The dividend yields I’m talking about are more than enough to transform your retirement, with reliable payouts of 7.5%, 8.0%–even 10% and up.
I’ll also show you a one-step indicator that reveals, quickly and easily, just how safe your stocks’ payouts are. It’s so reliable it held strong in the toughest battleground you could ask for: the 2008/09 meltdown.
A Battle-Tested “1-Click” Strategy for Finding Safe Dividends
When most dividend investors think of early March 2009, they don’t see it as a golden age for income.
But it was!
And that’s not because the market has delivered a 320% price gain since March 9 of ’09–the day the S&P 500 bottomed out after the Great Recession (though there’s certainly nothing wrong with more than tripling your money in 9 years!).
What I really want to bring up from that time is the immense dividends that were on sale.
Because back in early March 2009, the S&P 500’s average dividend yield spiked all the way up to 4.0%, its highest level since at least 1994 (and likely way before), when the ultra-popular SPDR S&P 500 ETF (SPY) launched:
A Dividend Yield for the Ages
And that 4.0% was just what the ETF paid. Buying any one of a who’s-who of S&P names in March ’09 would have triggered a cash geyser that was double or even triple what the same stocks pay today:
An Income Investor’s Paradise
Why am I telling you this now?
For one, because I’ve found a secret way for you to “force” blue chip names just like these to pay you massive, 2009-style dividend yields today.
More on that in just a second, though.
First, I want to get back to that crash-proof dividend-safety indicator I told you about off the top. Back in 2009, when everyone was fleeing in terror, it told us that each of the 5 seemingly too good to be true payouts above was safe and ripe for buying.
2009’s Vital Lesson for Dividend Investors
Before I show you what this indicator is, let’s take a step back and quickly look at how dividend yields are calculated.
You get the dividend yield by dividing the current annual dividend into the share price, so there are only two reasons why a dividend would spike, like the payouts of many stocks did back in ’09:
- A company hikes its payout, and the share price hasn’t caught up to the increase yet.
As I wrote in “10 Dividend Doublers Ready to Soar,” share prices eventually march upward with a rising dividend, which is why the dividend yield on your favorite stocks tends to remain in a tight range. If you spot a stock whose price lags its rising dividend, it’s likely a terrific buying opportunity. Or …
- The stock price craters: This one requires more investigation. If, for example, we were to find ourselves in a situation like 2009, where great companies are getting tossed out with the bad, it’s time to buy.
But how do you tell which dividends are safe when everyone is running for the exits with their hair on fire?
One simple indicator: the cash dividend payout ratio–or the percentage of free cash flow (FCF) headed out the door as dividends.
Why free cash flow?
Because unlike net income (which can be manipulated), FCF is a snapshot of the amount of cash a company is generating once it’s paid the cost of growing and maintaining its business. You calculate it by subtracting capital expenditures from cash flow from operating activities (you can find both figures under the “Financials” tab on Yahoo Finance).
And if you’d glanced at this one key indicator in ’09, you would have quickly seen that all 5 of the high yields above were reliable, with ratios right around, or well below, my “half cash flow, half payouts” rule of safety (meaning I prefer to see this ratio under 50%).
Safe Payouts, Then and Now
And how did these five dividends hold up over the last 9 years?
Our 5 low-FCF payers in ’09 did just fine, thank you very much, rewarding investors with steady dividend growth on top of their high yields, with zero dividend cuts.
If that’s not a solid demonstration of the power of the FCF payout ratio, I don’t know what is! (Note that the reduction you see from MetLife below stems from a switch from annual to quarterly payouts–the yearly rate has actually risen 127%.)
Payout Ratio Bet Pays Off
The bottom line?
While you shouldn’t rely on just one indicator to predict dividend safety (other cues, such as low debt, rising cash flow and a firm’s dividend history are also key), the FCF payout ratio is the most powerful indicator there is–and a great place to start.
Just Released: How to “Force” an 11.0% Dividend From Pfizer
I’ve found 4 mysterious “Dividend Conversion Machines” that let you rewind the clock: buying stocks like Pfizer, but instead of grabbing today’s 3.7% dividend, you’ll get the same incredible 11.0% CASH payout folks who bought in 2009 bagged instead!
But there’s a vital difference: you won’t have to take a stomach-churning plunge to get it, like you would have back then.
Sure, handy slogans like “Buy when there’s blood in the streets” are easy to say. But actually overcoming fear and hitting the buy button at a time like that is almost impossible for most people.
But with these 4 amazing “Dividend Conversion Machines,” you’ll grab the same massive dividend yields the best blue chips were paying in that fleeting moment back in 2009 right now–TODAY.
And these life-changing payouts are safe, backed by these very same household-name stocks.
Massive Upside and 8%+ Dividends–in 1 Buy
What’s more, you can grab these lofty payouts whenever you’re ready: all at once, on an automatic yearly or monthly schedule … or simply whenever you have new money to invest.
It’s all up to you!
Best of all, each of these 4 incredible investments are about to explode and give us massive price upside, too.
I’m talking 20%+ yearly price gains, on top of dividends of 8%, 10% and up–without having to buy in the middle of a meltdown, like our 2009 buyers did.
Just 2 days ago, I released the whole incredible story on these 4 Dividend Conversion Machines to the public for the first time, including their names, ticker symbols, exactly how they work and how you can buy (hint: you can grab these 4 incredible Dividend Conversion Machine straight from your brokerage account.)
The Vanguard Dividend Appreciation ETF (VIG) was unchanged in premarket trading Wednesday. Year-to-date, VIG has gained 7.64%, versus a 9.08% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Contrarian Outlook.