Are you tired of working for The Man and getting what seems like inadequate pay for your hard work? (Who is The Man, anyway? I once read that when people refer to "they," they're really referring to the Dick Van Patten family. Maybe he's The Man, but perhaps I'm dating myself there.)
Most people, when they're fed up with their current work situation, probably daydream about a more perfect employment gig. I remember watching an episode of the TV show Moonlighting, where the employees were agitating with rallying cries of "Less work, more pay!" Heck, even if you love your job, you might be attracted to the idea of receiving more pay for less work. Who wouldn't?
The impossible is possible
Believe it or not, such a cushy kind of job actually exists. Think of it more like a second job, though. Let me explain.
Your current job is one where you offer your hard work and are rewarded with (I hope) enough money to live on, with a little left over for investing as well. Now, when it comes to investing, you have lots of choices. Here are two:
- You can be an active trader, jumping in and out of stocks and other investments rapidly. This takes a lot of time and energy. And if you want to do well at it, it takes a fair amount of knowledge and skill, too. And even then, you might still stink at it, as many people do. After all, those trading commissions add up, and then Uncle Sam has his hand out, taxing short-term gains at usually higher levels than those for long-term gains. It's hard to win at this game.
- You can focus on dividends, investing for the long term. Dividends are just such beautiful things when you stop and think about them. Invest in a healthy, growing company that pays a significant dividend, and it will pay you cash every year. Better still, it's likely to increase that dividend amount over time, paying you more cash. It gets even more attractive. Reinvest those dividends in additional shares of that stock, or perhaps in another compelling dividend-paying stock, and your new investments will soon be paying you, as well.
An astonishing picture
I'll soon invite you to review a host of recommended dividend payers for free, but first, let me offer an example.
Let's say that you've got $200,000 invested in dividend-paying investments with an overall average yield of about 4%. That means you can expect to receive a whopping $8,000 per year in dividends. Isn't that impressive already? That's probably as much as several of your paychecks. It gets better, though.
If those firms increase their dividends by an average of 3% per year, in about 10 years, your average yield (in relation to your original cost basis) will be 5.4%. If your stocks are still worth $200,000, you'll receive nearly $11,000 in annual dividends. Of course, it's unlikely that your stocks won't have increased in value over that period, too. Let's say that they grew only by an average of 6% annually. If so, they'll be worth a little more than $350,000, and you'll be receiving nearly $11,000 in annual (and growing) dividends.
I hope that by now you see that it's not such a stretch to think of this like working a job that requires very little effort other than sitting still and reading an occasional financial report, while getting paid well -- and getting raises, too!
Bonuses and caveats
Of course, that pretty picture can get even prettier. There are plenty of terrific companies out there paying more than 4% in dividend yields. So you don't have to start at 4%, although some great companies can serve you well with just 2% or 3% current yields that grow rapidly over time. Also, you needn't expect dividend increases of just 3% per year. Some firms regularly hike their dividends by much more. A 4% dividend that's increased by 5%, on average, per year for 20 years, becomes a 10.6% dividend on your original cost basis, enough to kick out $21,000 on a $200,000 investment and $37,000 on a $350,000 one.
In an MSN Money article, Michael Brush noted a new mutual fund, saying: "Managers at [Eastern Point Advisors Rising Dividend Growth Fund
Brush also listed some firms with strong average dividend increases over the past decade:
| Company | Average dividend increase |
|---|---|
|
Bank of America |
14% |
|
Citigroup |
31% |
|
Caterpillar |
27% |
|
Franklin Electric |
15% |
|
Roper Industries |
23% |
|
Kinder Morgan Energy |
17% |
(Note: Kinder Morgan Energy is a publicly traded Master Limited Partnership and pays distributions, not dividends, receiving a different tax treatment.)
Imagine earning a 4% dividend yield on an investment and having the dividend grow by 15% per year for a decade. That will give you an effective yield on your cost basis of 16%!
There is a caveat here, though: Don't jump in blindly. Sometimes dividend yields are high because a company is in trouble -- and in many of those cases, the dividends get reduced or eliminated instead of growing.
So choose carefully. And let us help you, if you'd like. I invite you to give our Income Investor newsletter service a whirl -- for free. In more than two years of monthly recommendations, lead analyst Mathew Emmert has racked up an average gain of about 17%, topping the S&P 500's return of roughly 13% handily. Fully 29 of his recommendations, last time I checked, offered yields above 4%, many of them much more than that (about seven sported yields of more than 8%).
A free trial will permit you to review all past issues and all recommendations and to see his full track record. You have little to lose and a host of recommended investments to gain.
Here's to a happier portfolio! (And hey -- consider forwarding this article to anyone you care about. Just click on the "Email this page" link near the bottom of the page.)
Selena Maranjian 's favorite discussion boards include Book Club, Eclectic Library , Television Banter, and Card & Board Games. She owns shares of no company mentioned in this article. For more about Selena, view her bio and her profile. You might also be interested in these books she has written or co-written: The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens . The Motley Fool is Fools writing for Fools.
