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2013/10/16

This Will Be Good for Susan

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Wednesday, October 16, 2013 | Issue #2144

"This Will Be Good for Susan"

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld "This will be good for Susan," the man told my uncle.

My cousin Susan was 8 years old at the time. My uncle's best friend had recommended an investment, one that he had already put his own money into. For $15,000, my uncle could join a partnership in an office building on 39th Street and 1st Avenue in Manhattan.

This conversation took place 60 years ago. So $15,000 was a large sum. Adjusted for inflation, it's the equivalent of $131,391.

Is This Guy Crazy?

One former high-ranking executive of one of Wall Street's biggest firms just made a pretty bold claim. He says a certain company is about to make a major announcement that will put it on the cover of every financial newspaper across the country... sending shares soaring over night.

What is the major announcement? And does this guy have any clue what he's talking about? Go here to see for yourself.

My uncle was not in the habit of throwing money around without a lot of thought. He came from a poor family and had worked too hard since he was 14 years old to be frivolous with his cash.

The friend was a successful businessman. My uncle trusted him and followed him into the partnership.

The friend was right. It has been very good for Susan. Today, Susan earns $48,000 a year in income from that partnership - more than a 300% annual yield on my uncle's original investment.

A 60-Year Horizon

Susan is retired now. A former teacher, she has a decent pension with solid benefits. Does that extra $48,000 come in handy? You bet it does. Next month, she and her husband are leaving on a month-long cruise to Europe. Their house is paid for and they can easily handle the cost of long-term care insurance so as not to burden their children should they get sick.

They live well, thanks in part to my uncle's $15,000 investment in 1953.

The money didn't always belong to Susan. My aunt and uncle collected the income annually from the partnership for more than 50 years. But they never sold it because they knew it would eventually "be good for Susan."

Very few of us have a parent or role model who looked so far into the future. As a result, we do not have an investment horizon of 60 years.

But we all have a few Susans in our own lives - loved ones who could benefit from our investment skill, but not until we're finished with the investment ourselves.

It might be six decades too late for you to get in on that Manhattan office building, but there are plenty of investments out there that will pay you a rising income annually, while generating a ton of cash years down the road.

How to Do It

My favorite way to set up this scenario is with Perpetual Dividend Raisers - stocks that raise their dividend every year.

For example, Brookfield Infrastructure Partners (NYSE: BIP) is a stock I've recommended in the past in the Oxford Income Letter. It currently yields 4.6% and has raised the dividend for each of the past four years and five of the past six. The dividend's compound annual growth rate has been 13%.

Let's assume that dividend growth slows to 10%, just to be conservative.

An investor who puts in $10,000 today will receive $463 in income this year - a 4.63% yield. Not bad in this low interest rate environment.

In five years, he'll receive $677, a 6.7% yield. In 10 years he's taking home $1,091 or a 10.9% yield. He'll have collected $7,379 or 74% of his investment. And he'll still own all the shares of stock.

Let's say you're more forward thinking than most investors. You're like my uncle and hang on to this stock for decades. After 20 years, you're making $2,831 per year and have collected $26,518.

In year 40, the annual dividend is $19,050, nearly twice what you paid for it. During that time, you'll have received over $204,000 in income. And the value of those shares will have increased to $178,000, assuming historical average stock market returns.

If you don't need the income today and choose to reinvest the dividend, the numbers become astronomical.

In 20 years, your $10,000 grows to $131,783 and spins off $8,445 per year in income, if you choose to take it. Or hold on for another 20 years, when the original $10,000 is worth more than $3.3 million, generating $334,000 a year in income.

That will be very good for your Susan.

Perpetual Dividend Raisers are a great way to get some income today and an even larger "paycheck" for your heirs later.

Good investing,

Marc

A Note From the Editorial Director: Marc's cousin Susan is a perfect case study of the value of the dividend strategy he describes in his book Get Rich with Dividends, and which he follows in detail in his Oxford Income Letter. We're so convinced that you'll love this strategy, that we have a special offer for you for giving the Letter a try. Just click here to learn more.

- Andrew Snyder
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