How does a steady flow of income, 24 dividend payments a year, for an average yield of 4.23% sound?
If you love dividends and, more importantly, love to see those dividends go up every year... then you need to consider forever dividend stocks for your portfolio. These are stocks we believe you can buy and hold forever.
In this report, we will uncover our six favorite dividends stocks that have been hand selected from our Compound Income Portfolio.
The Compound Income Portfolio is designed for wealth seekers. This portfolio uses the immense power of dividend reinvestment plans (DRIPs) to compound dividends and grow wealth in a conservative manner.
The concept is very simple:
If you buy 1,000 shares of a $10 stock and receive a 4% yield, and those $400 (4% on $10,000) are reinvested... At the end of one year, you'll have 1,040 shares. Those extra 40 shares also generate dividends.
- If the dividend grows 10% per year, after five years you'll have 1,227 shares.
- After 10 years you'll own 1,544 shares. Keep in mind that all those shares are generating more and more dividends every year as the dividend goes higher.
After that, the compounding math is a wonder to behold...
- After 10 years (presuming average market returns), your original $10,000 is now worth $31,777. The annual yield on your DRIP is 14.1%.
- After 15 years, you have $58,993 (and a yield of 29.3%).
- In 20 years, you're looking at $113,019... and an astounding annual yield of 62.9%!
The easiest way to reinvest your dividends is to simply tell your broker you want your dividends reinvested. Most brokers offer this service free of charge. So you can buy a stock once, pay one commission and hold it for years without paying another dime as the nest egg grows.
One thing to remember: If the stocks are in a taxable account, you will owe taxes on the dividends even if you are reinvesting them and not collecting the cash. So be sure to have enough cash set aside to pay your taxes every year.
Now that we have covered the power of compounding, let's get to the picks...
Forever Dividend Stock #1: Brookfield Infrastructure Partners (NYSE: BIP)
Our first pick is a Master Limited Partnership (MLP).
Most MLPs are energy-related. However, this one is a play on global infrastructure.
Brookfield Infrastructure Partners owns and operates electricity transmission lines in South America, timberland in North America, ports in Europe and railroads in Australia.
It pays a 5.2% yield and has raised the dividend an average of 14.3% over the past five years. Management has lifted the dividend every year for seven years.
In 2013, funds from operations (FFO) – a measure of cash flow for MLPs – grew 41%. Investments made in 2012 in project expansion and acquisitions came online last year, boosting FFO. And they will continue to do so going forward.
Last year, Brookfield paid 52% of FFO in the form of dividends. It is committed to paying 60% to 70% in the future.
Forever Dividend Stock #2: Williams Partners (NYSE: WPZ)
Our second pick is another MLP, which is totally energy-related like most MLPs.
Based in Tulsa, Oklahoma, Williams Partners operates nearly 14,000 miles of oil and gas pipelines. They focus on connecting North America's hydrocarbon resource plays to growing markets for natural gas and natural gas liquids (NGLs).
It has a plump 7.2% yield, has raised the dividend for 10 straight years, has boosted the dividend by 9% per year on average and is committed to another 9% raise in 2014.
Forever Dividend Stock #3: Texas Instruments (Nasdaq: TXN)
Our next pick is one of the world's leading chipmakers.
Founded in 1930, and headquartered in Dallas, Texas, Texas Instruments designs, manufactures and sells semiconductors to electronics designers and manufacturers worldwide.
The company has a 2.9% yield, but has been growing the dividend at over 23% per year over the past 10 years. Though it recently raised the dividend 42%, we're going with a more conservative growth forecast of 16.4%.
In 2013 it only paid out 39% of its free cash flow in dividends, so it has plenty of room to continue to send more cash to shareholders.
Forever Dividend Stock #4: Meredith Corp. (NYSE: MDP)
Meredith Corp is another long-term dividend pick.
The company is the publisher of Better Homes and Gardens, Parents and other popular magazines.
But Meredith doesn't depend on your $19 for a magazine subscription.
The company licenses its brands, generates advertising revenue (including online) and is expanding into other countries such as Italy and Turkey.
It has an attractive 3.9% dividend yield and sports a dividend growth rate of over 15% per year.
It only pays out 43% of its free cash flow in dividends, so it should be able to continue growing the dividend at a rapid pace for years to come – especially considering Wall Street is expecting 15% annual earnings growth over the next five years.
Forever Dividend Stock #5: Raytheon (NYSE: RTN)
Raytheon provides a wide range of defense products and services, from electronics systems to missile systems. It manufactures the same kind of FLIR (forwardlooking infrared) imaging technology that Boston authorities used to target the Boston Marathon bombers.
Raytheon's biggest customer by far is the United States government. But it is expanding internationally. In the spring of 2013, the company announced a contract with South Korea to upgrade its fleet of F-16 jet fighters.
