Investing in high-yield, consistent dividend paying stocks, funds or even ETFs is often suggested as a conservative way to get income into your checking account while providing a strong degree of investment security. While this may be true, investing in these type positions can also provide great gains and huge profits.
So 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 with these positions. In fact even a moderate to aggressive investor may be hard pressed on why they should avoid these investments.
I conducted a variety of tests to show how these investments can pay off quite handsomely and build anyone’s portfolio, especially a retirement account.
For my test I put together a group of 43 dividend paying stocks. A little research on the internet, especially the S&P website helped me find a good group of solid companies that have consistently paid dividends over many years. I added the S&P 500 ticker, SPX, as a benchmark against which the performance of the others would be compared with my investment software program.
Because I wanted to take advantage of the dividend income I set my sell rules to a preference of holding a position at least 90 days. This automatically minimized the number of trades I would make. Since I also use stops to prevent losses during market declines some trades did take place within 90 days, 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 tests I set a sell signal that moved 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 with wanting to trade just every few months there were times when the program had me trade more frequently in order to minimize losses.
The test period began with January 2005 and ended at the end of July 2011, a little over 6-1/2 years or 79 months. During this period the markets, as measured by the S&P 500, gyrated through many ups and downs including the recession of 2007 – 2008 and its recovery.
The results are based on how many positions you would hold at any one moment. In other words, always investing and holding just one stock or three or even five out of the group.
The results vary, but in general the more positions you hold at the same time, lessens the total potential gain, the amount of money you can make. The gains during this 79 month period range from 92% to 399% or on an annual averaged basis from 11% to 28%.
Holding one position: 224% – 399% with compound annual averages of 15% – 28%.
Holding two positions constantly: 216% with a compound annual average of 19%.
Holding three positions constantly: 128% – 151% with a compound annual average of 13% -15%.
Holding four positions constantly: 149% with a compound annual average of 15%.
Holding five positions constantly: 92% – 134% with a compound annual average of 11% – 14%.
Thus with prudent sell & buy rules, especially rules to protect you when the markets dive, you can earn both dividends and substantial gains with a portfolio that includes investing with a group of high-yield dividend paying stocks, ETFs or mutual funds.