How To Turn Square And PayPal Into 3.2%-Yielding Rich Retirement Dream Stocks

Nov. 16, 2021 6:38 PM ETPayPal Holdings, Inc. (PYPL), SQENB, ENB:CA49 Comments

Summary

  • The market is 30% overvalued, interest rates are near zero, and inflation is sky-high. It's a perfect storm of negative headwinds for those hoping for a comfortable or even rich retirement.
  • Fortunately, high yield/fast growth dividend investing offers a low-risk way for you to beat inflation, retire rich, and stay rich in retirement.
  • PayPal and Square are two world-class hyper growth blue chips that when combined with high-yield aristocrats like Enbridge, can generate life-changing income and returns.
  • ENB is attractively valued today, PayPal is close to fair value, and Square is wildly overpriced. But the combination of these three at fair value or better creates a 3.2% yield, 21.5% growth, and 24.7% consensus long-term total return potential.
  • Even adjusting for inflation and the risk of companies not growing as expected, SQ, PYPL, and ENB generate inflation and risk-adjusted expected returns of 15.0% compared to 5.9% for the Nasdaq, 5.6% for the Dividend Aristocrats, 4.7% for the S&P, and 2.7% for a 60/40 portfolio.
  • This idea was discussed in more depth with members of my private investing community, The Dividend Kings. Learn More »

Mature couple relax on sailboat moving through Lake Lugano

AscentXmedia/E+ via Getty Images

We all dream of a comfortable or even rich retirement but today's retirees face two major challenges.

Interest rates are at their lowest levels in all of human history.

In 1980, a 60/40 retirement portfolio yielded 11.6%.

Today just 1.9%.

What does that mean? That decades ago you could have parked all your money into a risk-free (over the long-term) 60/40 stock and bond portfolio and lived off one-third the income alone, using the 4% rule.

Today anyone using the 4% rule is likely to see steadily declining income over time, and a lower standard of living.

And that's before we consider inflation.

(Source: CNBC)

Economists had been expecting October's consumer prices to rise 5.7%, the 5th consecutive month above 5%. Instead, they rose 6.2%, the most in over 30 years.

But wait, it gets worse.

(Source: CNBC)

Consumer prices tend to lag producer prices because rising prices get passed on by companies. This means that CPI is likely to keep rising before it starts falling.

But wait it gets worse.

The way CPI is calculated has changed over time. If we measured it the original way when CPI was created in 1981 then inflation would be 2.46X higher than the official estimates, or 15.2% in October, more in-line with the 20% growth in housing costs over the last year.

Pantheon Macro estimates that core inflation will peak in Q1 2022 at 6%, with CPI about 8% before falling to "just" about 5% by the end of next year.

And given that supply chain disruptions are expected to cause producer prices to keep rising through at least the end of 2021 (according to Oxford Economics and Nomura) this estimate seems pretty reasonable.

What does that actually mean for retirees?

First, that actual inflation (as measured by 1981 CPI's methodology) could potentially reach 20% in the next few months.

For context, in 1980 it peaked at 15% and the highest ever recorded was 20% in WWII.

Second, and most importantly for anyone worried about losing purchasing power, cash is trash.

No, I don't mean you shouldn't have an emergency fund held in a risk-free FDIC insured account like Marcus (0.5% yield, the highest of high-yield savings accounts).

  • this referral code gets you and me an extra 0.5% yield for the next three months at Marcus
  • double the yield, 1.0%, risk-free and FDIC insured up to $250,000

I have my tax savings, which I use to pay my quarterly estimates, at Marcus.

There is no alternative when it comes to emergency funds, they must be 100% risk-free.

But for all cash outside of emergency funds, today's inflationary environment is catastrophic for the 45% of Americans who own zero investable assets.

And owning assets is the ONLY solution to fighting today's very high inflation.

Those with assets are seeing their purchasing power preserved, or even grown. Those hiding in cash, are seeing their purchasing power collapse at historic rates.

