How the Grim Reaper Can Help You Make Bank

Marc Lichtenfeld By Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Dividend Investing

Numerous studies show how bad people are at investing.

They get too excited and buy at the top. They panic and sell at the bottom.

But one report that fascinated me was conducted by Fidelity… It showed that of the more than $2 trillion in assets under management, the most profitable accounts belong to customers who forgot they had one – or to those who passed away.

That may sound surprising, but it’s not when you consider that the average investor underperforms the S&P 500 by three percentage points annually and holds a stock for only six months on average.

Six months!

How is any investor going to avoid the pitfalls of acting emotionally if they are holding investments for only six months?!

Heck, I’ve left dirty dishes in the sink longer than that. (I was in college.)

In my personal portfolio, I rarely sell a long-term position. My long-term holdings are mostly made up of Perpetual Dividend Raisers – companies that raise their dividends every year.

Something has to have gone wrong with the company for me to sell it. If it cut the dividend or stopped raising the payout after years of annual increases, then I’ll hit the eject button. If the fundamentals have changed drastically, and I’m concerned the company can no longer afford the dividend, then I will sell it.

Other than that, I typically hold the stocks forever. By doing that, I significantly lower my chances of underperforming the market, and I ensure that I receive more dividend income every year.

Long-Term Investments Pay

My approach for readers is the same as the one I use for my personal portfolio. When I recommend a Perpetual Dividend Raiser in The Oxford Income Letter, the goal is to own it for 10 years.

It should come as no surprise that the biggest winners I’ve recommended are stocks that have been in the model portfolio the longest.

  • Brookfield Infrastructure Partners (NYSE: BIP) is up 83% over four years.
  • Darden Restaurants (NYSE: DRI) is up 95% over four years – and up 171% when you take into account its spinoff of Four Corners Property Trust (NYSE: FCPT), which we still hold.
  • Texas Instruments (Nasdaq: TXN) is up 158% in four years.
  • Digital Realty Trust (NYSE: DLR) is up 161% in four years.
  • Raytheon (NYSE: RTN) is up 180% in four years.

Keep in mind that these are conservative dividend payers. We’re not trying to hit home runs, yet you can see that the numbers are pretty big.

And don’t forget that these stocks are generating lots of dividend income as well.

Brookfield Infrastructure yields 6.9% on our original entry price; Darden/Four Corners yields 4.6%; Texas Instruments yields 5.9%; Digital Realty Trust sports a 7.5% yield; and Raytheon has a 5.2% yield.

Raytheon’s yield on today’s price is less than 2%. But because we’ve owned it for so long and the dividend keeps increasing, readers who bought it when I recommended it have nearly tripled their money. They’re also getting paid more than 5% while they continue to hold it.

It’s natural to get nervous and feel tempted to bail when your stock falls. But if the fundamentals remain intact and the company can continue to pay its dividend, take a deep breath.

Handle your portfolio in a similar fashion to that of the top Fidelity customers, and you’ll be ahead of the game. Not only will your account be among the most profitable accounts at your financial institution, but you’ll also be breathing.

So you’ll be doing even better than those Fidelity clients.

Good investing,

Marc

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