I’ll never forget the look in her eyes when she “got it.”
Susan was a client at the hedge fund where I worked. And like many of our individual customers, she worked hard to get where she was in life.
As a small business owner, Susan spent countless hours building her firm and doing the hard work it takes to be successful.
Along the way, her company created jobs that provided for many families. Her firm focused on helping disadvantaged families get access to resources they couldn’t get on their own. (More on that in another alert).
Despite her success, however, Susan was disappointed.
Looking over her investment statements, she felt like her wealth should be working harder for her.
Her main concern was that she wasn’t getting enough income for the money that she invested.
But as we took a closer look at the capital she invested and the income she was receiving, I saw that “aha” look break over her face.
Today, I wanted to share Susan’s story with you in hopes that you too will see more income from the savings that you’ve worked so hard to set aside.
Getting Twice the Income from Shares of Stock
Looking over today’s best income stocks, you might get frustrated with the dividend yields you currently receive.
For instance, a list of my favorite income stocks like Qualcomm Inc. (QCOM), Proctor & Gamble (PG) and The Blackstone Group (BX) will give you yields of 1.7%, 2.3% and 3.0% based on today’s market prices.
Those are decent returns — far above what you could expect from any savings account or Treasury bond.
But it’s hard to get excited about income in the low single digits.
After all, if you need to generate $50,000 per year from your investments and you’re getting a 3% yield, you’ll need to invest about $1.7 million. And that doesn’t even account for taxes you’ll need to pay!
That’s the concern Susan had when she was looking at the dividends from the stocks our firm bought in her account.
But looking at the current yield for a group of dividend stocks only tells part of the story when it comes to income investing.
Because if you invest in companies that are steadily growing earnings and their dividend payments over time, the amount of annual cash you can expect to receive from these companies will continue to grow.
Let’s take shares of QCOM for instance.
If you bought shares of this great income play right now, you’d receive a dividend yield of 1.7%. Not bad — but not exciting.
But if you’re a member of my dividend newsletter Lifetime Income Report and you purchased the stock 16 months ago when we first recommended it, you’re getting much more income for every dollar you invested!
In September of 2019, Lifetime Income Report members were able to buy the stock at a price near $79 instead of the current market price near $150.
And when you compare the current dividend with the purchase price back in 2019, you get a much higher yield of 3.3%.
That’s nearly twice the yield investors will get if they purchase shares today!
Buying and Holding Leads to Higher Long-Term Yields
You see if you buy shares of healthy dividend-generating companies…
And focus on companies that will grow their earnings and dividends over time…
You’ll wind up with much more income than the “current yield” you see in a simple stock statistic.
That’s why I love dividend stocks for building wealth!
Over time, your income grows steadily. And if you calculate that income compared to what it originally cost you to enter the position, you’ll soon see that your income is much more lucrative than what you can expect from bonds or savings accounts.
What’s more, the value of your investment will also grow over time as the business profits increase. So you’re getting the best of both worlds because both your income and the value of your investment are growing.
That’s exactly what has happened with shares of QCOM, PG, BX and many other high-quality dividend stocks we’ve talked about over the years.
As one astute Rich Retirement Letter member wrote, “It’s important to look at your retirement income as a ‘yield on cost’ calculation — not just a ‘current yield’ calculation.”
It’s a concept that certainly resonated with my hedge fund client Susan.
When we started calculating her income yield compared to what it cost her to buy her shares, she was much more encouraged.
And I hope you’ll be encouraged as you see your retirement income grow, driving the yield you receive for your investments higher through the many seasons we’ll face over the years.