In the short term cash is risk-free. In the long-term it's the riskiest asset on earth, 100% guaranteed to lose value over time.

  • even 2% inflation (the Fed's target) = 50% reduction in purchasing power every 36 years
  • at 5% inflation (the actual inflation rate at the Fed's 2% target) 50% reduction in purchasing power every 14.4 years
  • at 15% inflation (what we may be seeing today) 50% reduction in purchasing power every 5 years

I know what you're thinking.

"Are you saying to put all our cash into stocks? At these valuations? Are you insane?!"

According to JPMorgan, the S&P is 30% historically overvalued and likely to deliver negative inflation and risk-adjusted returns over the next five years.

Year Upside Potential By End of That Year Consensus CAGR Return Potential By End of That Year Probability-Weighted Return (Annualized)

Inflation And Risk-Adjusted Expected Returns

2021 -25.43% -84.73% -63.55% -66.41%
2022 -17.90% -15.69% -11.77% -14.63%
2023 -9.24% -4.40% -3.30% -6.16%
2024 -0.17% -0.05% -0.04% -2.90%
2025 9.67% 2.25% 1.69% -1.17%
2026 20.35% 3.66% 2.59% -0.27%

(Source: DK S&P 500 Valuation And Total Return Tool) updated weekly

This return-free risk is NOT the solution to our inflationary problems.

But individual blue chips are still available at reasonable to attractive valuations.

And hyper-growth blue chips like PayPal (NASDAQ:PYPL) and Square (NYSE:SQ) when combined with the world's safest high-yield blue chips, like Enbridge (ENB), can help you earn a very safe 3.2% yield, and inflation crushing and rich-retirement dream fulfilling long-term returns.

Today SQ and PYPL are still overvalued, but in the next market downturn, which could be coming soon, these two hyper-growth blue chips, combined with ENB in the Zen Phoenix strategy, could be the answer to your rich-retirement/inflation-fighting prayers.

Let me show you what I mean.

Why PayPal Is A Potentially Rich Retirement Dream Stock

Let's start with safety and quality, which is the #1 priority of all prudent long-term investors.

The Dividend King's overall quality scores are based on a 219 point model that includes:

  • dividend safety
  • balance sheet strength
  • credit ratings
  • credit default swap medium-term bankruptcy risk data
  • short and long-term bankruptcy risk
  • accounting and corporate fraud risk
  • profitability and business model
  • growth consensus estimates
  • cost of capital
  • long-term risk-management scores from MSCI, Morningstar, FactSet, S&P, Reuters'/Refinitiv and Just Capital
  • management quality
  • dividend friendly corporate culture/income dependability
  • long-term total returns (a Ben Graham sign of quality)
  • analyst consensus long-term return potential

It actually includes over 1,000 metrics if you count everything factored in by 12 rating agencies we use to assess fundamental risk.

  • credit and risk management ratings make up 38% of the DK safety and quality model
  • dividend/balance sheet/risk ratings make up 79% of the DK safety and quality model

How do we know that our safety and quality model works well?

During the two worst recessions in 75 years, our safety model predicted 87% of blue-chip dividend cuts during the ultimate baptism by fire for any dividend safety model.

How does PayPal score on one of the world's most comprehensive and accurate safety models? Magnificently.

PayPal Balance Sheet Safety

Rating Dividend Kings Safety Score (132 Point Safety Model) Approximate Dividend Cut Risk (Average Recession)

Approximate Dividend Cut Risk In Pandemic Level Recession

1 - unsafe 0% to 20% over 4% 16+%
2- below average 21% to 40% over 2% 8% to 16%
3 - average 41% to 60% 2% 4% to 8%
4 - safe 61% to 80% 1% 2% to 4%
5- very safe 81% to 100% 0.5% 1% to 2%
PYPL 94% A- stable credit rating (S&P, Moody's, Fitch) 2.5% 30-year bankruptcy risk

