I am becoming more and more obsessed with investing in the highest-quality, most profitable businesses in the world. The more I think, read, and write about this, the more I believe it is the antidote to the losses most investors take on their stock market activities…

I get more and more interested in this idea because my job is to show my readers how to become richer. And this is the ultimate way to get rich in stocks. Nothing else comes close. That’s why you hear about it so often.

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If you haven’t yet, you need to right now.

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I spent a few minutes on the phone the other day with Dan Cofall, host of the Wall Street Shuffle radio show.

He asked me about four great businesses, including Microsoft (MSFT) and two other World Dominating Dividend Growers (WDDGs). All the companies we talked about gush cash profits and grow their dividends year after year, some for decades on end.

At the end of the interview, Cofall asked me what I think the best investment strategy is. I told him the best investment strategy for 99% of people is to buy the best businesses when they get cheap enough and reinvest the dividends.

I checked earlier this week, and the WDDGs in my 12% Letter model portfolio have increased dividends by 10.5% on average over the past year. Did your job, your investments, or any part of your financial life give you a 10.5% raise last year? If not, you should pay more attention to WDDG stocks…. The odds are excellent they’ll give investors another raise of 10% or so this year.

The longer I do this job, the simpler it seems to get. Easy? No. But simple, yes. When my research partner, Mike Barrett, and I look for new investment recommendations these days, the first thing I always want to know is, “Is this a consistently profitable business?” Then we ask other questions like, “How are shareholders going to make money on this?” These are simple, basic questions that can make the difference between losing 50% and getting a safe, predictable raise of about 10.5% or so every year.

When you think about it, there’s no way you can call buying shares of an unprofitable business an investment at all. It’s nothing but a gamble. Making money in the stock market is about getting more cash out of an investment than you put into it. If the business you’re investing in doesn’t generate lots of extra cash profits… how in the world are you going to make any money on it? Ask yourself that question before you buy any stock… and you’ll be buying a lot fewer stocks, taking a lot less risk, and making a lot more money.

When I talk to the average investor, he’s always trying to figure out which way the market will go… or maybe guess the direction of some stock price or index. When I talk to rich folks, they want to know about business. They want to know how a company is making money, whether it has a durable competitive advantage, how consistently profitable it is, and how much extra cash it can be expected to throw off. That’s what you should ask. And if you do, it won’t be long before you realize something…

WDDG stocks are the all-time best at throwing off cash. Over the last four quarters, as a group, the 11 WDDGs in my 12% Letter model portfolio generated just shy of $95 billion in free cash flow. Go try to find 11 other companies you can say that about. It ain’t easy. That combined free cash flow figure would be enough to buy any of 90% of the companies listed on the S&P 500. That’s a lot of buying power concentrated in fewer than a dozen businesses.

It would take these 11 companies less than six years to generate enough free cash flow to buy any company in the S&P 500 (at today’s market caps).

If you want to know who in this crazy, mixed up world is making any money, this is your answer: the WDDG companies.

They’re making so much money, they don’t know what to do with it all. Some WDDGs have tens of billions of dollars in cash just sitting on their balance sheets. A couple of our WDDGS have so much cash, the interest they earn (at today’s low rates, no less) covers all the payments owed on billions of dollars of debt.

If you want a safe stock, you need to check these out. The government is rapidly approaching a day when it can’t pay the interest on its debt. The WDDGs will never see such a day. They’re many times safer than investing in the government, as crazy as that might sound. But think about it… Why on Earth would anyone do something as crazy as trusting his hard-earned money to the government when he could buy WDDGs? I don’t know…

And the really great thing is, most of that cash they’re gushing every year won’t be spent paying interest or buying other companies. And none of it will be spent on capital projects because free cash flow is net of capital spending. No… just about every penny of that $95 billion will be put in shareholders’ pockets. It’ll be spent paying dividends and repurchasing shares.

You can’t say that about the overwhelming majority of the world’s public companies. WDDGs are special. They’re safer. They’re more consistently profitable. They’re just plain better. And the really incredible part is that everybody knows it!

These businesses are profitable every quarter of every year. They grow their revenues just about every year. But even if a WDDG has a down year during a recession, it’s just a great opportunity to buy it while it’s cheap.

Compared with trying to uncover a gem among all the little-known, out-of-the-way stocks out there… it’s relatively easy to spot a dominant business that simply refuses to stop growing, gushing huge amounts of cash profits every year, and showering shareholders with larger and larger amounts of cash dividends every single year. Some of these companies have raised their dividends every year for 40 years in a row… or more.

I don’t know why more people don’t buy WDDG stocks, reinvest the dividends, and forget about them for years on end. It’s so simple. It’s the simplest and – for 99% of the people who’ll read this – the best way to invest in the stock market.

Good investing,

Dan Ferris

Sponsored Link: Dan’s newest WDDG recommendation for 12% Letter subscribers is still trading for less than his maximum buy price. It’s the No. 1 company in its industry (just like every other WDDG). It crushes the competition year after year (just like other WDDGs). It has grown its market share every year since the 1970s. And it has raised its dividend every year for 36 years in a row. Dan reported on this company in the May 2012 issue of The 12% Letter. A former industry insider told Dan he expected it to dominate the industry for years to come. Click here to get The 12% Letter (without watching a long promotional video).

Source: The Growth Stock Wire