My 3-Step Plan For 20% Upside, 9% Dividends, In 2020
Contrarian Outlook | Jan 21, 2020 04:13AM ET
We’re just three weeks into 2020 and it’s already a dividend wasteland!
Happy New Year! Enjoy Your 1.7% Dividend
Drop $500K into the typical (miserly) S&P 500 stock today and you get a pathetic $713 a month in dividend payouts. That’s no retirement; it might cover the cost of your commute and coffee on the way to your job as a Walmart (NYSE:WMT) greeter—so long as you avoid going to Starbucks (NASDAQ:SBUX)!
Treasuries? Forget it. At a 1.8% yield, we’re not retiring on them, either.
No wonder I hear from so many investors wary of putting their cash in a market yielding less than inflation. Meantime, with stocks trading at a bubbly 25.5-times earnings, you’re putting yourself in the tracks of a price correction that would quickly devour your tiny income stream:
The S&P 500 Ate Its Dividend—Nearly 10 Times—in Late 2018
This problem is why I launched my Contrarian Income Report high-yield investing service in August 2015. Buy CIR’s average portfolio pick now and you’ll get a hefty 7.2% dividend stream. That’s right around the market’s long-term annualized return, and you’re getting it in dividends alone.
Add in the price appreciation we’ve seen since launch, and CIR subscribers are pulling in a steady 11.9% annualized total return!
A 20%+ Return Every Year … From Dividend Stocks!?
Here’s the real news I want to share with you today: I’ve just launched a new dividend service called Dividend Swing Trader. It gives you a chance to bag even bigger returns—I’m talking 20%+ a year, including dividends, in total.
Get The News You Want
It’s the perfect complement to Contrarian Income Report because, like CIR, our Dividend Swing Trader picks pay huge dividends—our initial 4 buys (which I’ll give you instant access to below) yield an outsized 8.9% now, which already gives us a nice head start on our planned sprint to 20%+ yearly total returns.
But unlike Contrarian Income Report, where we plan to hold our positions for years, we’re using a different strategy for Dividend Swing Trader: we’ll buy in so that we catch the bulk of a major move up (and collect our dividend payouts, of course), then make our exit, taking our gains (and dividends) with us.
The last step: roll our gains into yet another high yielder set to gap higher. Rinse and repeat.
Our Dividend Swing Trader holding periods are usually measured in weeks or months, though you might find yourself holding a few of these cash machines for a year or more.
Call It Contrarian Income Report+
Before you ask, no, this isn’t speculation. Heck, it isn’t even anything we aren’t doing already! All we’re really doing here is slightly accelerating our successful Contrarian Income Report approach. But it’s a slight acceleration that can really ignite your total return.
In fact, Contrarian Income Report gives us a great example of how my dividend-swing-trade system works—and how potent it can be—in mortgage lender Arbor Realty Trust (NYSE:ABR).
We’ve held this real estate investment trust (REIT) for a relatively short period of 18 months, and bagged a 54% total return, doubling up the S&P 500’s gain!
Arbor Realty: Our Slow-Motion Swing Trade
Here’s how we did it.
First, the dividend: Arbor’s payout was already huge when we bought—an outsized 9.6% yield. We climbed aboard at $10.85 a share and have collected $1.81 so far. In other words, we got 17% of our initial capital back in the following 18 months!
That was just the start.
Dividend Growth Powers Our Price Gains
Not only was Arbor’s dividend high, but it was well-covered by adjusted funds from operations (a better measure of REIT profitability than earnings per share). Arbor was also growing its payout fast—56% in the two years before we bought. (Or, put another way, six increases in the previous eight quarters).
A “Unicorn” 9.6% Dividend That Soared
That’s more than most companies hike their payouts in eight years! Yet Arbor, payer of an already stratospheric 9.6% dividend, pulled it off in eight quarters!
… That Pulls the Stock Higher
I’ve written before about how a growing dividend is the No. 1 driver of share prices. That makes dividend growth the safest, surest way for us to get the price upside we need to push us to a 20%+ yearly total return. This was just starting for Arbor:
Arbor’s Soaring Dividend Awakens Its Stock
Finally, let’s move on to something that’s not easy for us contrarians to do …
Forget the Bargain Bin—Buy Stocks Showing Strength
Here’s somewhere else our Dividend Swing Trader strategy stands out: for these shorter-term trades, we’re zeroing in on stocks that at least match—and ideally do better than—the market.
The term for this is “relative strength,” which simply means that strong stocks tend to stay strong, giving them a solid base to jump off from as their dividends soar.
This is what happened with Arbor in February 2018. After pacing the market for a long stretch, the stock gapped higher, powered by its relentlessly rising dividend.
Arbor’s Breakout
Finally, with all these winning elements in place: a high current yield, a dividend that’s growing (and pulling the stock price higher) and a base of relative strength, all we need to do is sit back and let our winners run, which is exactly what we did with Arbor, pacing us to that nice 54% gain.
How to Get in on the Next 54%+ Gainer Now
I’m excited that, after months of lobbying, my publisher is finally letting me take my Dividend Swing Trader system public. You can get your no-risk 60-day trial to the service, along with 4 free special reports that show you exactly how it works, right here .
But before I go further, there are two things I have to tell you about Dividend Swing Trader.
First, as I’m sure you’ve figured out, this is an active trading service—instead of buying and holding for years, we’re flipping in and out of these dividend payers for maximum profits, often just a few months at a time, and almost always with shorter holding periods than we saw with Arbor.
Second, I’m keeping my Dividend Swing Trader subscriber rolls small—way smaller than the 15,000+ subscribers to Contrarian Income Report. (In fact, we have only 50 or so seats left as I type.)
This is no marketing gimmick.
I have no choice but to keep membership limited because we’re dealing with small companies—much smaller than Arbor’s $1.6-billion market cap. If I recommend them to thousands of readers, we’ll move the market with our buying volume.
An 8.1% Dividend, Waiting for You Now
Here’s another reason why you should give Dividend Swing Trader a try—in a little over a month since launch, we’ve built our portfolio up to include 4 stocks that already yield an outsized 8.1%, on average.
There have been some nice gains, too, with one of our first picks having already returned 7.5%. Plus, our first dividend payout is already in hand from this 8%-yielding cash machine.
Our latest dividend swing trade just went out last Thursday, and I can’t wait to send it to you—it’s a utility stock throwing off a 6% dividend that’s risen for 10 straight quarters! As with Arbor, its share price is just starting to kick up with its payout:
With the herd just starting to catch on, this new pick is nicely positioned for double-digit upside, starting from our strong base of a surging 6% dividend.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement ."
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