The road to wealth in the stock market leads to companies that regularly pay — and increase — their dividends, according to Wellington financial analyst Marc Lichtenfeld.
"Invest in great companies that raise their dividends every year and don't do anything else," advises Lichtenfeld. "In several years you will have many times more money than if you try to trade the market or put it in an actively traded mutual fund."
Some blue-chip companies now pay more in dividends — 3 percent or 4 percent — than what many bonds and certificates of deposit deliver in interest, Lichtenfeld said in a telephone interview.
In his book, "Get Rich With Dividends: A Proven System for Earning Double-Digit Returns," Lichtenfeld looks at the S&P Dividend Aristocrat Index that lists large corporations — currently 51 — that have increased dividends for at least 25 years. Lichtenfeld also focuses on smaller companies that are named as Dividend Champions at dripinvesting.org. Some have been increasing dividends since Dwight Eisenhower was president in the 1950s.
Their executives "aren't using their companies as their own personal ATM," but rather are focusing at delivering results to stock holders, said Lichtenfeld, the associate investment director of the private financial group, Oxford Club, and editor of the Ultimate Income Letter.
He is part of a trend of financial planners urging clients to consider investing in conservative companies that regularly pay dividends.
Boca Raton financial planner Mari Adam mentioned the attractiveness of high-paying dividends in her newsletter earlier this year. "Bonds have enjoyed a strong, 30-year bull market, but is that run soon to reach its end?" she questioned in another article.
But, while such dividends are attractive, that should not be the sole reason to invest, said Matt Saneholtz, a certified financial planner in Plantation and president of the president of the Financial Planning Association of Greater Fort Lauderdale. Some firms may offer high dividends to entice investors to overlook problems such as dropping revenues, Saneholtz said.
In his book, Lichtenfeld advocates holding stocks in dividend-paying corporations for years and reinvesting the dividends to build wealth.
Indeed, Fortune magazine in its Special Investors Issue this month reported that corporations with well-known brands such as PepsiCo, Johnson & Johnson, Nestle and Unilever (Think: Lipton tea, Dove soap and Vaseline) are delivering dividend yields of 3 percent to 4 percent. "They may not be sexy, but food, drink and household-product stocks can deliver stellar returns," Fortune reported.
Lichtenfeld agrees, but advises investing in other dividend-paying companies in other sectors, from banking to energy — to ensure a diversified portfolio.
Investors should also include some bonds to diversify portfolios, recommended John Radtke, CEO of Boca Raton-based Incapital that underwrites and distributes fixed income securities and other financial products.
"We think investors should consider supplementing any dividend-paying stock strategies with traditional fixed income securities, including investment grade corporate bonds and medium term Certificates of Deposit," Radtke wrote in an email.
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