But I do have two announcements to make today... and it’s not twins.
I begin with exciting news from the world of the Dick Davis Digests. I’ve enjoyed editing the Digests for over four years, and have especially appreciated the window they provided onto the world outside Cabot (where I practically grew up). But as of January, I’ll be handing over the reins. Taking my place is the very capable Nancy Zambell, who brings her long experience writing about, teaching and practicing investing to the job. Nancy’s previous investment advisories include UnDiscovered Stocks, UnTapped Opportunities, and Nancy Zambell’s Buried Treasures under $10. She has also written for Forbes.com, interviewed newsletter editors for MoneyShow.com, and blogs at Nancy Z’s Money Marketplace.
Nancy is also a lecturer and educator. She has led seminars for individual investors at the National Association of Investors, Investment Expo and the Money Show, and has taught finance, economics and banking at the college level.
I’m pleased to welcome Nancy to the Cabot family, and I know our Digest subscribers will appreciate the experience and analysis she will bring to those publications. I’m sure you’ll also be hearing from her here in Cabot Wealth Advisory soon.
That brings me to my second announcement, which I’m even more excited about (sorry, Nancy).
As you may have noticed in recent weeks, we’ve been hinting at something big brewing here at Cabot, that’s going to be ready to share with you in January.
Well, it’s my new advisory, Cabot Dividend Investor, which combines safe income investments with dividend growth stocks (and a sprinkle of high-yielders) to help you create the perfect low-maintenance, high-income portfolio to support you in your retirement.
We’ve been working on this publication for years. I always hoped to be the editor, but first we had to find the perfect person to replace me on the Digests. In the meantime, several other publishers have launched income-focused advisories—my father was not alone when he foresaw the huge demand for this publication five years ago. But we like to do things right here at Cabot—our first obligation is to our subscribers, who trust us to help them make money—and it took us a while to get Cabot Dividend Investor ready for prime time.
But now, I’m happy— ecstatic actually—to be able to say that it finally is. Our proprietary, quantitative ratings system, IRIS (for Individualized Retirement Income System; I named her myself) is ticking away around the clock, separating the wheat of the income investment universe from the chaff. Our portfolio is ready and generating income. I’ve been working for weeks on comprehensive guides to help new subscribers set up their perfect income portfolios. I can’t wait, in other words, for the world to see what we’ve built.
On second thought, this is starting to sound a little like I’m announcing a baby.
But I’m just so excited to see this project we’ve worked on for years finally come to fruition. I just finished the third guide in our three-part Investor Education Series (which all Cabot Dividend Investor subscribers will receive) and I’m really, truly convinced that this system can help thousands of investors have happier, wealthier, better retirements.
It’s not a magic bullet—I hope that would be a given for all of our readers by now. You still have to read the guides, fill out the worksheets, follow the rules ... it’s up to you to make the system work for you. But I really think that if you put in the work, IRIS—and I—will reward you a hundred times over.
I’m not kidding! The backbone of our system is the power of dividend growth, which can literally provide 100% returns year, after year, after year. (That’s the power of dividend growth working with the power of time, technically.) I’m starting to sound like an advertisement though, so instead of gushing any more about how great Cabot Dividend Investor is, I’d like to share just an excerpt from the Investor Education Series I just finished. This is an excerpt from our Complete Retirement Income Guide, and I really think every investor needs to see this. So, you’re in luck. Here’s the secret behind what I think is the most powerful weapon in an income investor’s arsenal:
All About Dividend Growth
As promised above, I’m going to close this guide by sharing the dividend investor’s number one secret: the power of dividend growth.
Above, I introduced the concept of current yield, which is equal to an investment’s current annual dividend rate divided by today’s price. It’s the yield you see listed on Yahoo! Finance and other quote services. However, the really powerful fact about income investments is that that current yield only really applies to new investors.
Once you own an income investment, the more relevant number to you is your yield on cost.
Your yield on cost is a number unique to you. That’s because it’s equal to the investment’s current annual dividend per share divided by the price you bought the investment at. Yield on Cost = Annual Dividend Amount / Your Price Paid So even if Yahoo! Finance says a stock you own is currently yielding 2%, you may be earning a much higher yield on your investment.
Let’s say that five years ago, you bought a $20 stock that was yielding 2%—paying a 40 cent dividend every year. Since then, the stock has continued paying its 40 cent dividend per year, but its price has risen to $35. The stock’s current yield is:
0.40 / 35.00 = 1.14%
However, you’re still earning a 2% yield on your position purchased five years ago.
Where this concept becomes really powerful is when you buy a stock that increases its dividend every year.
Let’s say you bought Target (TGT) five years ago, when it was trading at $35. At the time, TGT paid a quarterly dividend of $0.16, for a total annual payout of $0.64. So when you bought the stock, the yield was:
0.64 / 35.00 = 0.018 = 1.8%
Since then, TGT has risen from $35 to $61. But TGT has also increased its dividend every year over this time period, from 64 cents per year to $1.72 per year. So the stock’s current yield is:
1.72 / 61.00 = 2.8%
But you bought at a lower price, so your yield on cost is even better. It’s equal to the current annual dividend amount, divided by your purchase price. That works out to:
1.72 / 35.00 = 4.91%
So even though Yahoo! Finance and other information sources say that Target is a 2.8%-yielding stock, you’re getting a nearly 5% yield from your investment.
Over longer time periods, this effect becomes even more powerful. It’s estimated that Warren Buffet’s Berkshire Hathaway now earns more in dividends from Coca-Cola (KO) every year than they originally paid for the stock... that’s a yield of over 100%.
That’s why I said at the beginning that your investment portfolio can actually become less work as you get older. If you choose the best, highest-quality dividend growth stocks today, you can sit back, relax, and watch the dividend checks roll in tomorrow.
I think dividend growth is the most powerful force in a retirement investor’s tool kit. But, there are other considerations to make when building your overall portfolio, like safety of principal and current income.
I’ll explain how to balance these three elements in my third and final report in this series: Creating the Perfect Portfolio.
Sounds pretty good, doesn’t it? I can’t wait to share this report with everyone, and I can’t wait to start helping investors with IRIS and Cabot Dividend Investor. We’ll get there very soon. For now though, I strongly encourage you to go here to learn more about IRIS, and sign up to be one of the first to know when Cabot Dividend Investor becomes available. You can also download my first three retirement reports (these three are free) at the bottom of the page. Again, just click here to get the free reports and learn more.
And I really hope I’ll be seeing you around Cabot Dividend Investor very soon!
Wishing you success in your investing and beyond,
Chloe Lutts Jensen
Co-Editor of Dick Davis Digests
P.S. If you’re looking for the best income-producing investments available, get the wisdom of the best minds on Wall Street for just pennies a day with a subscription to Dick Davis Dividend Digest. We scour over 200 financial advisories to select the most compelling 25 to 30 dividend investments, then present them in a concise 12-page digest every month. This month alone, we found an ETF that invests in fixed income funds and is currently yielding 8.30%, a hedge fund firm and alternative asset manager that’s yielding 10.00%, a REIT that’s trading below net asset value with a 4.30% yield, preferred stock in a financial services company with a yield of 5.49%--and that’s just the beginning.