You want to build wealth for life by beating the market. You want to stay ahead of the masses who stash their money in savings accounts (gasp!), bonds, and even index funds. Because there's nothing worse than knowing you'd be doing better by doing nothing.
But you face the risk of losing to the market if you stash substantial portions of your hard-earned dollars in non-dividend-payers, underperformers, or -- worst of all -- non-dividend-paying underperformers. Because when your investment dollars stagnate, even the lowly T-bill will take you to the woodshed.
Greatest growth: Fueled by dividends
Master investors such as former Vanguard Windsor Fund manager John Neff knew that a solid dividend payer is a lifelong investment. During his 32 years at the helm, Neff beat the market by more than three percentage points each year on the back of dividends, earning an extra $175,000 on every $5,000 invested in his fund. That is a true dividend dynasty. And you, too, can build one.
Building your dividend dynasty
Wal-Mart has been one of the market's best-performing stocks, up nearly 100,000% since its initial public offering. And it's been paying and increasing its dividend ever since it first declared one in 1974. That's proof positive that a dividend doesn't hamper growth.
Another great long-term investment has been General Electric
These are good companies now, but years ago they could have been the foundation of your dividend dynasty -- a source of financial security for you and your family. Microsoft CFO John Connors expressed it best when he said, "Declaring a dividend demonstrates the board's confidence in the company's long-term growth opportunities and financial strength."
The secret to success
It may shock you to hear that the best stocks are not always those with the best products, the biggest revenues, or even the largest profits. The best investment opportunities are those run by managers who want to create maximum shareholder value. You'll find amazing winners among unknown payers such as Motley Fool Income Investor recommendation Southern
Great long-term investments are companies with rising earnings per share, limited dilution, manageable debt, and a consistent ability to deploy capital and use assets effectively. That leads to the richest treasure of all: cash. And that allows a company to reward shareholders with a growing dividend, which can be reinvested in a larger and larger ownership stake.
As I see it, the dividend is the key to it all.
The cornerstones of tomorrow's dynasty
Tomorrow's dividend dynasties are both dividend and capital gains growth opportunities. They're:
- Committed to creating shareholder value.
Search for these four simple traits, and don't ignore boring industries -- utilities, insurers, consumer products, banks -- or even foreign countries. James Early puts this strategy to work each and every day for his Income Investor subscribers. To view his favorite income stocks, click here to be his guest at Income Investor free for 30 days. There is no obligation to subscribe.
This article was originally published on June 29, 2005. It has been updated.