Long-Term Dependability

Company DK Long-Term Dependability Score Interpretation Points
Non-Dependable Companies 18% or below Poor Dependability 1
Low Dependability Companies 19% to 57% Below-Average Dependability 2
S&P 500/Industry Average 58% (58% to 67% range) Average Dependability 3
Above-Average 68% to 77% Very Dependable 4
Very Good 78% or higher Exceptional Dependability 5
PYPL 79% Exceptional Dependability 5

Overall Quality

PYPL Final Score Rating
Safety 94% 5/5 very safe
Business Model 70% 2/3 narrow moat
Dependability 79% 5/5 exceptional
Total 84% 12/13 Super SWAN

PYPL: 99th Highest Quality Master List Company (Out of 506) = 81st Percentile

(Source: DK Safety & Quality Tool) updated daily, sorted by overall quality

The DK 500 Master List includes the world's highest quality companies including:

  • All dividend champions

  • All dividend aristocrats

  • All dividend kings

  • All global aristocrats (such as BTI, ENB, and NVS)

  • All 13/13 Ultra Swans (as close to perfect quality as exists on Wall Street)

  • 42 of the world's best growth stocks (on its way to 50)

PYPL's 84% quality score means its similar in quality to such blue chips as

  • British American Tobacco (BTI) - global aristocrat
  • 3M (MMM) - dividend king
  • Costco (COST)
  • Medtronic (MDT) - dividend aristocrat
  • BlackRock (BLK)
  • Alphabet (GOOG)
  • Hormel Foods (HRL) - dividend king
  • Bank of Nova Scotia (BNS)
  • V.F. Corp. (VFC) - dividend king
  • Enterprise Products Partners (uses K-1 tax form) (EPD)
  • Philip Morris International (PM) - dividend king

PYPL is of higher quality than 81% of the world's best companies.

PYPL Credit Ratings

Rating Agency Credit Rating 30-Year Default/Bankruptcy Risk Chance of Losing 100% Of Your Investment 1 In
S&P A- stable 2.50% 40.0
Fitch A- stable 2.50% 40.0
Moody's A3 (A- equivalent) stable 2.50% 40.0
Consensus A- stable 2.50% 40.0

(Sources: S&P, Moody's, Fitch)

The fundamental risk of losing all your money in PYPL is about 2.5%.

PYPL is an industry leader in managing its complex risk profile, which is almost identical to Square's.

PYPL's And SQ's Risk Profile Includes

  • economic cyclicality risk
  • disruption risk (lots of large and small rivals, 569 major ones including Square)
  • Margin risk (falling take rates as de-fi pressures payment processors)
  • M&A execution risk
  • talent retention risk (wage pressure in the tightest job market in over 50 years)
  • data security risk: hackers and ransomware eager to loot its systems

PYPL Long-Term Risk Management Consensus

Rating Agency Industry Percentile

Rating Agency Classification

MSCI 37 Metric Model 75.0%

A, Above-average

Morningstar/Sustainalytics 20 Metric Model 92.3%

16.4/100 Low-Risk

Reuters'/Refinitiv 500+ Metric Model 96.5% Good
S&P 1,000+ Metric Model 41.0% Average
Just Capital 19 Metric Model 97.4% Excellent
Consensus 80.4% Very Good
FactSet Qualitative Assessment Below- Average Stable Trend

(Sources: Morningstar, Reuters', S&P, Just Capital, FactSet Research)

PYPL's Long-Term Risk Management Is The 62nd Best In The Master List (85th Percentile)

(Source: DK Master List) - 6 non-rated companies mean PYPL is in 62nd place

PYPL's risk-management consensus is in the top 15% of the world's highest quality companies and similar to that of such other companies as

  • Automatic Data Processing (ADP) - dividend aristocrat
  • Johnson & Johnson (JNJ) - dividend king
  • Colgate-Palmolive (CL) - dividend king
  • Target (TGT) - dividend aristocrat

If you want a hyper-growth Super SWAN then PayPal is the 3rd best choice (behind DOCU and AMZN), thanks to its incredible growth potential.

