Last week, I showed you why World Dominating Dividend Growers are unbeatable investments. These companies dominate their industries. And while they might not have high current yields, they grow them constantly… increasing your income year after year.
But I hear from a lot of readers that the World Dominating Dividend Growers’ current yields are too low. Many of my readers are retired, and they say they need a high income now, not 10 years from now.
[ad#Google Adsense 336×280-IA]What they don’t realize is that by focusing on high current yields, they’re taking on more risk… increasing the chance their income will fall.
Let me show you what I’m talking about…
We’ll start with a popular high-current-income vehicle: Mortgage REITs. Companies in this space – like Annaly (NLY) and Hatteras (HTS) – are paying relatively fat yields right now.
Due to the current low-interest-rate environment, they can borrow at extremely low cost. So they don’t need to make much on their mortgages to still pay out huge dividends.
But that won’t last. It never does. Just take a look Annaly’s quarterly dividend payments since 2001…
They’re all over the place. You can’t count on these companies to grow your income relentlessly, year after year, the way you can count on World Dominating Dividend Growers.
The same is true of another popular high-yield group: business development companies (or BDCs). Low interest rates are great for BDCs, too. They borrow low and lend high. And many of them are paying out high yields.
But you run into the same problem. Here’s the chart of Gladstone Investment Corporation (GAIN), a typical BDC…
The dividend record is not exactly stellar. Anyone who bought this stock in 2006 has seen his income fall nearly in half.
For comparison, here’s a chart similar to the ones I ran last week. It show’s the quarterly dividend payments of Word Dominating semiconductor company Intel…
As you can see, it’s just up, up, up. Your income increased every year without pause. I’d much rather have my income follow that pattern than the pattern you see in most high-current-yield stocks.
Now, to be clear, I’m not saying all BDCs and REITs and other high-current-income investments are bad. Far from it. We have one of the best mortgage REITs and two of the best BDCs in existence in my 12% Letter portfolio. But some day, borrowing costs will rise, our income will fall, and we’ll have to sell them.
In sum, there’s more risk in stocks with high current yields than many investors acknowledge. You think you’re signing on for high income. But you’re going to end up with lower income. So these investments are suitable only if you already have a core position in World Dominating Dividend Growers.
[ad#article-bottom]You see, dividends are like anything else in life. The more you insist on getting right now, the more you’ll have to pay for it later.
If you’re lucky, that bill won’t wipe you out when it comes due… But if you want to remove luck from the equation entirely, you should build a core position in World Dominating Dividend Growers.
When the market hits its next round of dividend cuts, these stocks will keep your income safe and rising.
Good investing,
— Dan Ferris
P.S. Like I said, REITs, BDCs, and other high-current-income stocks can earn a place in the 12% Letter portfolio. In fact, like World Dominating Dividend Growers, they’re a key part of my “Black Market Income” strategy. Learn how it works here.
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Source: Daily Wealth