Investing in high-yield, consistent dividend-paying stocks, mutual funds, or even ETFs are often suggested as conservative ways to put income into your checking account while providing a strong degree of investment security. While this may be true, safe investing in these types of positions can also provide gains and huge profits, the result you can score great gains with dividends based investments.
Investing in high-yield dividend payers isn’t necessarily just for conservative investors because you can reap some great rewards and build a strong portfolio. In fact, even a moderate to aggressive investor may be hard pressed to understand why they should avoid these investments.
High Dividend Investment Strategies – this chart illustrates how investing in high dividend stocks can beat the stock market (the S&P 500 is the bottom almost straight line) since January 2008.
I conducted a variety of tests using personal investment software to show how these investments could pay off quite handsomely and build anyone’s portfolio, especially those with retirement accounts.
For my test I put together a group of 43 dividend-paying stocks. A little research on the internet, especially on the S&P website, helped me find a good group of solid companies that have consistently paid dividends over a span of many years. I added the S&P 500 Ticker, SPX, as a benchmark. I would use that with my personal investment software program to compare the performance of my group against those in the S&P 500 group.
Because I wanted to take advantage of the dividend income, I set my sell preference rules to hold a position at least 90 days. This automatically minimized the number of trades I would make in my high-dividend strategies. Since I also used stops to prevent loses during market declines, some trades did take place inside the 90-day window restriction, so I set my test to evaluate trading on a weekly basis as if I were taking a quick look at my portfolio each weekend.
To further protect myself, in some of my strategies I set a sell signal that moves me either out of the markets or into bonds whenever the price line of the S&P 500 dropped below its 100 or 65 day moving average. Even though I wanted to trade just every few months, there were times when the personal investment software program had me trade more frequently in order to minimize losses.
The test period began in January 2005, and concluded at the end of July 2011, a little bit over 6-1/2 years or 79 months later. During this period the markets, as measured by the S&P 500, gyrated thru many up and downs including the recession of 2007 and 2008 and its recovery.
Results were based on how many positions were held at any one moment. In other words, investing and holding just one stock, or three, or even five out of the group.
The results varied, but in general I found that the more positions I held at the same time, the less potential I had for a gain-and so I would make less money. The gains during this 79-month period ranged from 92% to 399%; the annual average ranged from 11% to 28%.
Here are some examples of strategies by Held Positions:
# of Positions Percentage of Gain Annual Average Gain
1 224%-399% 15%-28%
2 216% 19%
3 128%-151% 13%-15%
4 149% 15%
5 92%-134% 11%-14%
As you can see, with investment analysis software, incorporating prudent sell & buy rules, especially rules to protect you when the markets dive, you can earn dividends and make substantial gains with a portfolio that includes safe investing with a group of high-yield dividend-paying stocks, ETFS, or mutual funds.
Raymond M.F. Dominick is the author of “Invest Safely and Profitably” (Your Success Guide), available from Amazon.