PYPL Long-Term Growth Outlook

(Source: FactSet Research Terminal)

Management's guidance is for 20% sales growth over the next few years and analysts expect 19% top-line and 21.6% bottom-line growth.

Rating Margin Of Safety For 12/13 Super SWAN Quality Companies 2021 Price 2022 Price

12-Month Forward Fair Value

Potentially Reasonable Buy 0% $168.48 $205.75 $200.74
Potentially Good Buy 10% $151.63 $185.18 $180.66
Potentially Strong Buy 20% $134.78 $164.60 $160.59
Potentially Very Strong Buy 30% $106.14 $144.03 $140.52
Potentially Ultra-Value Buy 40% $101.09 $123.45 $120.44
Currently $204.23 -21.22% 0.74% -1.74%

Upside To Fair Value (Not Including Dividends)

-17.51% 0.75% -1.71%

Now PYPL is still slightly overvalued, relative to its historical fair value of 37.9X earnings.

However, its rapid growth still means it offers relatively attractive and inflation-beating return potential over the next few years.

  • 5-year consensus return potential range: 14% to 18% CAGR

PYPL 2023 Consensus Total Return Potential (Historical Average Fair Value 37.9 PE)

(Source: FAST Graphs, FactSet Research)

PYPL 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

For context, analysts think that PYPL could beat the market by 6.5X over the next five years, delivering potentially 18% annualized returns.

PYPL Investment Decision Score

Ticker PYPL DK Quality Rating 12 84% Investment Grade A-
Sector Technology Safety 5 94% Investment Score 90%
Industry IT Services Dependability 5 79% 5-Year Dividend Return 0.00%
Sub-Industry Data Processing & Outsourced Services Business Model 2 Today's 5+ Year Risk-Adjusted Expected Return 12.84%
Super SWAN, Phoenix, Top Buy, Strong ESG
Goal Scores Scale Interpretation
Valuation 2 Hold PYPL's -2.33% discount to fair value earns it a 2-of-4 score for valuation timeliness
Preservation of Capital 7 Excellent PYPL's credit rating of A- implies a 2.5% chance of bankruptcy risk, and earns it a 7-of-7 score for Preservation of Capital
Return of Capital N/A N/A N/A
Return on Capital 10 Exceptional PYPL's 12.84% vs. the S&P's 2.59% 5-year risk-adjusted expected return (RAER) earns it a 10-of-10 Return on Capital score
Total Score 19 Max score of 21 S&P's Score
Investment Score 90%

Very Good

73/100 = C(Market Average)
Investment Letter Grade A-

(Source: DK Automated Investment Decision Tool)

PYPL at today's 2% premium is a potentially good buy for anyone comfortable with its risk profile. At fair value, it becomes a 94% A excellent potential decision, one of the best hyper-growth blue-chip buys on Wall Street.

PayPal is now my #1 priority hyper-growth blue-chip for the next market downturn since I'm fully invested in Amazon (AMZN).

However, if Square were to become fairly valued, then it would become my #1 priority for limit order buying, and here's why.

Why Square Is The Ultimate Hyper-Growth Blue-Chip

Square is NOT as high-quality as PayPal, but it's a speculative SWAN quality company.

Square Credit Ratings

Rating Agency Credit Rating 30-Year Default/Bankruptcy Risk Chance of Losing 100% Of Your Investment 1 In
S&P BB stable 14.00% 7.1
Fitch BB positive 14.00% 7.1
Moody's Ba2 (BB equivalent) stable 14.00% 7.1
Consensus BB stable 14.00% 7.1

(Sources: S&P, Fitch, Moody's)

The fundamental risk of investing in Square is about 6X that of PayPal and all junk bond-rated companies are, by definition, speculative, because their debt is.

However, that doesn't mean that Square isn't high enough quality to own as 2.5% or less of your diversified and prudently risk-managed portfolio.

