Have you ever seen Wealthtrack? At the end of every show, Consuelo Mack asks each guest to recommend one investment that everyone needs to have as part of a long-term, diversified portfolio. If you have read my previous writing, you know that up until recently, I would have said, "Dividend growth stocks." However, I have now come to the conclusion that I would also include ownership of gold bullion.
Can dividend growth investors actually have anything in common with investors who own physical gold? Yes, as we will see, they have a number of things in common.
Why Everyone Should Own Gold Bullion
Do you believe in the importance of owning health, car, home or life insurance? If your answer is yes, then you need to consider owning gold bullion. Gold bullion is an insurance policy against a future financial crisis.
The great thing about gold bullion is that it isn't just a promise from an insurance company, or a promise from a country (paper money), it is a currency unto itself from the time before we created paper money. Don't forget, our currency is no longer backed by gold bullion or even paper money anymore. These days, our money is theoretical and sits as a bunch of data on computers. While I do not intend to engage in "fear mongering" and list all of the potential disasters that could occur, just remember that insurance is always purchased with the hope that you will never need it - the prudent "hope for the best, but plan for the worst."
Why Stocks Offer Insufficient Protection
If you own a stock like McDonald's Corp. (MCD), which performed well during the financial crisis, you may still be a bit skeptical. While this is a good stock to own, during a period of heightened financial stress, where we experience a "run" on the banks, you may not have easy access to your investments or your money. This is the same reason that I don't recommend investing in gold through ETFs like (GLD), (IAU), etc. Therefore, bullion should not be stored in a bank, but a different location of your choosing that provides safety and ease of access.
The 4 Commonalities
Before I begin explaining what the two seemingly different groups have in common, let me make 2 points:
- In order to explain these commonalities, I will be making some generalizations about each group of investors.
- I decided to have a little fun and use clichés to help explain what I feel is an unusual comparison.
1. A Bird in the Hand
Both groups of investors like that "bird in the hand," receiving the gold or dividend, for the flexibility and safety that it provides.
2. Patience is a Virtue
Both are long-term investors who usually strive to ignore price fluctuations or market cycles and desire to not have to sell assets.
3. Against the Grain
While interest in gold and dividend growth investing has increased recently, both groups are used to being misunderstood/ridiculed for their investment decisions but have the strength of character to persevere.
4. The Best Offense is a Good Defense
Both investments are defensive, but will perform well in periods of inflation of deflation.
So, how can dividend growth investors easily get their hands on gold bullion? Gold Bullion International, in partnership with Gold Resources Corporation (GORO) is now offering a program where you can elect to have any stock's dividends paid out in 1-ounce "Double Eagle" gold or silver coins.
There are a couple additional points to note:
- To sign up for the program, each stock must be registered in your name and not that of a brokerage firm.
- In order to receive payment in coins, your dividend payment must at least equal the price of an ounce of silver or gold. If it is not, the dividends will accrue until you have enough for a one-ounce coin to be sent to you.
- Visit GBI's website for further information.
Amount Invested to Receive 1 Ounce of Gold
Below is a table to show you the initial investment needed in order receive at least an ounce of gold quarterly. The dividend stocks that I chose are Procter & Gamble (PG), McDonald's, Coca-Cola (KO), Intel Corporation (INTC), and Annaly Capital Management, Inc. (NLY). I realize that NLY is not really a dividend growth stock; however, it is widely held by dividend investors, and I decided to use it as an example of a stock with a higher percentage (13.3%) dividend.
The price of gold used was $1,557. All stock prices acquired at market close on 5/15/2012.
As we have seen from the chart above, it is unlikely that most people will be able to receive a gold bullion coin from a single stock position. However, most people don't just own one stock; by investing in monthly-paying dividend stocks, even investors who don't own enough of a single stock can still arrange their portfolio to receive coins quite regularly. Receiving your dividends in bullion coins is not for everyone, though, and there are many other ways to acquire bullion. Additionally, taking part in this program does mean that you miss out on the power of compounding. However, as David Van Knapp and others have shown, reinvestment of dividends is not for everyone and this may fit your personal investment goals.
I am not giving up on stocks or dividend growth investing, but I do believe in diversifying my investments in a way that allows me to sleep comfortably. What you decide to do is up to you.
Additional disclosure: I do not own gold bullion, but plan on buying when funds become available.