The Worry-Free Path to Building Stock Market Long Term WealthCompanies / Investing 2013 May 06, 2013 - 09:13 AM GMT
Dan Ferris writes: If you need a safe place to park your savings – and watch it grow for years – the news is filled with what you're looking for...
Last month, one of the world's top technology companies, IBM, announced it's going to raise its dividend payout by 12%, from $0.85 a share to $0.95 a share. IBM has raised its dividend 18 years in a row. It's paid dividends every year since 1916.
IBM is in the class of stocks I've called "World Dominators."
Longtime DailyWealth readers are familiar with these stocks. They are the strongest, safest stocks in the market. They have fortress balance sheets and stable cash flows. They are the market's most reliable source of dividends.
They are the stocks rich investors buy in order to safely get richer.
IBM (NYSE: IBM) didn't just increase its dividend last month. Its board also approved an additional $5 billion in share buybacks.
Buybacks make every share of the business you own worth a little bit more. IBM now has a total authorized buyback capacity of $11.2 billion. At current prices, that's about 5% of its outstanding shares. IBM has reduced its share count by more than one-third since the beginning of 2000.
In total, it's returned more than $150 billion to shareholders since 2000 via buybacks and dividends.
IBM isn't the only World Dominator making the news...
Health care World Dominator Johnson & Johnson (NYSE: JNJ) just raised its quarterly dividend 8.2% from $0.61 per share to $0.66 per share. I first recommended J&J in the October 2010 issue of Extreme Value. It's compounded subscribers' money at about 16% a year since then.
Many investors won't buy mega-cap stocks like IBM and J&J because they think these companies are too big to grow. That's a classic investor myth.
Clearly, you can compound your wealth at market-beating rates with these giants.
Another World Dominator, Coca-Cola (NYSE: KO), is one of the best businesses on the planet. It sells 1.8 billion servings per day of more than 3,500 different beverages. Brand valuation experts at consultancy Interbrand have named it the world's most valuable brand 11 years in a row.
The company routinely earns more than 20% on shareholders' equity. If you could earn 20% on every penny of earnings you retain, you'd get rich pretty fast. Coca-Cola has compounded investors' money at 10.5% per year over the last five years. The S&P 500 as a whole compounded investors' wealth at 2.5% per year during the same time frame.
I could write the same sort of thing about any World Dominator: Huge, global brand... fantastic brand-name value... steady, long-term growth... high returns on capital. It's all there with IBM, Johnson & Johnson... and every other World Dominator.
And if you find a World Dominator that's really undervalued, you can double your money pretty fast. Constellation Brands, the World Dominator of premium wines, is up 126% since our June 2011 recommendation.
Consistently high returns on capital and steady long-term growth are the all-time greatest formula for turning a little money into a lot with little risk. That's the secret rich investors understand.
Extreme Value subscribers and others who bought dirt-cheap World Dominator stocks over the last several years are now reaping the benefits of excellent compounding with relatively low risk.
Should you do the same?
• If you don't want to own a risky bank stock, you should own World Dominators.
• If you don't want to get defrauded by Wall Street again, you should own World Dominators.
• If you'd like more income than the measly 1.7% in government bonds are paying, you should own dividend-paying World Dominators.
• If you don't want to lose money in the next Facebook-type IPO disaster, you should own World Dominators.
• If you don't want to see the purchasing power of your savings evaporate, you should own World Dominators. (They can raise their prices with inflation... and pass the profits on to you.)
Most investors read the news for all the wrong reasons. They're looking for hot tips and entertainment.
Instead, they should adopt the rich investor's strategy. They should be reading the news about the latest dividend increases from the IBMs and Cokes of the world.
They should realize that if they owned these stocks, they'd be on the worry-free path to building wealth over the long term... with World Dominators.
The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.
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