Square Balance Sheet Safety

Rating Dividend Kings Safety Score (132 Point Safety Model) Approximate Dividend Cut Risk (Average Recession)

Approximate Dividend Cut Risk In Pandemic Level Recession

1 - unsafe 0% to 20% over 4% 16+%
2- below average 21% to 40% over 2% 8% to 16%
3 - average 41% to 60% 2% 4% to 8%
4 - safe 61% to 80% 1% 2% to 4%
5- very safe 81% to 100% 0.5% 1% to 2%
SQ 71% BB stable credit rating (S&P, Moody's, Fitch) 14% 30-year bankruptcy risk

Long-Term Dependability

Company DK Long-Term Dependability Score Interpretation Points
Non-Dependable Companies 18% or below Poor Dependability 1
Low Dependability Companies 19% to 57% Below-Average Dependability 2
S&P 500/Industry Average 58% (58% to 67% range) Average Dependability 3
Above-Average 68% to 77% Very Dependable 4
Very Good 78% or higher Exceptional Dependability 5
SQ 83% Exceptional Dependability 5

Overall Quality

SQ Final Score Rating
Safety 71% 4/5 safe
Business Model 60% 2/3 narrow moat
Dependability 82% 5/5 exceptional
Total 75% 11/13 Speculative SWAN

SQ: 313th Highest Quality Master List Company (Out of 506) = 38th Percentile

(Source: DK Safety & Quality Tool) updated daily, sorted by overall quality

SQ's 75% quality score means its similar in quality to such blue chips as

SQ Long-Term Risk Management Consensus

Rating Agency Industry Percentile

Rating Agency Classification

MSCI 37 Metric Model 75.0%

A, Above-average

Morningstar/Sustainalytics 20 Metric Model 82.5%

18.6/100 Low-Risk

Reuters'/Refinitiv 500+ Metric Model 82.7% Good
S&P 1,000+ Metric Model #VALUE! Below-Average
Just Capital 19 Metric Model 68.4% Above-Average
Consensus 77.2% Good
FactSet Qualitative Assessment Average Positive Trend

(Sources: Morningstar, Reuters', S&P, Just Capital, FactSet Research)

SQ's Long-Term Risk Management Is The 93rd Best In The Master List (78th Percentile)

(Source: DK Master List) - 6 non-rated companies mean SQ is in 93rd place

SQ's risk-management consensus is in the top 22% of the world's highest quality companies and similar to that of such other companies as

  • Toronto-Dominion Bank (TD)
  • T. Rowe Price (TROW) - dividend aristocrat
  • Philip Morris International (PM) - dividend king
  • Kimberly-Clark (KMB) - dividend aristocrat
  • Nvidia (NVDA)
  • Enterprise Products Partners (uses K-1 tax form) (EPD)

Why do I want to own Square so much?

(Source: FactSet Research Terminal)

  • 37.6% to 48.1% CAGR growth consensus
  • 30% to 53% historical margin-of-error adjusted growth consensus range

Square is the 4th fastest growing company on the Master List, and at a reasonable price can generate potentially life-changing returns.

But unfortunately today it's one of the most overvalued companies on Wall Street.

Rating Margin Of Safety For 12/13 SWAN Quality Companies 2021 Price 2022 Price

12-Month Forward Fair Value

Potentially Reasonable Buy 0% $90.78 $108.15 $105.48
Potentially Good Buy 10% $81.71 $97.34 $94.93
Potentially Strong Buy 20% $72.63 $86.52 $84.38
Potentially Very Strong Buy 30% $57.19 $75.71 $73.83
Potentially Ultra-Value Buy 40% $54.47 $64.89 $63.29
Currently $231.49 -154.99% -114.05% -119.47%

Upside To Fair Value (Not Including Dividends)

-60.78% -53.28% -54.44%

Square's hyper-growth does mean that those buying today might still earn positive returns over the next five years.

