Why a “Promise” Is the Single Most Valuable Investment on Wall Street
What if I told you about a stock that has returned 10X what Apple has since it went public, and still has that kind of profitability ahead of it?
Would you be interested?
Heck yeah – in a New York minute.
How to Beat Apple-Like Returns 10-to-1
Millions of investors dream of finding the next “Apple,” and with good reason.
Every $10,000 invested on December 12, 1980 when the stock went public would be worth a staggering $374,000 today, according to BuyUpside.com
That’s great, but the stock I want to tell you about today has turned every $10,000 invested into $3.6 million over the same time frame. And, unlike Apple at the moment, it shows no sign of slowing down.
That’s a 10-to-1 “beat,” and an advantage that most investors would be foolish to pass up.
Yet, that’s exactly what will happen.
Most investors will, unbelievably, pass on companies like the one I am going to tell you about today because they’re “boring,” and about as exciting as watching paint dry. Or so they believe.
I can’t think of a costlier mistake for them, or a bigger opportunity for you.
Here’s the thing.
Most investors in today’s markets crave the monster returns they remember from the Dot.Bomb era when it was “normal” to hear about stocks doubling in days, if not hours. That’s a very dangerous preconceived notion regarding what it takes to make money because it limits their focus to simple price appreciation. In their rush to riches, most investors forget that there are two components needed for building truly legendary, earth-shattering Total Wealth: income and appreciation.
Two and Two Really Can Equal Five
Forget about price when you’re hunting for your next investment. Trading opportunities are different, so we’ll hold that discussion for another time.
Start with dividends.
Most people think about them as nothing more than yield when, in fact, they’re a promise from management that the company will achieve the results they say it will.
Now, I’ve used the word “promise” very deliberately, because that’s how I want you to think about dividends… as a promise. Not just cold hard cash.
For the simple reason that companies – just like people – that keep their promises are much more credible than those who don’t. The last thing you want to do right now with your money is invest it in a company that does not achieve what they say they’re going to.
Companies that have missed earnings in recent quarters have been punished severely, falling an average of 2.7% to nearly 6% in only two days according to FactSet. Companies that actually cut dividends have fared even worse in recent trading.
Pay particularly close attention to companies that have a long history of rewarding shareholders because that’s proof positive that management takes creating shareholder value seriously. Essentially, they promise results and deliver.
Consider using a site like Nasdaq.com, so you can clearly see just how much every continuing dividend streak, or “promise” has been worth over the years and, more importantly, how the markets have rewarded those who keep their word.
I think you’ll be stunned by what you find. Most investors who have never thought in these specific terms usually are.
To be very blunt, “promises” are worth a lot of money.
If you plunked $10,000 down on the S&P 500 in 1926 when it was created and thought only about price appreciation like many people do, you’d have roughly $1.65 million today after adjusting for inflation. But if you’d reinvested every kept “promise” over that same time frame (the dividends we’re talking about today) you’d have more than $30 million!
Many people tell me that they can’t afford to wait 90 years for results, and that’s fair. I can’t either. But that does not invalidate our discussion.
“Promises” matter. So prioritize companies that “keep” them.
Take Sherwin-Williams Co. (NYSE:SHW), for example.
Most people know it as a paint company based in Cleveland, Ohio that’s been producing some of the best paints money can buy since 1866.
What I wish they knew is that it’s also one of the strongest performing stocks of all time. Not to mention one of the most stable companies money can buy.
Because its management makes very specific promises and has a long history of keeping them.
Case in point, Sherwin Williams has increased its dividend growth rate from 12.6% over the past 10 fiscal years to more than 52% for the past two years, according to Dividend.com. What’s more, the company’s increased dividends every year for the past 37 years.
Furthermore, Sherwin Williams has a low 26% payout ratio which is “safer” than 97% of all other dividend paying companies in the market, according to SimpleSafeDividends.com. To put that in context, that’s such a low ratio that the company could slash earnings by 50% and still not have its payout ratio get out of line.
Think about this for a second.
Sherwin Williams’ management is achieving these results at a time when headlines would have you believe the investing environment pretty much stinks and that there is nothing to buy.
Watching paint dry doesn’t seem so boring now, does it?!
Until next time,