Why I LOVE Dividends and Can’t Stand Index Annuities (2018)

Stock analysis is basically a loser’s game. No one, and I mean NO ONE, knows what’s going to happen to a stock regardless of fundamentals.

How do I know this? Well, the Wall St.Journal used to run a report of monkeys literally throwing darts at a stock chart vs. the best and brightest analysts in the world and more often than not the monkey’s did better.

Why is that? Anyone’s guess. Some stocks, money managers, investors, get lucky. Others…not so much.

However, when it comes to YOUR portfolio, one thing any good financial planner is going to recommend is NOT having more than 10% of your assets in any one security.

So, today I received a call from a client who has a large position, relative to his/her asset base in GPC stock. My client wanted to know what I thought of it.

My first inclination is that the client holds TOO much of it, regarldess of the stock because GPC represents nearly 40% of the total liquid net worth. That’s a problem.

But how about fundamentals? I do need to have a look at fundamentals too and that’s what we do in this episode. I go over the things I look at when analyzing individual stocks.

A couple things to understand here. I own NO individual stocks. I got burned too much in the early aught’s that I simply refuse to go down that road again.

Two, I know NOTHING about the business of GPC. The only think I know is that it has a three letter ticker symbol meaning it trades on the NYSE, thus it’s a blue chip stock of some sort.

Three, this is NOT a recommendation for buying or selling. I literally don’t ANY opinion on what YOU should do. I am only looking at this stock on the basis of the person I am dealing with.

So, do not take this as any advice whatsoever. Do your OWN research to make your own investment decisions.

A few things to consider:

  • dividend yield
  • dividend payout ratio
  • price to earnings ratio
  • current ratio
  • debt to equity
  • cash flow
  • debt levels
  • ebitda

Dividends historically have accounted for nearly 40% of a portfolio value’s growth.

Even with the low dividend yields today, dividends still play a HUGE role in growing the net worth for investors.

In this video I show you exactly how dividends improved the performance of the Vanguard S&P 500 fund (VFINX) by 50% from 2003 until March 2018.

I compare the PRICE ONLY performance of the VFINX to the price + dividend performance.

Price only performance increased an initial $100k investment to $297k. Yet, dividend reinvestment increased that $100k to $406k at then end of those 15 years time.

Don’t forget this is in a low dividend yield environment too. In fact, after 2008 many of the higher dividend paying companies, banks come to mind, STOPPED even paying dividends.

Yet, the numbers speak for themselves; Dividends added 50% more growth than just price.

The interesting thing is that if you look at index annuities, they don’t use dividends in the returns investors get! Add on the hefty fees and it’s next to impossible for an investor to get anywhere near a market like return. Just can’t happen.

No dividends PLUS high fees = VAST under performance. Which is why I recommend staying away from these types of “investments”.

If you want “safety” there are better alternatives.

If you want “growth” there are better alternatives.

If you want a combination of some safety and some growth there are better alternatives. In future video’s I’ll discuss the alternatives.

But for now, just watch this video and allow me to show you EXACTLY how dividends are just so important to your financial well-being.

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