Investing in companies that “do the right thing” can make you big money… without taking big risks.
The data show that buying companies that “do the right thing” turned $10,000 into $298 million between 1927 and 2009. Even better, it dramatically outperformed traditional “buy and hold” investing nearly 8-to-1 over the same period.
Today, I’ll explain what I mean by “do the right thing”… and how you can immediately put it to work in your portfolio. Let’s get started…
[ad#Google Adsense 336×280-IA]For the past three months, I’ve been working closely with Steve Sjuggerud and Porter Stansberry to find companies that consistently do the right thing for you, the shareholder.
While “doing the right thing” for the shareholder sounds like something every company should do, it’s actually a rarity in the stock market. Most publicly traded companies are managed by people with little to no personal ownership of shares. They don’t have “skin in the game.” Thus, they tend to overpay for acquisitions, dilute shareholders with option grants, or just flat out mismanage the business. Companies that devote themselves to operating a great business for the benefit of shareholders stick out… and they outperform those that do not.
That seems simple enough. But how do companies “do the right thing”?
Simply, they return a lot of cash to shareholders. They pay out a large percentage of their profits directly to shareholders in the form of both dividends and share buybacks…
Dividends are cash returned directly to shareholders. And you can think of share buybacks as a “tax-free dividend.”
When a company buys back shares of its stock, your remaining shares become more valuable. It’s like cutting your pizza into six slices instead of eight… The pizza is the same size. But each of your slices is bigger – each share is worth more. And unlike a regular dividend, you don’t have to pay taxes on that increased value unless you sell your shares.
Together, dividends and buybacks add up to something called “shareholder yield.”
Wal-Mart is an excellent example of a company that does the right thing. It has an exceptionally high shareholder yield…
In the last year, Wal-Mart paid over $5 billion to shareholders in dividends and returned $9 billion to shareholders through share buybacks. And in June 2011, the company authorized the repurchase of another $15 billion.
James O’Shaughnessy investigated shareholder yield in his book What Works on Wall Street. Based on O’Shaughnessy’s testing, buying the top 10% of companies based on shareholder yield turned $10,000 into $298 million from 1927-2009. That’s a 13.2% annualized return. A buy-and-hold strategy over the same period turned $10,000 into “just” $38 million.
This strategy also beat the market 93% of the time over rolling 10-year periods. As a long-term strategy, it’s hard to find a more profitable and safe system.
Fortunately, we have an easy way to invest based on shareholder yield. It’s called the John Hancock Tax-Advantaged Global Shareholder Yield Fund (HTY). HTY focuses on global businesses with high shareholder yield.
HTY holds stocks like telecom bellwether AT&T, pharmaceutical giant Bristol-Myers Squibb, and Altria, one of DailyWealth‘s favorite dividend payers. In 2011, the fund rose 8% (including dividends). The S&P 500 was up just 2%.
Shareholder yield is an easy way to find companies that “do the right thing” for their shareholders. And O’Shaughnessy proved that buying these businesses dramatically beats the rest of the market.
Good investing,
Brett Eversole
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Source: Daily Wealth