This is a story of patience and attention to detail, where small differences in the short term add up to massive divergence over decades. In the end, the biggest winners don't always deliver the fattest share-price returns. But it sure doesn't hurt to rest your portfolio on some of the richest yields available.
Consider the case of mortgage-centric REIT Annaly Capital Management (NYSE:NLY). The stock has failed to keep up with the Dow Jones Industrial Average (DJINDICES:^DJI) over the last five years, burning your invested capital rather than growing it:
But if you're owning Annaly as a regular "buy low, sell high" type of investment, I'm afraid you're doing it wrong. This is what happens if you reinvested Annaly's generous dividends along the way:
Much better, don't you think?
And here's the best part: That massive dividend boost comes at a time when Annaly had to put a lid on those payouts. The mortgage panic of 2008 didn't take any prisoners in this sector.
In short, Annaly delivered double-digit dividend yields even during the worst crisis in the industry's history. If the housing market really is getting back on its feet again -- as it surely must at some point, and that might just be right now -- you can expect the quarterly checks to grow again as well. Buy in at today's low share prices, and the potential effective yields become spectacular.
There's no shortage of high-quality mortgage REITs with dividend prospects like Annaly's. American Capital Agency (NASDAQ:AGNC) and ARMOUR Residential REIT (NYSE:ARR) made it through the 2008 crisis alive, and both stocks sport 15% yields and 4-star CAPS ratings (out of 5) right now. American Capital Mortgage Investment (NASDAQ:MTGE) trades at a slightly lower yield for a perfect 5-star CAPS score.
Take your pick, dear Fool. The cash-collecting power of huge dividends should help all of these survivors beat the Dow in the long run.