Your Most Important Investing Decision of the Next 10 Years

By Carla Pasternak, DividendOpportunities.com

Think of where you’d be right now if you’d made this move ten years ago. The S&P 500 is up only 28% during that time. You could have seen returns of 328%, 305%, or 626%.

And that’s with some of the most boring companies you can think of — housing REITs, pipeline operators, and cigarette makers. But they all have one thing in common.

They pay dividends.

As the Chief Investment Strategist behind High-Yield Investing, I’m biased. But I think dividends are the most powerful tool in investing. You don’t have to take my word for it. Other investors agree:

 

“I have made more money in retirement than I did when I was working. Income from dividend-paying stocks (which I collect every month) is even better than my greatest expectations. – High-Yield Investing subscriber, William B.

Even John D. Rockefeller once quipped that the only thing that gave him pleasure was to see his dividend coming in.

The simple fact is that how you treat the dividend — often the forgotten step-child among investors — is the most important investing decision you’ll make today… in the next year… even the next decade.

Let me show you what I mean.

Take two portfolios, each worth $100,000. The first one earns 8% in capital gains each year. The second one earns half that amount in capital gains — only 4% each year — but earns a 6% dividend that’s reinvested.

I chose these numbers as they illustrate a choice investors are usually faced with — invest in a faster-growing stock that doesn’t pay a cent in dividends, or earn a nice yield and see slower growth. Here’s the best news — you’ll end up earning more with the dividend, and typically have fewer ups and downs as you would with a riskier growth stock.

In fact, in 10 years your portfolio would be worth $265,089 if you went with the dividend-paying holdings, versus $215,892 with the growth-only portfolio.

Over even longer, the difference is more dramatic.

Wait 20 years and your dividend portfolio would be worth over $702,723 compared to $466,096 — a difference of more than $200,000.

And here’s the best part. The misconception is that dividend payers are boring, stodgy securities. They might pay a few percent, but they won’t return enough to really make a difference.

That couldn’t be further from the truth…

 

Shares of EV Energy Partners (Nasdaq: EVEP) yield 5.5%, but that hasn’t stopped them from returning 459% since the March 6, 2009 low. During the same time, the Reaves Utility Income Fund (AMEX: UTG) has returned 284%, while paying monthly dividends that now equal a 5.8% yield. And Medical Properties Trust (NYSE: MPW) has returned 398% in addition to its 6.5% yield. But that’s during a strong market rally, and coming off of multi-year lows. What about in different conditions? Eagle Rock Energy (Nasdaq: EROC) is paying 5.2% and has a total of return of 128% in the past year. Since just September 2010 Universal Healthcare Trust (NYSE: UHT) has returned 38%, thanks in part to a 5%-plus yield.

That’s not to say every dividend payer will be a big winner. It won’t be, and I wouldn’t listen to anyone who says they can guarantee a stock’s gains.

But in the sizzle of the mainstream financial media, it’s the fast-moving names like Apple and Google that get most of the headlines. As you can see, it may just be the dividends that are most important to your success.

 

Good Investing!

Carla Pasternak’s Dividend Opportunities

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Disclosure: StreetAuthority owns shares of UTG as part of The Daily Paycheck’s $200,000 “real money” portfolio. In accordance with company policies, StreetAuthority always provides readers with at least 48 hours advance notice before buying or selling any securities in any “real money” model portfolio.