SQ 2023 Consensus Total Return Potential (PEG 1 Cash Flow)

(Source: FAST Graphs, FactSet Research)

SQ 2026 Consensus Total Return Potential (PEG 1 Cash Flow)

(Source: FAST Graphs, FactSet Research)

SQ could outperform the market by 3X if it grows as expected, which is of course not guaranteed.

SQ Investment Decision Score

Ticker SQ DK Quality Rating 11 75% Investment Grade C-
Sector Technology Safety 4 71% Investment Score 71%
Industry IT Services Dependability 5 83% 5-Year Dividend Return 0.00%
Sub-Industry Data Processing & Outsourced Services Business Model 2 Today's 5+ Year Risk-Adjusted Expected Return 5.89%
SWAN, Phoenix, Speculative, Strong ESG
Goal Scores Scale Interpretation
Valuation 1 Potential Trim/Sell SQ's -120.29% discount to fair value earns it a 1-of-4 score for valuation timeliness
Preservation of Capital 4 Below Average SQ's credit rating of BB implies a 17% chance of bankruptcy risk and earns it a 4-of-7 score for Preservation of Capital
Return of Capital N/A N/A N/A
Return on Capital 10 Exceptional SQ's 5.89% vs. the S&P's 2.65% 5-year risk-adjusted expected return (RAER) earns it a 10-of-10 Return on Capital score
Total Score 15 Max score of 21 S&P's Score
Investment Score 71%

Below-Market Average

73/100 = C(Market Average)
Investment Letter Grade C-

(Source: DK Automated Investment Decision Tool)

SQ isn't a terrible investment right now, merely one that's priced for perfection and offering a significant negative margin of safety.

I would certainly not recommend buying it with a risk-adjusted expected return of just 6%, which is likely to be 3% adjusted for inflation over the next five years.

But let me show you the power of high-yield/fast-growth income investing to generate both generous, safe, and rapidly growing income and returns that are the stuff rich retirements are made of.

How PayPal, Square, And Enbridge Can Help You Beat Inflation And Retire Rich

Company Ticker Yield Growth Consensus Long-Term Consensus Total Return Potential Weighting Weighted Yield Weighted Growth Weighted Total Return Potential Conservative Risk-Adjusted Expected Return
Altria MO 8.03% 5.3% 13.3% 0.00% 0.0% 0.0% 0.0% 9.33%
Amazon AMZN 0.00% 23.2% 23.2% 0.00% 0.0% 0.0% 0.0% 16.24%
British American BTI 8.55% 4.2% 12.7% 0.00% 0.0% 0.0% 0.0% 8.92%
Magellan Midstream Partners (K-1 Tax Form) MMP 8.62% 3.4% 12.0% 0.00% 0.0% 0.0% 0.0% 8.41%
Meta Platforms FB 0.00% 17.6% 17.6% 0.00% 0.0% 0.0% 0.0% 12.32%
Enbridge (CA Company, 15% Tax Withholding) ENB 6.38% 8.4% 14.8% 50.00% 3.2% 4.2% 7.4% 10.35%
Philip Morris International PM 5.31% 11.8% 17.1% 0.00% 0.0% 0.0% 0.0% 11.98%
Alphabet GOOG 0.00% 20.4% 21.9% 0.00% 0.0% 0.0% 0.0% 15.33%
Visa V 0.70% 16.5% 16.5% 0.00% 0.0% 0.0% 0.0% 11.55%
Mastercard MA 0.49% 22.1% 22.6% 0.00% 0.0% 0.0% 0.0% 15.81%
Starbucks SBUX 1.72% 11.0% 12.7% 0.00% 0.0% 0.0% 0.0% 8.90%
DocuSign DOCU 0.00% 50.0% 50.0% 0.00% 0.0% 0.0% 0.0% 35.00%
PayPal PYPL 0.00% 21.6% 21.6% 25.00% 0.0% 5.4% 5.4% 15.12%
Activision Blizzard ATVI 0.70% 12.4% 13.1% 0.00% 0.0% 0.0% 0.0% 9.17%
Square SQ 0.00% 47.5% 47.5% 25.00% 0.0% 11.9% 11.9% 33.25%
Dividend Aristocrats NOBL 2.30% 8.9% 11.2% 0.00% 0.0% 0.0% 0.0% 7.84%
Nasdaq QQQ 0.68% 10.9% 11.6% 0.00% 0.0% 0.0% 0.0% 8.11%
S&P 500 VOO 1.40% 8.5% 9.9% 0.00% 0.0% 0.0% 0.0% 6.93%
60/40 BAGPX 1.90% 5.1% 7.0% 0.00% 0.0% 0.0% 0.0% 4.90%
US Bonds SCHZ 1.30% 0.0% 1.3% 0.00% 0.0% 0.0% 0.0% 0.91%
Cash VGSH 0.30% 0.0% 0.3% 0.00% 0.0% 0.0% 0.0% 0.21%
Bitcoin BTC 0.00% 60.0% 60.0% 0.00% 0.0% 0.0% 0.0% 42.00%
Ether ETH 0.00% 80.0% 80.0% 0.00% 0.0% 0.0% 0.0% 56.00%
BlockFi USDC 9.00% 0.0% 9.0% 0.00% 0.0% 0.0% 0.0% 6.30%
Total 48.39% 308.8% 358.0% 100.00% 3.2% 21.5% 24.7% 17.27%

