Building Wealth What better way to get rich than owning part of a profitable company?
Almost all the rich people you know probably built their fortune by owning a business. Some have high-end salaried jobs, like doctors and lawyers. But the richest doctors and lawyers did it by owning their practice.
And buying a stock entitles you to a fractional ownership in a business.
Stocks have generated great wealth for their owners. According to Professor Jeremy Siegel's long-run, inflation-adjusted numbers, $1 invested in stocks over 204 years turned into $755,163. The next best performer, bonds, grew to only $1,083.
But the ideal version of investing that you may have in your head – you buy shares, management boosts earnings, the share price goes up, and everyone gets rich – is often wrong.
The gulf between stockholder and management is vast. Management usually simply won't do what you want... or even what is in your best interest.
CEOs and their cronies should work to maximize shareholder value. But they often have many other concerns and goals. So much so that it's rare to find a management team that would truly do what you would do were you the full owner of the business.
In fact, it's not hard to find management that has made suckers out of their investors. We're talking about stories like...
Last year, legendary activist investor Carl Icahn hosted Jeff Jacobson, CEO of tech firm Xerox (XRX), for dinner. Icahn owned about 7% of the company. Icahn announced his disappointment in Jacobson and told him he planned to fire him. "Thanks for the wine, but it's not going to change my opinion no matter how much I drink," Icahn told him, reported Bloomberg Businessweek.
Rather than get fired, Jacobson went out to find a buyer for the company. Japanese company Fujifilm made an offer. And as part of the deal, Fujifilm agreed to make Jacobson CEO of the new, bigger company.
Could Jacobson have found a better offer? One that got a higher price for shareholders but didn't have a backroom deal to keep his job? Possibly. A flurry of shareholder lawsuits aim to find out and the deal has been called off.
Or take Wells Fargo (WFC)... If you personally owned all of this major bank, would you have built such an aggressive sales culture that employees opened 3.5 million fake accounts for customers – accounts that didn't make Wells Fargo money?
A full owner would never do such a stupid thing for fake growth. What would be the point? But the accounts helped executives hit quarterly numbers and earn bonuses.
Or take electric-car maker Tesla (TSLA). CEO Elon Musk has designed an extremely narrow path of success. The company needs to solve tough production challenges in a small window before it goes bust.
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The future of the company has been gambled on what may happen in the next six months. That's fun for an already-billionaire CEO. As an owner, I suspect you'd never do any such thing.
Most management perversion is more run-of-the-mill... CEOs take on big, expensive acquisitions so they can rule over a larger company – known as "empire building." They buy back stock when it's expensive simply to boost short-term earnings. And they take on risks that may backfire years down the road when it's another guy's problem.
We work hard to study each business and decipher the quality and motivations of each management team for the businesses we recommend in my Income Intelligence newsletter. Of course, it's nearly impossible to find a leader with perfectly aligned goals. Even the most honest and intelligent CEO will diverge from shareholders on some measures.
To invest in any business, we need to know that management cares about the business and recognizes we're the owners. That means rewarding us along the way.
And that's what we look for when we start identifying valuable stocks first. We require a history of shareholder friendliness – companies that are stable and reward shareholders with dividends and stock buybacks.
We want companies that consistently pay and raise dividends.
I've told subscribers many times that "dividends don't lie." Companies can't fake a cash payment like they can manipulate other items on the balance sheet. If you're going to cut a dividend check, you have to have the cash to cover it. And a rising dividend is like a magnet drawing shares higher.
Some investors might think they can't triple or even quadruple their money on well-known, dividend-paying, blue-chip companies like Johnson & Johnson (JNJ) or Coca-Cola (KO).
But there's a whole group of stocks that's crushing the dividend payouts – and overall returns – of some of America's biggest blue-chip stocks.
These stocks are incredibly rare. There are about two dozen I'm tracking at the moment – listed in the U.S. markets.
We call these stocks the "Dividend Diluvia"... "diluvia" because they've been known to give investors a "flood" of dividends.
I first came upon them during a decade working alongside some of the brightest minds in finance – at three of the world's biggest investment banks.
And I believe they give you the best opportunity to grow your income in today's uncertain markets.
I urge all my family and friends to use them. And I urge you to take advantage of these companies, too.
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Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
September 5, 2018