Investing Observation & Opinion


  • Economy & Politics
  • Investing
  • Personal Finance
  • Related Posts

    Is The ‘Easy’ Money Over For European Stocks?
    Europe Cracks Down On Bitcoin, Virtual Currencies To “Curb Terrorism Funding”
    For Caterpillar The Depression Has Never Been Worse… But It Has A Cunning Plan How To Deal With It
    A Modest Proposal: All Companies Should Shut Down At Age 18
    Star Wars Could Break Box Office Records After This News
    Leave Bitcoin Alone. Abolish Cash Instead.
    What UnitedHealth Doesn’t Mean For Obamacare
    This Could Be The Next Weapon Of Mass Destruction
    Warren Buffett Stocks To Ditch In 2015
    What Are The Stock Buyback Benefits For Investors?
    The Eerie Link Between The Federal Reserve And The Sinking Of The Titanic
    What The $16.6 Billion Nokia Merger Means For Investors Today
    New Salmon Is The First GM Animal Approved For Sale As Food
    Wal-Mart Scrimped On Hiring As Store Space Grew Rapidly
    Aetna Says Individual Obamacare Business Performing As Expected

    Why I Have Never Said To Invest With Warren Buffett

    I have never advised my readers to invest in Warren Buffett’s Berkshire Hathaway (BRK-A).

    And it’s not because a single share of the Class A stock costs $164,690 or because I think it is overvalued or because of any of the other usual reasons, for that matter.

    The reason is actually quite simple.

    It’s because Warren Buffett has vowed time and time again to never pay Berkshire shareholders a cent in dividends.

    Consider this: In the most recent quarter, Berkshire Hathaway collected more than $1.35 billion in dividend and interest income from its holdings.

    Yet none of that money made its way back to shareholders.

    Granted, Buffett’s style is to try to turn that money into more money. But for me, I’d rather collect a steady stream of cash with which I can do what I please.

    This is not to say that buying Berkshire’s Class A or Berkshire Hathaway B (BRK-B) shares is a terrible investment. In fact, it could be a nice addition to an income portfolio for people also looking for capital growth.

    But when it comes to collecting steady and rising income streams, investing in dividend-paying stocks is one of the wisest choices an investor can make.

    Apparently, I’m not the only one who feels this way. Other investors seem to prefer dividend stocks over non-dividend payers as well. That’s because these stocks not only provide income, they perform.

    In fact, Ned Davis Research found that from 1972 through Sept. 30, 2012, U.S.-based dividend-paying stocks in the Standard & Poor’s 500 index returned 8.7 percent annually, far exceeding the 1.6 percent return for non-dividend payers.


    As you can see, the difference between non-dividend payers and dividend payers is stark. If you invested $10,000 in non-dividend payers in 1972, you’d have $18,961 by September 2012. The same amount in dividend-paying stocks would be worth $302,800. That’s almost 16 times more.

    This study supports my conviction that dividends are one of the most powerful investing tools available. However, as Chief Investment Strategist behind High-Yield Investing, I am biased.

    But one look at Warren Buffett’s portfolio shows that the man likes dividend-paying stocks himself. Of his 40 holdings, 30 pay dividends. Not to mention, many of those companies have a proven track record of raising or maintaining dividends.

    The simple fact is that if you’re ignoring dividends, you’re missing out on one of the safest ways to make money in the market.

    But not all dividend stocks are created equal. I’m not suggesting that you just go out and buy a stock simply because it sports a high yield — that’s a risky proposition that can leave you with dividend cuts and losses if you choose unwisely.

    In addition to high yields, you should be looking for high-quality income investments — ones that pay large, rising dividends with a degree of safety. When picking stocks to add to my High-Yield Investing portfolio, these are some of the criteria I look at when evaluating an income investment:

    1. Long track record of paying consistent and rising dividends.
    2. Matching history of improving earnings.
    3. Strong cash flow sufficient to pay dividends and then some.
    4. High projected growth that can lead to dividend increases.
    5. Zero or little debt, because debt-free companies have more cash to distribute.
    6. Noncyclical business models that can profit in all markets and at all times.

