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Patience is not only a virtue, it’s a necessity to becoming a great investor. Few investors possess patience, which is why few are great investors.
Patience matters even more to income investors. To build meaningful wealth, income investors must stand back and allow time to work to their advantage.
I’ve seen time work to the advantage of many High Yield Wealth recommendations. Patient investors have been able to accumulate significant wealth. What’s more, they’ve been able to accumulate wealth without possessing the patience of Job.
Patience is a Virtue: Two Investing Examples
Take tobacco giant Altria Group (NYSE: MO), for example. The maker of Marlboro cigarettes and Copenhagen smokeless tobacco was first recommended for the High Yield Wealth portfolio in Sept. 2011 at $27.26 a share. Over the subsequent years and months, the dividend has been increased three times (a fourth is due shortly).
On the $27.26-per-share cost basis, Altria shares yield 7% today, thanks to the higher dividend payment. At the time Altria was recommended, shares yielded 6% based on the prevailing dividend. In addition, patient investors have accumulated $5.32 in dividends – 19.5% of their purchase price.
But the lion’s share of the Altria’s wealth creation can be seen in price appreciation. A $27.26 Altria investment is worth $42 today. When the dividend is factored in, patient Altria investors have realized a 73% total return.
No one should be surprised. As the dividend goes, so, too, goes the share price. Rising earnings lead to rising dividends, which, in turn, leads to a rising share price. Investors rationally bid up Altria shares to capture the rising cash payout. The corollary is a falling yield. Today, Altria shares yield 4.6%, the market rate for a slow-growth, but perennial dividend grower.
I’ve seen patience work its magic in other ways – by enabling investors to accumulate shares of sound companies enduring periods of investor neglect, for instance. Patient investors also have been able to dollar-cost-average down, thus lowering their cost basis and improving their yield.
Another High Yield Wealth recommendation, BGC Partners (NASDAQ: BGCP), proves my point.
BGC offers trading platforms for institutional traders. It’s also one of the largest commercial real estate brokerage firms. When BGC was initially recommended to High Yield Wealth readers in Nov. 2011, it was suffering from lower trading volumes due to new financial regulations. Concurrently, it started expanding into commercial real estate brokerage.
Investors weren’t impressed: Lower trading volumes and lack of enthusiasm for commercial real estate brokerage (which itself was depressed) had BGC investors heading for the exits. Nearly a year after its shares were first recommended, BGC’s share price had been halved.
But patience paid off, because the longer-term analysis remained sound: Trading volume would increase and commercial real estate brokerage would boom. Investors who bought into the decline picked up a great yield and lowered their cost basis. Today, many BGC investors enjoy a double-digit yield on their cost basis; others have realized a doubling in value of their investment.
In 25 years of investing, I’ve seen many examples of Altria and BGC Partners play out. But the rewards were captured only by investors who were patient enough to wait for them.
Organize Your Dividends With One Step
Do you know when your next dividend stock pays out? Do you know when the dividend stock you want to buy more of pays out – and how much? We’ve put together a simple calendar that highlights many of the market’s best dividends into one easy to scan document. Read it once, and you’ll see how to set up a 12 month dividend stream to ensure income all year long. Click here to see the full details of the Dividend Calendar.