Today's investor has forgotten how to make money...
We're not calling anyone dumb – but too many are shortsighted. Lots of folks in the market are too focused on making giant, overnight gains on companies with no profits or even sales.
Picture somebody sitting on his couch, still in pajamas, scrolling through Twitter or Reddit for the latest hot speculation... He's hanging on every word from Elon Musk... And then he opens up Robinhood on his phone to place moonshot bets.
If you only invest in growth stocks, you're missing a huge opportunity to make money...
It may not be a sexy idea. But it's how the vast majority of investors in the past have been able to become wealthy in the stock market.
Dividends have played a crucial role in generating positive returns...
For example, since 1926, dividends have represented roughly 32% of the total return for the S&P 500 Index. Capital appreciation has made up the remaining 68%.
Imagine the boneheaded investor who based his entire portfolio on stocks that don't pay dividends. They can only generate a return if their prices go up. Over time, he's leaving a lot of money on the table.
Owning dividend stocks is also a defensive tool. In decades where major financial crises strike – like we saw in the 1930s and 2000s – dividends can keep a portfolio afloat. Take a look...
Dividends aren't just cash in your pocket. They're also a sign of strength. Companies that increase dividends year after year often have strong businesses with wide moats. These are companies that can hold up well during times of economic stress.
Now is the right time to put money into dividend-paying stocks...
Interest rates have been on the rise recently. The yield on the 10-year Treasury has moved from about 1.35% in early December to 1.84% today.
That doesn't seem like a massive move because rates are still ultra-low. But the shift has been weighing on growth stocks. That's because rising interest rates make future profits worth less versus money you can collect right now.
Growth stocks aren't the only investment that's likely to be weighed down by rising rates. You typically see some folks rotate out of precious metals like gold as well...
Gold doesn't pay any yield. When rates are low, gold looks more attractive as an investment. But as rates rise, folks are drawn out of gold and into safe bonds that can pay them cash.
With similar logic, you should expect to see dividend-paying stocks take a hit when rates rise.
Government bonds are risk-free. While dividend-paying stocks are safer than other stocks, they still come with risk. So as yields rise on safe bonds, we often see folks shift their money away from dividend-payers and into bonds. It's hard to beat risk-free.
But here's the strange thing... Recently, we saw the opposite.
Rates went up... and dividend-paying stocks went up as well. And the S&P 500 High Dividend Index has outperformed the S&P 500 even as rates crept higher...
This tells us that folks are finally coming to their senses. They have recently been burned by growth stocks and are now putting their money to work with dividend-payers.
I think this trend will continue – even if rates continue to move higher. Dividend stocks have been out of favor for much of the last couple years... and they have to catch up.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Editor's note: We recently went public with the No. 1 move our senior experts at Stansberry Research recommend you make with your money this year. It has nothing to do with COVID-19... money-printing... crypto... or even interest rates. But it will put you miles ahead of today's misguided novice investors... And it could have a huge impact on your wealth in 2022. See the big announcement here before it goes offline.
Further Reading
"This strategy gets more powerful the earlier you begin," Mike Barret writes. "But if you have some catching up to do, chances are it's not too late to start compounding your wealth." Get the details on how to use this strategy to your advantage right now: How to Earn Loan Shark-Like Yields in the Stock Market.
The end of the Melt Up is a tricky time to be a long-term investor. That's why Jeff Havenstein put together a list of the best qualities to look for in a long-term investment... Get the full story here: How to Find the Perfect Stock to Own for the Long Term.
You want to be invested in stocks that put money back in shareholders' pockets. And with dividend-paying stocks on the rise, this is a great one to add to your portfolio...
HITTING NEW HIGHS WITH THE WORLD'S BEST BUSINESS
Today, we're looking at a company with one of the best business models out there...
Regular readers know that Stansberry Research founder Porter Stansberry has highlighted property & casualty insurance as "the world's best business." Insurers bring in premiums for taking on risk, and then pay out claims later. All the while, they invest the "float," or the money they're holding, and keep the profits they make on it. Today's company is a prime example...
Travelers (TRV) is a $42 billion leader in the insurance sector. The company has been around for more than 165 years and provides protection for things like your home, car, valuables, or business. And this insurer remains strong... Travelers grew its net written premiums 7% in 2021, hitting a record of nearly $32 billion. And it returned more than $3 billion to shareholders for the year, including $2.2 billion in share repurchases.
TRV shares are up 27% in the past year, including dividends. They recently hit a fresh 52-week high. And as the strength of P&C insurance continues, Travelers is likely to keep shining...
