Editor’s Word: It’s been some time since we’ve talked about Chief Earnings Strategist Marc Lichtenfeld’s core investing system, the 10-11-12 System, right here in Rich Retirement.
In case you aren’t conversant in it, I’m re-sharing this text from final yr that can assist you rise up to hurry. (As you’ll discover – or as chances are you’ll already know – the system is aptly named!)
The ten-11-12 System underlies Marc’s total investing philosophy. Maintain studying beneath to study extra about what’s made Marc so profitable over time.
– James Ogletree, Managing Editor
Over the weekend, a buddy instructed me his teenage daughter is getting occupied with investing and requested for some primary recommendation.
A couple of hours later, one other buddy texted me, asking how he can “get rich with dividends.”
For individuals who have by no means invested, the markets can appear to be a mysterious and intimidating power – one that may gobble up their cash at any second. However the reality is, investing doesn’t need to be difficult.
The key to making a living in the long run is very easy…
Compounding.
Once you make investments and let your dividends and positive factors compound, the returns could be excellent. To make it even easier and simply digestible, I’ve created a method for choosing shares to be able to obtain glorious long-term outcomes.
It’s referred to as the 10-11-12 System.
The objective with the 10-11-12 System is to generate 11% yields inside 10 years. When you’re reinvesting the dividends, we’re aiming for a 12% common annual whole return over 10 years.
Twelve p.c might not sound like a lot, but it surely greater than triples your cash in 10 years. And it grows your wealth by 10 occasions over 20 years.
A 12% common annual return beats the pants off the market and the overwhelming majority {of professional} cash managers.
The ten-11-12 System focuses on investing in what I name Perpetual Dividend Raisers – firms that elevate their dividends yearly.
The technique has three essential parts: dividend yield, dividend development and time. To earn 11% yields and 12% common annual whole returns, you might want to spend money on shares with respectable beginning yields (often 4% or larger) and robust dividend development, and you might want to keep invested for years.
The upper the beginning yield, the decrease the dividend development could be (and vice versa).
I warning buyers to not go for the very best yields they will discover. Corporations with excessive yields could be very dangerous. We’re aiming for high quality firms which have lengthy histories of elevating their dividends yearly and can very possible proceed to take action.
Buyers who acquire their dividends in money will obtain a elevate yearly. And if the businesses enhance their dividends by a significant quantity, that improve ought to sustain with or beat inflation. (As you most likely know, each Wednesday in my Security Web column, I consider the security of an organization’s dividend and stroll you thru how I arrived at my ranking. Remember to test it out in case you haven’t already.)
Buyers who don’t want the money straight away ought to reinvest their dividends in order that their funding compounds. The dividends will purchase extra shares, which is able to generate extra dividends, which is able to purchase extra shares and so forth…
Sooner or later sooner or later, if the investor then wants to gather the dividends as a substitute of reinvesting, all of these further shares that had been bought will end in a better money payout.
Moreover, an organization that’s elevating its dividend yearly more than likely has sturdy money flows and rising earnings, which is able to end in not solely larger payouts to shareholders however an growing inventory value.
The numbers can get fairly giant.
Eleven years in the past, after I launched The Oxford Earnings Letter, I beneficial Texas Devices (Nasdaq: TXN). We ended up promoting the inventory in October 2023 for a achieve of 430%. A month later, I beneficial RTX (NYSE: RTX), previously generally known as Raytheon Applied sciences. It has returned 463%. That’s the ability of investing in Perpetual Dividend Raisers.
All of it comes right down to this…
If you wish to make good cash out there, personal high quality shares of firms that elevate their dividends yearly. It doesn’t get a lot easier than that.