Since April, one of my favorite stocks is up 43% this year. My readers are enjoying a big increase in the market value of their shares.
But as a long-term investor, I couldn't care less...
I've been recommending shares of Microsoft Corp.
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) to my 12% Letter
readers since February 2011. During that time, I've written pages and pages of research about how wonderful Microsoft's business is.
It's a cash-gushing powerhouse with thick, consistent profit margins... and a huge competitive moat around its business.
This has allowed Microsoft to raise its dividend every year for nine consecutive years.
Recently, shares have taken off. They've climbed 43% this year. They're up more than 30% since April.
Sure, it's nice to see our shares increase in value... But once you understand the power of earning dividends from the world's best businesses, you'll see why short-term price swings like the one in Microsoft don't really matter.
Let me explain...
From the time I first recommended it, I've never wavered in my opinion that Microsoft is an outstanding business, an outstanding dividend-payer, and a dirt-cheap stock with good price-appreciation potential.
Microsoft has raised its dividend every year since then. Its latest increase was 22%, from a quarterly payout of $0.23 a share to $0.28 a share.
Anyone who followed my buy advice nearly three years ago is now earning a yield of about 4.2% on their shares, with much more income growth to come. Compare that with the 10-year Treasury, which yields around 2.6% today with interest payments that will never grow.
Think about that. Think about the peace of mind it can bring to you as an investor...
A growing 4.2% yield from one of the safest, most reliable businesses in the world.
That's the power of buying a great, dividend-paying business for a good price... and holding it for years. You end up with the safest, largest income streams on the planet
As the years go by, the effects of dividend growth from elite businesses are extraordinary...
For example, an investor who bought dividend-paying cigarette-maker Altria back in May 2009 at $17 per share is now earning more than a 10% annual yield on his purchase price.
Do you think that an owner of Altria cares about a swing of 10% or 20% in the underlying shares? Do you think he cares about a 10% or 20% correction in the broad market?
The investors who don't care about short-term price swings are the ones who have learned how to buy "World Dominating Dividend Growers" at good prices and hold them for years.
I've described these businesses many times. WDDGs are the world's biggest and best dividend-paying businesses. They are names you see every day... like Johnson & Johnson
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), Coca-Cola Co.
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), and Microsoft.
Investors who buy these stocks at cheap prices and hold them for years enjoy the phenomenon of wealth creation.
Most WDDGs don't pay out huge current yields. They pay current yields of around 3%-4%... and then "grow" their way to pay shareholders 10% and 20% yields.
These yields end up as the safest, largest income streams you'll find anywhere.
Consider another WDDG, Wal-Mart
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Wal-Mart's yield isn't gigantic right now. But remember... it has raised its dividend every year for the last 37 years. Since 1976, Wal-Mart's dividend has grown at a rate of 25.67% per year.
At that rate of dividend growth, you can hold the stock for five years, and you'll find yourself collecting dividends totaling 8% per year over today's cost. Hold it for another five years, and with that kind of dividend growth, you'll get 25% per year over today's share price.
It's great to see the market finally waking up to the value I've been pointing out in Microsoft. It's great to get share-price appreciation on top of large, steady dividends. But for income investors, it's mostly irrelevant.
We're getting paid a 4%-plus dividend that is growing every year. And it's all thanks to harnessing the power of the world's best businesses. If you're not profiting from this strategy, you should get started today.