Contriain Investor

Pillar #1 – Consistent Dividend Hikes

Most investors approach dividend paying stocks backward.

Here’s how it usually works …

An investor will scan the markets looking for stocks paying a high dividend. After all, if a company is currently paying a high yield, it’s a great investment, right?

Dead wrong!

In fact, looking at the CURRENT yield is one of the slowest ways to grow your money.

You see, if you’re focused on current yields, you’re too late to the party. All the major gains have already been made. You’ll need to settle for earning a paltry 4%, 5%, maybe 6% per year … with minimal stock-price appreciation, too.

Sure, chasing high current yields will provide you with instant gratification, but it won’t give you the recession-resistant income … or the 15% year on year returns we want.

Instead, you need to focus on consistent dividend hikes.

In my opinion, selecting companies with a proven track of increasing their dividend payments is one of the safest, most reliable ways to get rich in the stock market. You see, every time a company raises its dividend, you start earning more from your original investment.

For example:

On a $1,000 initial investment, $30 in dividends equals a 3% return. Later, if the dividends go up to $40 a year, you are effectively earning 4% on your initial $1,000 investment.

As this trend continues, you could easily be earning 10%, 15%, even 20% per year just from rising dividends, as your initial investment never changes.

However, this ever-growing income from dividend hikes is just ONE part of the puzzle. To engineer real growth and quickly double an initial investment, we must combine Pillar #1 with the next two pillars of “Hidden Yield Stocks.”

Pillar #2 – Lagging Stock Price

After years of active investing, I’ve only ever found one surefire way to predict whether a stock will go up or down.

I call it the “Dividend Magnet,” and here’s how it works …

After you’ve identified stocks that are built on the foundations of Pillar #1 (consistently hiking their dividends), you want to narrow your search to companies whose share price LAGS behind the rate of dividend increase.

Why? Well, it’s simple really …

Share prices almost always increase as dividends increase.

This is because as a company hikes its dividend, mainstream investors tend to flock to the stock, chasing the new, higher yields. And this inevitably bids up the share price.

Let me give you a few examples where the dividend acts like a floor to keep bumping the share price higher:

UnitedHealth Group: Dividend Up 460% Share Price Gains 510%

Mastercard: Dividend Up 500%, Share Price Gains 532%

Cisco Systems: Dividend Up 111%, Share Price Gains 113%

As you can see in these examples, the stock price lags behind the dividend increases at some point in time …

However, as more investors notice the company’s soaring dividend and buy in, the price lag closes—sending the share price soaring.

So, by investing in the right companies whose share prices have fallen behind despite consistent dividend hikes, you can buy the stock, safe in the knowledge the Dividend Magnet will eventually pull the price up.

Now, investing with Pillar No. 1 and No. 2 alone would stand you in great stead.

However, there’s one final Pillar of a “Hidden Yield Stock” that can rapidly accelerate both the share price and dividend payouts …

Pillar #3 – Stock Buybacks

Uncovering companies that are buying back their stocks is one of the fastest ways to accelerate your gains.

You see, when a company buys back its stock, it is improving every single “per share” metric investors watch (earnings, free cash flow, book value, etc.).

After all, if a company reduces the number of its shares by 50%, its earnings per share will automatically DOUBLE without any actual increase in profits. And I probably don’t need to tell you what will happen next …

Investors quickly bid up the stock’s price to bring it back in line with the value it was trading at before. Indeed, my research shows that simply investing in stocks that are reducing their share counts can help you beat the broader market’s performance.

And it’s important to bear in mind that S&P 500 companies are sitting on huge piles of CASH (more than $1 trillion in all!). They’re rolling out fresh buybacks amid continued economic growth post-pandemic, and they’re getting a nice upside kick in return.

You can see this just by looking at the shares of Union Pacific (UNP), which took an impressive 31% of its stock off the market in 10 years, helping drive a 100% gain in the share price!

And that’s just one example. By targeting cash-rich companies that either continue to buy back shares now or have a long record of doing so (even if they’re holding off today), you can set yourself up for HUGE price gains.

In short …

Combine the Three Pillars … Buybacks,

Dividend Hikes and Price Lags, and Your

Yearly Returns Can Be Absolutely Astounding