Find Your Next Double

Loads of investors think they want to find "the next home run stock." These potential 10-baggers keep many of us in the investing game.

But let's take this baseball metaphor further. In baseball, as in investing, home-run hitters tend to strike out a lot. Reggie Jackson, one of the best-known home-run hitters in baseball history, retired with 563 career home runs. But to get those hits, he also struck out 2,597 times.

Strikeouts or doubles
You might not be able to afford strikeouts in your investment portfolio. After all, for every Vaalco Energy (NYSE:EGY) and Double Eagle Petroleum (NASDAQ:DBLE), both of which have returned more than 1,000% in the past 10 years, other energy companies such as Teco Energy (NYSE:TE) have severely underperformed the market during that same time period.

Accurately assessing a company's prospects can prove difficult and risky. That's why we're offering you this alternative strategy: You can load up on doubles that can earn you great returns with far less risk by buying strong dividend-paying companies with growth prospects at good prices. That's the double: dividends and capital gains. This strategy has been shown to beat the market over the long term, with less risk of capital loss. What's more, you may actually do better than with a high-growth home run strategy.

Find greatness, not hotness
For example, compare a few once-hot energy stocks with the Motley Fool Income Investor recommendation ONEOK (NYSE:OKE):

Investors once thought Semco and Massey had a lot of potential, but over a longer period, you can see that ONEOK would have more than doubled your money and paid you along the way, while "potential" lost you loads of money.

This is not to say that there aren't great rewards in finding a "Home Run" stock like Credo Petroleum (NASDAQ:CRED), which has returned more than 1,500% over the past 10 years. But before you start looking, you have to ask yourself two questions:

1. Could you have found it?
2. Would you have had the patience to hold through incredible volatility?

If not, then you and your portfolio are much better off with a solid dividend payer like ONEOK. I mean, why would you say no to some of the easiest money on the market?

A double-play value
The key to this philosophy isn't that a home run won't make you more money than a double. Rather, it's that you can consistently hit many more doubles than home runs.

These doubles are companies you can find in everyday life -- like ONEOK -- that have proved themselves with established products and business models, giving investors dividends and high returns along the way. By filling your portfolio with them over the long run, you can beat the market.

At the Income Investor newsletter service, we find two dividend doubles each month, and the newsletter's portfolio is brimming with great high-yielding companies trading below intrinsic value estimates. Click here to get access to all of the newsletter's market-beating picks free for 30 days. In fact, you can even see the newest issue of the newsletter where you'll get access to two of the most recent ideas, just by taking a free trial.

Buying doubles doesn't mean you can't look for the next "Home Run" stock. But why pass on so many solid doubles along the way?

This article was originally published on June 20, 2006, as "Doubles Are Better Than Home Runs." It has been updated.

Fool Wiffle Ball batting champ Shruti Basavaraj owns shares of no companies mentioned above. This is brought to you by the good folks at the Fool's disclosure policy.