Our Winning Proposition
Our mission at Income Millionaire is simple but vital. We want you to own not merely the most popular tickers but the best companies and funds with cash returns that will multiply your net worth over the long run.
There is a difference. The Google search engine may be printing money, but if you buy a share of Alphabet’s class C stock (GOOG) you get no proportional say in anything. That share class was created to offer an illusion of ownership with none of its traditional rights. You can’t vote for directors, for example. And since the company pays no dividend, your only hope for a return on the investment is to sell those powerless “shares” to someone else who’s willing to accept the same raw deal.
Compare that with Microsoft (MSFT), where your share provides you with exactly the same rights Bill Gates gets from one of his. For 14 years now, it has also entitled you to a regular dividend. The yield’s not huge but it has grown a lot and changed management’s mindset. The dividend is a constant reminder that enriching shareholders is the prime objective and growth just a means toward that end.
Investors have started to catch on, as evidenced by this recent Goldman Sachs chart showing that stocks with high dividend growth are outperforming those propped up by share buybacks.
I don’t have anything against buybacks. But dividends have lots of important advantages:
- Dividends don’t tempt the CEO to spend capital that might be more profitably deployed elsewhere on company stock even if it’s overpriced, in order to trigger a big bonus.
- Dividends are regular and public, while buybacks are subject to corporate whim and call for a knack for market timing not typically found in the executive suite.
- Dividends publicly commit a company to paying shareholders and provide a visible underpinning for its worth. If the share price falls and the dividend’s not cut the yield will rise, making the stock that much more attractive. Buybacks, on the other hand, too often lead to management obsession with the current share price at the expense of building long-term value.
- Dividends are more American than apple pie while buybacks are the Devil’s doing. OK, obviously I’ve made this one up. But you get the point, and thanks for sticking with me this far.
This is why I’m so excited about getting in on the ground floor of Income Millionaire. It’s an opportunity to find, and profit from, income-bearing investments with long-term upside.
After years of super-low and even negative interest rates, the need for investment income has never been more palpable. But, as you’d expect in times like these, a higher yield carries higher risk. Compounded dividend income can be a major wealth multiplier, provided you don’t squander your capital on value traps, unsustainable payouts and outright frauds.
I see fewer high payouts than were around just a year or two ago, and expect that trend to continue as investors keep reaching for yield. I also see a stock market that’s not cheap by most measures, which makes dividend income that much more important to investment returns.
Actually, there may only be one measure by which stocks are still cheap, but that one is huge: the low interest rates have made equities commensurately more attractive. Using the 10-year U.S. Treasury bond’s current yield of 2.25%, it’s selling at a price/earnings ratio of 44. Investment-grade corporate bonds are a relative bargain at a p/e of 30.
Of course, with a Treasury you’re virtually certain to get your money back. (And if you don’t you’ll have more pressing headaches.) But, if you hold a bond to term, invested principal is all you’re getting back at the end. Stocks, on the other hand, have a long record of capital appreciation despite all the bear markets and crashes.
I’m sure you can appreciate the advantages of, say, a 6% dividend yield in this environment, especially if the dividend grows alongside the company’s cash flow. We all can, which is why it’s so important to make sure that the 8% and 10% yielders still out there are underappreciated underdogs and not dog meat.
I think there are still opportunities out there for annual returns of 10-15% from select income vehicles – and if I promised to reliably, predictably deliver that I’d be offering essentially the same thing Bernie Madoff promised clients.
They won’t all be like that; there will be disappointments and volatility. But I also believe more than a few of our portfolio picks have the potential to become big winners.
My method is to focus not on the stated yield but on the sustainability of the cash flow and its growth prospects.
In pursuit of the best long-term values, we will go where the research takes us. For instance, after years of disappointing economic performance small-cap stocks in many overseas markets present a fantastic long-term opportunity along with attractive current yields. There are closed-end and mutual funds well placed to capitalize on their under-the-radar status, and ETFs that will allow us to diversify in order to limit risk.
I have nearly two decades of experience as a financial journalist in the U.S. and overseas, markets editor, columnist and investment strategist. I’ve had success managing portfolios for my extended family, but tasted failure as well and learned from it.
I know how to pore over securities filings and research papers without losing track of current market trends, and augment that with inside information with the best network of little-known finance pros on social media.
These aren’t the talking heads you’ll see on CNBC prattling on about dip-buying and profit-taking. These are sometimes anonymous sources with deep expertise and a record of sharing it within their narrow circle.
In other words, as with the ponds we choose to fish in, I look for most valuable data points rather than those most easily accessible. Anything goes, so long as it’s legal, ethical and gives us the best chance to win.
I expect plenty of winning, and thank you for joining us.