A “High Total Return” strategy that focuses on high and growing dividends is the best way to build wealth, especially with the uncertainty and risk in this market, writes Mark Skousen, editor of Forecasts & Strategies.
From time to time, I get letters from people who have come into a considerable sum of money from an inheritance, an insurance policy or having sold their business, and want to know what to invest in.
I tell them upfront that they are at risk. Coming into a large inheritance or cash position is very dangerous to your financial health, because that’s when you are most vulnerable to bad investment advice or bad deals promoted by overzealous salesmen.
There’s also a lot of uncertainty and risk in today’s market: inflation, recession, taxes, rising interest rates, government regulations, wars, pandemics. You wonder, “In today’s crazy world, where should I invest my money?”
I have a simple, but effective, solution.
To explain how it works, I’ll start with a story taken from the latest edition of “The Maxims of Wall Street”...
A young widow inherited a lot of securities from her deceased husband. Not knowing anything about finance, she took a very simple approach to this newfound wealth. She kept only those stocks that continued to send her regular dividend checks and sold any stocks which omitted dividends or which didn’t pay any dividends at all. Over the years, her wealth increased dramatically, and she died a wealthy woman.
What is the #1 Lesson? The secret to a low-risk, high-return investment is to purchase investments that pay something back every year, whether it’s interest, dividends, or rental income.
For most investors, the best route is the stock market. In my investment newsletter, Forecasts & Strategies, I’m recommending several growth & income stocks that are yielding 6-7% a year, and all of them are up by double-digit percentages this year. Plus, your money is always liquid — you can sell your position any time the market is open.
I call my approach the “High Total Return” strategy for financial success. Here is the formula, courtesy of money manager Lowell Miller: Earnings growth + high dividends + growing dividends = High Total Return.
The key is to find growing companies that are (1) profitable, (2) pay high dividends and (3) keep raising their dividends over the long term.
Or in short, getting your money back in the form of dividends is the best measure of a successful investment. The danger, of course, is that the payments will suddenly stop — the bank that pays you interest will go under; the publicly-traded company will cut or stop paying its dividend; or your renters will stop paying their monthly rent.
That’s why you need to make sure all three elements are in place in the “High Total Return” formula.
Recommended Action: Use my “High Total Return” strategy to build wealth.