(Source: Dividend Kings Portfolio Construction Tool)

If we combine SQ and PYPL (both purchased at fair value) with Enbridge (ENB) in equal amounts we generate a 3.2% yield that's superior to high-yield ETFs like Vanguard's, along with eye-popping growth potential.

Investment Strategy Yield LT Consensus Growth LT Consensus Total Return Potential Long-Term Risk-Adjusted Expected Return

Long-Term Inflation And Risk-Adjusted Expected Returns

Square 0.0% 47.5% 47.5% 33.3% 31.0%
PYPL + SQ + ENB 3.2% 21.5% 24.7% 17.3% 15.0%
PayPal 0.0% 21.6% 21.6% 15.1% 12.9%
High-Yield 2.8% 11.2% 14.0% 9.8% 7.6%
Value 2.1% 11.9% 14.0% 9.8% 7.6%
High-Yield + Growth 1.7% 11.0% 12.7% 8.9% 6.6%
Safe Midstream 6.1% 6.2% 12.3% 8.6% 6.4%
Chinese Tech 0.3% 12.0% 12.3% 8.6% 6.4%
Safe Midstream + Growth 3.3% 8.5% 11.8% 8.3% 6.0%
Nasdaq (Growth) 0.7% 10.9% 11.6% 8.1% 5.9%
Dividend Aristocrats 2.3% 8.9% 11.2% 7.9% 5.6%
REITs + Growth 1.8% 8.9% 10.6% 7.4% 5.2%
S&P 500 1.4% 8.5% 9.9% 7.0% 4.7%
REITs 3.0% 6.9% 9.9% 6.9% 4.7%
60/40 Retirement Portfolio 1.9% 5.1% 7.0% 4.9% 2.7%
10-Year US Treasury 1.52% 0.0% 1.5% 1.5% -0.7%

(Sources: Morningstar, FactSet Research, Ycharts)

In fact, SQ, PYPL, and ENB together have nearly 3X the inflation and risk-adjusted expected return of the Nasdaq. But with nearly 5X the yield.

  • higher yield than many high-yield mutual funds? Check.
  • faster growth than the Nasdaq? Check
  • Higher inflation and risk-adjusted returns than just about any investment strategy on Wall Street? You bet.

SQ + PYPL + ENB Historical Returns

The future doesn't repeat, but it often rhymes" - Mark Twain

Past performance is no guarantee of future results, but studies show that blue chips with relatively stable fundamentals over time offer predictable returns based on yield, growth, and valuation mean reversion.

Price to normalized EPS

So how did these three blue chips do? Even with ENB in a long bear market created by the worst oil crash in human history?

