In today’s world of near-ZERO interest rates here at home and NEGATIVE interest rates in Europe, Japan and elsewhere, earning a decent yield on your money has never been more important.
But it can also seem like a pipe dream, with a seven-year drought in yields and frightening volatility in the stock market.
If you rely on your investments to provide reliable income, here’s a three-step strategy for earning a "living wage" from your portfolio — without adding any additional investment risk. I call it my …
Triple-Yield Income Strategy
In just the past six weeks, this strategy has delivered more than $13,000 in cold, hard cash to readers following my real-world portfolio. We’re well on our way to a full-year yield of 7%-8%. And that DOESN’T include any portfolio price appreciation.
Today, I’m going to introduce the foundation of my Triple-Yield Income Strategy: How to build a portfolio of high-quality dividend stocks that are poised to outperform in this kind of low-interest rate, high-volatility market environment. Next week, we’ll explore the crucial Steps 2 and 3 of the strategy.
We are on the cusp of the most profitable bull market of our lifetime. Stocks will be driven higher by powerful global undercurrents that Wall Street will either ignore or fail to understand. As the Dow doubles, some stocks will see explosive gains of 300%, 400%, 500% and more. Savvy investors who make the right moves will become very rich! Click here for my free report and to find out how it could make you rich beyond your dreams. -Larry
So, let’s get started …
I begin with the proven, profit-making power of our Weiss Stock Ratings. Using my proprietary methods, I select only high-quality stocks with above-market dividend yields AND rock-solid fundamentals, including:
Trailing 12-month dividend yield greater than that of the S&P 500: Only stocks with good yields make the cut. (More on this below.)
Low price-to-sales and price-to-earnings ratios: I’m looking for stocks with good value relative to their competitors.
Strong sales and earnings growth: My companies need excellent business models that produce solid revenue AND income.
Strong balance sheets and low debt: Stocks need the right blend of assets AND relatively low debt.
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From these potential candidates, I search for companies that possess my hidden drivers of dividend growth:
First, I go into a deep, in-depth analysis of each company’s cash flow, including revenue and earnings growth. I look at everything and anything that affects a company’s cash position — now or in the future.
Then I dig deep into two key questions: Is the company’s return-on-equity greater than that of the S&P 500? And is the company’s ratio of the last 12-months’ free cash flow-to-dividends (FCF/DIV) greater than 1.0?
Second, I analyze debt maturities, pensions, tax obligations, capital expenditures, and any other obligation with the potential to impact cash flow.
Here I focus on any potential financial "time bombs" that might disrupt future dividend payouts or impede the company’s ability to increase future payouts. I also like to see a company’s debt-to-equity ratio lower than that of the S&P 500.
Third, I conduct a comprehensive evaluation of management —specifically, the management’s willingness to return capital to shareholders in a disciplined way.
This is an important step, so I examine corporate decisions through press releases and review a company’s Management Discussion and Analysis (MD&A) section of its annual report.
Last, I make certain each company has a long history of paying and — even better — growing their dividend. Here’s what I mean …
This chart — based on research from Bank of America Merrill Lynch — shows average dividend yields of stocks in the Russell 1000 (a good proxy for the broader market).
Stocks that earned the highest yields (Quintile 1) had a very high probability of loss (the red arrow). Meanwhile, stocks that earned the second highest yields (Quintile 2) have a much lower probability of loss (the red circle) and the highest returns.
Translation: Stocks with room to grow their dividends provide outstanding returns AND they do so without a ton of risk. That’s a win-win.
And that’s exactly what I do with my Triple-Yield Income Strategy.
Next week, I will discuss Steps 2 and 3 of my Triple-Yield Income Strategy — showing you two additional ways to boost your portfolio income by 2x or even 3x the yield of the S&P 500, without increasing your investment risk.
See you then!
P.S. Tune in to watch “THE UNSEEN HAND” where Mike Larson reveals what really moves stocks and names the types of investments destined to soar for the rest of 2016! Don’t miss out — click this link to view “THE UNSEEN HAND” now.