As broke investors worry more and more about a stock market crash, billionaires are quietly loading up on their favorite dividend paying stocks. Investing for growth and income, these “country clubbers” know how to 4X their yields without taking on any additional risk.
Who would you rather invest with? Obviously, the rich guy or gal versus the hopeful retiree sweating out every stock tick.
Wealthy people collect assets that, over time, help them accumulate more and more wealth. Average investors, meanwhile, clutch to their stocks like they are lottery tickets. They buy shares and “hope” that they go up every minute of every day. Their hyper-attention often makes them sell at the worst possible moment (such as the bottom of a pullback).
So, what are the folks who don’t need the money holding today? Kiplinger writer James Brumley recently surveyed the “three comma” net worth crowd. Fifty stocks later, he learned that 62% of the billionaires’ favorite picks paid dividends.
Most of these stocks are better buys now than they were 26 days ago before the broader market began to quake. The “smart money,” which these guys are certainly a part of, was cautious then. They are becoming increasingly greedy now, because they’re able to secure more dividends for their dollar.
Check out the right side of this “smart versus dumb money” confidence chart. During the two recent pullbacks, the smart money gained confidence as stock prices dropped.
What kinds of stocks do the smart money types buy on pullbacks? Back to Kiplinger’s piece, let’s look at Broadcom (AVGO), a pick from Lyrical Asset Management (a firm running $6.6 billion). New money today gets 10% more payout for the price today (a 3.5% yield) than it did in late July (when Broadcom paid just 3.2%).
Why are long-term wealth builders focused on Broadcom? It has serious upside potential. Over the last five years, its payout has climbed 728%, and this “dividend magnet” has pulled shares higher by 269%. That’s not bad, but they are actually “due” to catch up to the higher payout.
The same stocks tend to yield the same amount year-after-year, give or take, and the country clubbers like Broadcom’s dividend gap.
To demonstrate yield consistency, let’s take good ol’ Johnson & Johnson (JNJ), a firm I remember fondly because they were kind enough to extend two engineering internships to your editor in 2001 and 2002. (They were the second-to-last large company I ever worked for!)
Eighteen years ago, the firm’s dividend was rock solid. Fast forward to 2019, and it’s equally revered. The company has grown its dividend every year since the Kennedy administration. As hopeful retirees wonder if they will ever get to retire with rates heading towards zero, JNJ’s steady yield may begin to test its usual range.
While 2.8% is better than most bonds, it isn’t enough to retire on, either. Put $500K in JNJ and you’ll receive just $14,000 per year in dividends. That’s not much for that chunk of capital.
Maybe JNJ has upside like Broadcom? I don’t see it, nor do Kiplinger’s billionaires (who didn’t mention the blue chip). The baby shampoo god’s dividend growth is steady but modest, which means its stock price growth is likely to be equally reliable and humble. And that’s exactly what’s happened over the last five years, with 36% dividend growth pushing 29% price appreciation!
As you can see there are really only two ways to make serious money with dividends.
First, buy growth. Of course, I’m not talking about weed, social media or cryptocurrencies. I’m talking about stocks like Broadcom that are doubling their dividends quickly. Find soaring payouts like these and you, too, can double your money (like the country club crowd).
Brett Owens is chief investment strategist for Contrarian Outlook. For more great income ideas, click here for his latest report How To Live Off $500,000 Forever: 9 Diversified Plays For 7%+ Income.
Disclosure: none