paragraph holds the single best piece of investment wisdom you will ever hear. And in this tricky environment, it’s truer than ever!
Best wishes,
Nilus
About Money and Markets
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
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