Sequestration or a smaller defense budget could cause revenue growth to slow. But with increased international business and the plethora of lunatics parading as leaders of nations, Raytheon's business should have no problem remaining strong enough to continue to generate gobs of cash.
And as income investors, that's what we're most interested in.
In 2013, Raytheon generated $2.37 billion in cash flow from continuing operations. Free cash flow – a more conservative gauge of cash flow because it takes into account capital expenditures – was $2.09 billion. The company paid out $695 million in dividends for a payout ratio of just 33%.
That means even if free cash flow slips, Raytheon has plenty of room to not only pay the dividend but to raise it, like it has for the past nine years.
And those raises have been substantial. Over the past five years, Raytheon has increased the dividend an average of 14.5% per year.
The stock has a yield of 2.3%. Combined with the 14.5% average annual dividend raise, it fits in perfectly within the forever dividend stock system.
Forever Dividend Stock #6: Mattel (Nasdaq: MAT)
With a nearly 4% dividend yield that we expect to grow to over 5% in less than three years, toymaker Mattel (Nasdaq: MAT) is the perfect setup for income seekers.
Mattel has many iconic brands in its stable. Barbie, Hot Wheels and Fisher-Price are just a few of its top-selling names.
American Girl is another popular brand.
Mattel recently acquired MEGA Brands, which is one of the top 15 toy companies in the world.
Last year, MEGA had $405 million in sales. Its biggest seller, MEGA Bloks, is like Lego, but the blocks are larger and designed for younger kids.
Lego is enjoying a surge in popularity. And what do little kids want more than anything else? To be big kids. Playing with MEGA Bloks is one way for them to emulate their older siblings, but with a toy that's designed for their little hands.
Additionally, MEGA owns the licensing rights to household name brands such as SpongeBob SquarePants, Hello Kitty and Power Rangers.
Improving business and the MEGA acquisition should lift Mattel's free cash flow significantly.
Last year, the company generated $446 million in free cash flow. This is an important number because the company paid out $494 million in dividends.
If that level of free cash flow was expected to be consistent, we'd have a problem because it doesn't cover the dividend. And we wouldn't be recommending the stock.
But this year, free cash flow is projected to improve to $578 million, rising to $937 million in 2015 and to $1.28 billion in 2016.
Over three years that's a white-hot compound annual growth rate of 42%. It should be more than enough to pay the rising dividend each year.
Considering the company's strong cash flow growth, we expect Mattel to increase its dividend by over 12% per year on average for the next several years.
Mattel has paid a dividend continuously since 1990. There have been many raises since then, and a few cuts as well. More recently, Mattel has raised the dividend for the past three years in a row.
With more than enough cash flow expected through 2016 and the company's focus on cutting costs, we don't believe a dividend cut will be necessary in the near or intermediate future.
Over the next 10 years, with dividends reinvested, Mattel should generate at least a 12% average annual return, which more than triples your money. And if you jump onboard today, you can start collect a 3.9% yield.
The Cure for Stock Market Volatility
We believe forever dividend stocks are the cure for stock market fear and volatility. While the rest of investors bite their nails worrying what the market will do days, weeks, or months from now, you can sit back and collect your dividends with little worry except what you are going to do with all this income (a problem anyone would like to have).
The six stocks mentioned above have an average yield of 4.23%, average dividend growth rate of 12.9%, and have raised their dividends every year for an average of 10 years. And as we mentioned before, the powers of reinvesting your income and compounding dividends will boost your annual dividend yield even higher.
Remember, these are not short-term picks, they are long-term holds, and all of them should be able to maintain high dividend payments over the long haul.
Good investing,
The Oxford Club Research Team
P.S. These six stocks we mentioned above are only a small taste of all the picks we have in the Oxford Income Letter, which solely focuses on income generating stocks.
In fact, at the beginning of 2013 the letter's Chief Income Strategist, Marc Lichtenfeld, made a bold prediction that has some extreme ramifications for dividend and income investors.
He said interest rates were about to soar - possibly returning to record highs.
Keep in mind: Interest rates had been falling for 30 years when he made this call. It was a shocking prediction.
And it was dead accurate. Over the last year, rates on the benchmark 10-year Treasurys have jumped more than 37%.
Suddenly, the mainstream media are all atwitter with talk of rising rates.
But Marc Lichtenfeld is months, even years ahead of them. The question is: what do rising rates mean for income and dividend investors? More important, how can you turn this event into windfall gains... and double-digit income for years?
That's what you'll discover in Marc's watershed research.
To see where interest rates are headed next - and learn the perfect investment now - simply
click here. You'll be taken to the fully uncensored presentation.
I suggest you review Marc's work sooner rather than later. The next turn in this story could be historic.
And if you're not prepared, it could devastate your portfolio.
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