By Carla Pasternak
Think of where you'd be right now if you'd made this move 10 years ago. The S&P 500 (NYSEARCA:SPY) Index is up only 28% during that time. You could have seen returns of 328%, 305%, or 626%.
And that's with some of the most boring companies you can think of -- housing real state investment trusts (REITs), pipeline operators and cigarette makers. But they all have one thing in common.
They pay dividends.
As the Chief Investment Strategist behind High-Yield Investing, I'm biased. But I think dividends are the most powerful tool in investing. You don't have to take my word for it. Other investors agree:
"I have made more money in retirement than I did when I was working. Income from dividend-paying stocks (which I collect every month) is even better than my greatest expectations," said High-Yield Investing subscriber, William B.
Even John D. Rockefeller once quipped that the only thing that gave him pleasure was to see his dividend coming in.
The simple fact is that how you treat the dividend -- often the forgotten step-child among investors -- is the most important investing decision you'll make today... in the next year... even the next decade.
Let me show you what I mean.
Take two portfolios, each worth $100,000. The first one earns 8% in capital gains each year. The second one earns half that amount in capital gains -- only 4% each year -- but earns a 6% dividend that's reinvested.
I chose these numbers as they illustrate a choice investors are usually faced with -- invest in a faster-growing stock that doesn't pay a cent in dividends, or earn a nice yield and see slower growth. Here's the best news -- you'll end up earning more with the dividend-paying stock and typically have fewer ups and downs as you would with a riskier growth stock.
In fact, within 10 years your portfolio would be worth $265,089 if you went with the dividend-paying holdings, versus $215,892 with the growth-only portfolio.
Over an even longer period of time, the difference is more dramatic.
Wait 20 years and your dividend portfolio would be worth more than $702,723 compared with $466,096 -- a difference of more than $200,000.
And here's the best part. The misconception is that dividend payers are boring, stodgy securities. They might pay a few percent, but they won't return enough to really make a difference.
That couldn't be further from the truth...
Shares of EV Energy Partners (Nasdaq: EVEP) yield 5.5%, but this hasn't stopped them from returning 459% since the March 6, 2009.
During the same time, the Reaves Utility Income Fund (AMEX: UTG) has returned 284%, while paying monthly dividends that now equal a 5.8% yield.
And Medical Properties Trust (NYSE: MPW) has returned 398% in addition to its 6.5% yield.
But that's during a strong market rally and coming off of multi-year lows. What would happen under different conditions?
Eagle Rock Energy (Nasdaq: EROC) is paying 5.2% and has had a total of return of 128% in the past year.
Since September 2010 Universal Healthcare Trust (NYSE: UHT) has returned 38%, thanks in part to a 5%-plus yield.
That's not to say every dividend payer will be a big winner. It won't be, and I wouldn't listen to anyone who says they can guarantee a stock's gains.
In the sizzle of the mainstream financial media, it's the fast-moving names like Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) that don't pay dividends and yet get most of the headlines. But as you can see, it may just be the dividends that are most important to your success.
Disclosure: Neither Carla Pasternak nor StreetAuthority, LLC hold positions in any securities mentioned in this article.