If you’re a subscriber to The Bauman Letter, you know we’re a fan of collecting income from our investments.
But the secret to our success is that we look for growing payouts that will far exceed the dividend yield you see listed for a given stock.
The thing is, the income you rake in … often every quarter … all depends on the share price that you originally paid.
If you get in at a good price, your yield on cost (YOC) — the dividend yield you receive as a percentage of your original purchase price — could easily climb to the high single-digit or low-double-digit range.
It takes time, and you have to buy the right company at the right time…
But collecting a steady dividend yield of 10% is within reach with the right strategy.
The Bauman Letter finds companies with terrific growth prospects that will allow our portfolio’s dividend income to grow substantially over time.
Let me give you an example.
One of our recommendations from last year generates a YOC that is 79% higher than the current dividend yield today … and that income has helped deliver a total return of 80% on that position.
Today, it’s easy to be caught up in flashy, speculative stocks with a focus on making huge short-term profits. There’s nothing wrong with that … that’s a big focus of another one of our services, Alpha Stock Alert.
But I’m going to show you why dividends are just as critical to your long-term investment success … and the sector that will unlock their greatest potential to supersize your returns.
Dividends Boost Your Returns
What do you think were the best performing S&P 500 Index sectors for the past 20 years?
This may surprise you, but in the two decades through the end of 2019, technology stocks were nowhere near the top.
And utilities took the second spot (behind consumer discretionary)! That sector beat tech stocks by a wide margin over that period.
Utilities delivered a total return of 349% … compared to 116% for tech stocks:
And when you break down the return, over half of utilities’ gains came from dividend payments.
That’s the power of dividends on full display, and how they can boost your total return.
For utility stocks, they’ve offered a powerful combination of dividend payments and end-market stability.
That’s helped utility companies perform better during severe bear markets as well.
Now, you probably don’t associate utilities as an exciting high-growth sector.
And after all, we want to find dividends that will grow…
That’s why today I’m writing about one subsector in particular that you may want to buy … and a unique way to buy it.
It’s a special type of company, one you’ve probably never heard of, that allows investors to tap into one of the fastest-growing segments of the utility sector.
And that translates to a terrific combination of growing dividends and a high total return potential.
It’s Time to Profit From Renewables
Renewable energy capacity has more than doubled over the past 10 years and shows no signs of slowing.
Consumption of renewables is expected to jump by over three times in the next couple of decades as nations around the globe seek to reduce their carbon footprint and generate more reliable forms of energy:
So how can you tap directly into the growth of renewables and generate income at the same time?
The answer is in a yieldco. Similar to real estate investment trusts (REITs) and master limited partnerships (MLPs), yieldcos are pass-through vehicles meant to generate big dividends.
And just like a REIT might hold office properties or an oil pipeline in the case of an MLP, a yieldco houses renewable energy assets. That could be a wind farm or a solar array, with the purpose of delivering cash flows from those assets to shareholders.
And these renewable assets tend to be established operationally with long-term contracts in place.
The structure has several advantages, including:
- High dividends: Yieldcos generally distribute 70% to 90% of cash flow to shareholders.
- Tax efficiency: They take advantage of renewable incentives and credits to minimize taxes.
- Growing payouts: The acquisition of more renewable assets can boost cash flows and dividends.
But instead of trying to guess which yieldco offers the best opportunity, you can take a more diversified approach with the Global X YieldCo & Renewable Energy Income ETF (Nasdaq: YLCO).
This exchange-traded fund (ETF) offers a yield that is already 36% higher than the average for the S&P 500 Index … and YOC is set to jump along with the growth in renewables.
It’s the perfect formula to lock in huge payouts with a high YOC for years to come. That’s why you need to get in now.
Research Analyst, The Bauman Letter