I buy on the assumption that they could close the market the next day and not reopen it for 10 years. Buffett began buying Coca-Cola stock in and by he had about , shares. Today he has over million shares. The next dividend payment from Coca-Cola comes will be for 35 cents.
Multiply that times million and then four times a year and then multiple years and you start to see the power of holding a stock forever. I regularly review a large number of high yield stocks. I try to dig out the details that separate a high-quality company from one that has the potential to truly whack investor wealth. But sometimes I realize I need to go back and discuss a stock that should be core holdings for almost every stock market investor.
We can all learn some lessons from an overview of how Main Street Capital Corporation NYSE: MAIN operates and pays investors.
MAIN is a business development company BDC a class of stocks that operate under special laws and tax rules that require them to provide financing to small and mid-size corporations. There are about 40 publicly traded BDCs, ranging from market caps measured in tens of millions up to Ares Capital Corporation NASDAQ: Overall, I think the BDC space carries a lot of risk, primarily driven by the restrictions government rules put on the business type, and only about one-tenth of the stocks in the group offer acceptable investment risk.
Out of this small subset, Main Street Capital stands well above the rest as a company that has developed a very strong business model inside of the BDC rules. A BDC can make either debt loans or equity buying shares investments in its client companies. Most BDCs focus on the debt side, make high-interest rate business loans with cash for BDC dividends coming from the interest rate spread a BDC earns. Main Street Capital makes plenty of loans, but it also puts a significant amount of capital into equity investments.
These investments allow MAIN to participate directly in the growth of its client companies. My Monthly Dividend Paycheck Calendar gives you every ex-dividend date for MAIN and over 20 other safe high-yield stocks so you can start getting paid multiple times a month.
I know of no other stock that can be counted on to pay you 14 dividends per year and provide a growing cash income stream. If you do not own any MAIN shares, go buy some. Main Street Capital teaches us another lesson about income stock investing. You can see I have laid out the case that MAIN is one of the most consistent dividend paying and dividend growing stocks you can buy.
Stability of business operations and dividend payments does not lead to stability in share prices. As income-focused investors, we need to always be aware that those big share price swings that occur regularly in the market do not indicate the quality of the income stream we want to earn from an income-focused portfolio. We buy for the income, and share price swings are only viewed as buying opportunities when share prices experience a decline. The combination of a high yield and consistent dividend growth in stocks is what has given me the most consistent gains out of any strategy that I have tried.
In the entire stock universe, there is a small sub-sector that has been consistently handing out double digit returns to investors regardless of market conditions. I want to spend some time here discussing a different way to analyze stock investments and an investment strategy that does not involve trying to find stocks that will go up more in value than the market averages. While I find it very difficult to find stocks that will consistently generate above average capital gains, I find it an easier task to build a portfolio of stocks that will provide me with a cash flow pay raise every quarter.
The strategy I use is to focus my search on finding higher yield stocks with histories and future potential for regular and growing dividend payments. Most stock market analysts, advisors, and investors themselves focus on new products, revenues, earnings per share, and share prices and what effects the latest economic news will have on the individual company metrics. The result is a blizzard of information that is often contradictory and share prices that end up moving up and down together, no matter how good the prospects of an individual company might be.
Yet most investors had been buying shares on the ride up from the last correction in and many, many sold out when prices of a large number of stocks dropped in the January to February market correction of These investors let their worries about share prices push them to sell low, after buying high.
A dividend-focused approach to stock market investing takes out the part where investors have to try to figure out whether share prices are going to go up or down, and which stocks will do better or be able to buck the trend if the market is falling in general.
With a dividend-centric investing strategy, you work to find stocks with attractive yields and growing dividends. These stocks will produce a growing cash flow stream and also, in the longer term, generate high share prices. Realty Income Corp NYSE: O is the poster child stock for this cash flow focused investing strategy.
This conservatively managed REIT has increased its dividend rate 85 times in the last 20 years, with zero dividend reductions. There have been 76 consecutive quarterly increases or six straight years of quarter over quarter dividend growth. During the last decade, the yield on O has ranged from about 4.
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And as a bonus, the company pays monthly dividends. Using this approach, you can find those stocks where the market has severely mispriced companies that focus on making high and steady cash payouts to investors.
To employ the dividend-focused investment strategy, you need to dig out those companies and stocks with above average yields and histories of steady dividend increases. This is a crucial step because many high yield companies do not provide the visibility for future cash flows that will let you sleep at night.
Then, build a diversified portfolio of dividend paying stocks. You will want to own companies from different sectors including finance and equity REITs like O above and business development companies BDCs like MAIN. These are the sectors that allow a company to generate steady and growing cash flows to support the dividend stream you want to earn. The goal is to buy these stocks for the long term, and you will own many of them for years collecting dividends along the way, just as Buffett has done with Coca-Cola.
However, you must be ready to drop those companies that fail to live up to your cash flow forecasts and add new candidates that offer better combinations of yield and dividend growth potential. If you are investing for the growth of an investment account, use the dividend earnings to buy new holdings or to pick up more shares of companies that have fallen out of favor with the market.
With this type of stock market portfolio, you should see your dividend earnings grow every single quarter no matter the market conditions. Finding stable companies that regularly increase their dividends is the strategy that I use myself to produce superior results, no matter if the market moves up or down in the shorter term.
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