The best time to buy a dividend grower is usually anytime – if you’re holding period is long enough, that is.
But what if you don’t have years to wait to get rich?
Today I’m going to show you a simple dividend growth “timing formula” that will help you accumulate great wealth with shareholder-friendly stocks. I’m talking about gains up to 40% per year, which means your money will double every two years.
Worse case, you might have to settle for 24% annually – which means your money will take three years to double!
Of course not every buy will bank you 40%.
But the “laggards” aren’t too shabby, either.
My Hidden Yields subscribers have used this timing technique many times over the past two years.
Their portfolios have returned an amazing 24% per year over this time period (versus 15% for the S&P 500).
How’d we do it?
How are their portfolios already on pace to double in value by this time next year, just two years into their investments?
Simple – we bought stocks with prices that were due to “catch up” with their soaring payouts. The first of the two timing signals we’ll discuss today.
Signal #1: Buy Relative Yield That’s “Out of Whack”
Dividend raises, sooner or later, are reflected in a price increase for the stock.
We’re looking to buy stocks trending towards “later” because their share prices are due to catch up quickly. Let me explain.
If a stock pays a 3% current yield and then hikes its payout by 10%, it’s unlikely that its stock price will stagnate for long. Investors will see the new 3.3% yield, and buy more shares. They’ll drive the price up, and the yield back down – eventually towards 3%. This is why your favorite dividend “aristocrat” – a company everyone knows and has paid dividends forever – never pays a high current yield. Its stock price rises too fast!
For example let’s look at UPS, which always seems to pay between 2.5% and 3%, give or take. This yield already gets you ahead of the game in today’s low rate world. Next, let’s consider the stock’s price appreciation which moves remarkably in tandem with its dividend:
UPS Payout Drives Stock Price Growth
Since share prices move higher with their payouts, one way to maximize our returns is to buy the dividends that are growing the fastest.
But we can do even better, and further tip the odds in our favor, if we only buy the stocks that are ready to spring back towards their dividends.
Boeing (BA) is our most recent successful example. We bought the stock days before its late-2016 dividend hike. It then traded sideways for nearly a year. But when Boeing shares finally took off after their dividend, they absolutely soared.
Check out the blue line below – that’s Boeing’s stock price. In the short-term, it can go anywhere. But over time, it’s drawn like a magnet to the dividend (represented by the orange line that stair steps higher every single year):
Boeing’s Stock (Blue Line) Soared, for 78% Gains
As you can see, we bought Boeing when its blue line started to fall behind its orange line. The stock’s “relative yield” was the highest it’s been in awhile (a classic contrarian buy indicator). Between then and now, the stock (including dividends) is up 78%.
Impatient investors missed out. Many pundits wrote that Boeing was “dead money” precisely when they should have been buying shares hand over fist.
Here’s another way of looking at the same phenomenon. We simply bought shares when the yield was high. Most investors get this backwards and flock to stocks when their prices are high. Wrong.
Yields and prices move inversely. When yields are high, prices are usually low. Boeing was a “no brainer” buy for much of last year simply because its yield was high. And that’s exactly how it played out:
Buy When Yield (Blue) is High
Here’s another example. I re-recommended datacenter landlord CoreSite (COR) to my Hidden Yields subscribers in October 2016, just before the firm’s big dividend increase. I believed a hike was coming, and wanted to make sure our subscribers bought more shares.
I was right about the hike, but wrong about the urgency! The stock market often has a thick head. CoreSite actually traded lower into December, before finally taking off and bringing us 40% gains (including dividends) in just ten months:
CoreSite (+40%) Takes Off After its Payout
Follow this simple signal, and you’ll beat 99% of all money managers. But why stop here? There’s one more dividend hike technique that is just as effective.
Signal #2: Buy “Accelerating Dividends”
In my experience, accelerating dividends present a “problem” to Wall Street analysts. These guys and gals project everything linearly, and their spreadsheets literally break when payouts soar at a faster and faster rate.
Back to CoreSite. The firm actually started “accelerating” its dividend back in 2015, when it increased its payout by 26% (an acceleration over the previous year’s “mere” 20% boost):
Investors who bought CoreSite the day it declared that increase enjoyed 55% gains in just seven months. You can see the stock price took off as its current yield was steadily bid down by new investors (showing, once again, why we buy when the relative yield is high):
“Panic Buying” After CoreSite’s Accelerated Hike
As you can see, there have been several opportunities to buy this stock for 20%, 30% and even 40% annual returns. And we’ve timed two of them on the dot using the techniques I shared with you today.
— Brett Owens
These 7 Dividend Growth Stocks are Flashing “Buy” Today [sponsor]
I’ve scoured thousands of stocks out there right now, looking for the very best companies that have both rising dividends and strong buyback programs in place … the kind of stocks that could easily spin off annual total returns of 12%, 17%, even 25% or more … doubling your money in very short order.
Right now, at this very moment, there are seven in particular that I think you should consider buying.
They stand to do well no matter what the broad market does … regardless of what happens in Washington … and irrespective of interest rate trends.
I’d love to share a quick rundown on each of them with you …
Please click here for a quick rundown on my 7 favorite “Hidden Yield” stocks – including the company names, their stock tickers and my recommended buy-up-to prices.
Source: Contrarian Outlook