    Very few stocks actually possess all these criteria. In fact, our research team ends up rejecting 99 out of 100 potential high-dividend stocks and funds because our test eliminates companies that may be unable to meet our standard for secure, steady and growing dividend payouts.

    Action to Take –> Remember, there are no "absolute" guarantees. No matter how sound an investment may seem, anything short of a U.S. Treasury bond can lose money. But in my experience, if you’re researching a company and it fits most or all of these metrics, you may have found a winner.

    And as I mentioned earlier, history clearly shows that investing in dividend-paying stocks is one of the best ways to beat the market and collect a healthy stream of income at the same time.

    Carla Pasternak

    P.S. — In case you’re wondering what kind of stocks meet our standards, my research team has just identified 10 high-yield stocks that could give you a second income stream. Not only do these stocks pay dividend yields up to 15.2 percent, but they also have the potential to pay you an extra $25,000, $45,000 and even as much as $55,000 a year. To learn more about these stocks, including several names and ticker symbols, follow this link now.

    Carla Pasternak is a leading income investing expert, serving as Director of Income Research for High-Yield Investing and Dividend Opportunities. Together, these newsletters put her expertise in the hands of more than 200,000 subscribers each month.

    | All posts from Carla Pasternak

    Discuss this Story:

    Comment Policy: We encourage open discussion. Comments including racist statements, profanity, name calling or spam will be removed at our discretion. We use filters for spam protection. If your comment does not appear it is likely because it violates the policy.

    Oil Trades Near Three-month Low As Excess Supply Takes Toll
    Number Of $5 Billion-plus Takeover Deals Hits Record
    Investor Gabelli Joins Millennials Cutting The Cable Cord
    Gap Cuts Full-year Profit Forecast As Dollar Weighs
    This Is How GOLD Acted During Past Rising Rate Cycles
    Tumbling Treasury Yields Signal Possible Fed ‘Policy Error’ Being Priced In
    WTI Tumbles Back Below $40, Goldman Warns Risk Of “Sharp Leg Lower”
    Former Subway Pitchman Jared Fogle Is About To Be Sentenced
    This Is The Biggest Diamond Found In More Than A Century
    What ISIS ‘Blood Oil’ Really Means For Oil Markets
    The Day Before Thanksgiving Actually Isn’t The Busiest Time To Fly
    Gender Equality Is Now Better In Rwanda Than In The US
    Anonymous Could Hobble ISIS By Hacking PlayStation Consoles
    The Best Advice If You Find Yourself In A Terror Attack: Do Not Play Dead
    Not Much Evidence Mass Surveillance Works
    Home Depot & Lowes Avoid The Retail Bloodbath With Strong Earnings
    It’s REIT Time: Stock Up Durable Dividends Now
    A Global Financial Literacy Test Finds That Just 57% Of Adults In U.S. Are Financially Literate
    Starboard Asks Yahoo To Drop Alibaba Stake Spinoff Plans
    Oil Slides Again As Focus Returns To Heavy Glut
    Best Buy Comparable Sales Miss On Low Demand For Mobile Devices
    Stock Futures Rise After Fed Minutes Soothe Investor Nerves
    U.S. Consumers Favor Amazon For Online Holiday Shopping
    Pfizer-Allergan Talks Accelerate Amid New Inversion Clamp-down
    Soothing Fed Sounds Send Shares, Emerging Markets Higher
    Crude Tumbles To $40 Handle After DOE Confirms Significant Cushing Inventory Build
    U.S. May Bring Criminal Charges Against JP Morgan, RBS Executives, Prosecutors Pretend
    BlackRock Liquidates Its Macro Hedge Fund Following Worst Loss Since Inception, Surge In Redemptions
    It Will SUNE Be Over: Axiom Says SunEdison “Credit Event Appears More Likely”, Sees Price Dropping To $2/Share
    Read more from Investing...

    Liberty Investor Digest

    Get today's most important
    financial headlines all in
    one place by email!



    Sign Up For Liberty Investor Digest™!

    Get Liberty Investor Digest FREE By Email!

    Input your name and email address in the fields below and get today's most important financial headlines sent straight to you inbox!

    Privacy PolicyYou can opt-out at any time. We protect your information like a mother hen. We will not sell or rent your email address to anyone for any reason.