SQ + PYPL + ENB Historical Returns Since 2016 (Annual Rebalancing)

(Source: Portfolio Visualizer)

Now obviously SQ and PYPL are not going to deliver 66% and 38% CAGR returns in the coming years. However, the S&P 500 is almost certainly not going to deliver 17% annual returns either.

My point here is that combining hyper-growth with high-yield is a winning formula for a rich retirement.

  • yield in 2016: 2.4%
  • the yield on cost today: 15.7%
  • annual income growth: 45.6% CAGR

Thanks to PYPL and SQ being red hot in recent years, annual rebalancing helped buy a lot more ENB at the best valuations in history.

That allowed a modest 2.4% yield in 2016 (0.8% less than today) to soar to almost 16% yield on cost.

Do you know of a dividend aristocrat (ENB is a Canadian aristocrat with a 26-year growth streak) that grew its dividends 46% annually over the last five years?

There are none, but we created one by combining two of the best hyper-growth blue chips with the quality and growth king of midstream.

Bottom Line: Square, PayPal, and Enbridge Are A Match Made In Rich Retirement Heaven

The good news is that today's super high inflation is not likely to last beyond 2022. The bad news is that it may remain elevated for several years and in the meantime all of us have to live and preserve our buying power as best we can.

Bonds and cash, in today's inflationary conditions, are simply not acceptable. Sure, you'll always have to keep some cash in an emergency fund for unexpected expenses, and paying essential bills, like taxes.

But the simple fact is that owning quality income-producing assets, such as blue-chip stocks, is the single best way to fight the ferocity of inflation right now, and in the future.

High-yield blue chips alone MIGHT be sufficient for retirees, assuming their portfolios are already very large.

But for those that need income GROWTH combining world-class Ultra SWAN quality dividend aristocrats like Enbridge with hyper-growth at a reasonable price (such as PayPal) or eventually Square, can achieve many times faster income growth.

For example, ENB during the last five years was growing its dividend at 10% annually. In a SQ + PYPL + ENB portfolio, the income grew at 46% annually, thanks to annual rebalancing.

Such is the power of Zen Phoenix to help protect you from the scourge of high inflation and low-interest rates.

Through disciplined financial science, focusing on safety and quality first, and prudent valuation and sound risk-management always, we can create reasonable and prudent solutions to even the most challenging problems.

Sky-high inflation isn't likely to persist beyond 2022. Ultra-low interest rates? Those are expected to remain with us for the foreseeable future.

If you're tired of worrying about inflation, low-interest rates, and what the market is going to do next, it's time to take charge of your financial destiny.

Luck is what happens when preparation meets opportunity." - Roman philosopher Seneca the younger

Hope is not an investing strategy and praying for luck on Wall Street is for gamblers and speculators.

But high-yield/fast growth blue-chip portfolios? That's how you create your own luck, beat inflation, retire rich, and stay rich in retirement.

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This article was written by

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Maximize your income with the world’s highest-quality dividend investments

Adam Galas is a co-founder of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 5,000 investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.


The WMR brands include: (1) The Intelligent REIT Investor (newsletter), (2) The Intelligent Dividend Investor (newsletter), (3) iREIT on Alpha (Seeking Alpha), and (4) The Dividend Kings (Seeking Alpha).


I'm a proud Army veteran and have seven years of experience as an analyst/investment writer for Dividend Kings, iREIT, The Intelligent Dividend Investor, The Motley Fool, Simply Safe Dividends, Seeking Alpha, and the Adam Mesh Trading Group. I'm proud to be one of the founders of The Dividend Kings, joining forces with Brad Thomas, Chuck Carnevale, and other leading income writers to offer the best premium service on Seeking Alpha's Market Place.


My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives.


With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and safe and dependable income streams in all economic and market conditions.


Disclosure: I/we have a beneficial long position in the shares of PYPL, ENB either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Dividend Kings owns PYPL, and ENB in our portfolios.

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