I’m frequently invited to join financial TV segments and provide my commentary on the stock market outlook. For instance, a few years back, I was on CNBC’s Talking Numbers segment discussing a popular telecom stock.
Now, I genuinely liked the stock at the time.
However, despite my positive outlook, I didn’t suggest it to my subscribers in The Oxford Income Letter. I’ll explain why shortly, but first, let me give you a glimpse behind the curtain of TV appearances.
### Getting TV-Ready
So, when a producer gives me a call to discuss a stock on air, they’re looking for clear, bold opinions. They aren’t interested in someone sitting on the fence, as timid responses don’t translate well on TV.
If I can’t deliver that, they’ll move on to someone who can. There’s no shortage of people willing to speak to a massive audience all at once.
But I only make statements about stocks on TV if I truly believe them. I’ve even told producers before, “I don’t have a strong stance on this one.” And if they’re expecting a positive spin when I’m feeling negative, I’ve been upfront: “Sorry, I’m not a fan.”
I completely understand that viewers might base investment decisions on a brief TV segment. Ideally, people wouldn’t make investment choices after merely hearing about a stock for 90 seconds, yet it happens. I learned this lesson early in my career before I joined The Oxford Club, back when my former boss wouldn’t own up to his market predictions.
I was the one receiving emails from people sharing how much they lost following his advice.
He chose not to face them, but I understood: these were real folks putting up real money based on his words. Those emails stuck with me.
After my TV appearances, my friends and family often call, eager to know if they should invest in the stock I discussed.
So, why did I tell CNBC viewers that I liked that telecom stock, yet didn’t endorse it to my subscribers?
### Amplifying Your Investment Strategy
The answer lies in my particular investing strategy, focusing on top dividend stocks. I employ the 10-11-12 System, aiming for returns of 11% yields or 12% average annual total returns over ten years.
The core objective of The Oxford Income Letter’s model portfolios is to provide steady income today and ensure even higher gains tomorrow. Generally, companies that hike their dividends tend to see their stock prices rise and outperform the market.
The magic ingredient here is dividend growth.
The companies I select for The Oxford Income Letter’s portfolios have a consistent track record of significant dividend increases each year, often boosting by 10% or more.
Consider the benefits for an investor.
Say inflation is at 2.4% annually—what costs $1,000 today will run you $1,126 in five years and $1,268 in a decade. If inflation reaches the historical average of 3.4%, the cost climbs to $1,182 in five years and $1,397 in a decade.
So a stock that raises dividends by 10% annually isn’t just keeping pace with inflation—it’s actually enhancing your purchasing power, improving your quality of life and savings potential.
A $1,000 dividend today growing annually at 10% becomes $1,610 in five years and $2,594 in ten.
That telecom company I talked about on CNBC is indeed a formidable player—a leader in telecommunications with increasing margins and earnings. It boasts a decades-long history of annual dividend payments, with consistent hikes. However, its dividend growth wasn’t robust enough to assist income investors in meeting their goals.
In contrast, a stock with a similar starting yield but a 10% annual dividend growth will achieve a 9.9% yield after a decade.
For instance, investing $10,000 in a stock with just a 4% dividend growth yields only $597 after ten years, compared to $990 from a stock with 10% dividend growth—a significant difference.
A stellar example of such a dividend-growing stock is Best Buy (NYSE: BBY), which has increased its dividend by an average of 11% annually over the past five years.
While Best Buy’s current 4.2% yield might not be immediately dazzling, maintaining an 11% dividend growth rate will soon make it far more appealing.
To summarize: If immediate income is your primary focus, go for stocks with substantial, secure yields. But if you want your investments to generate substantial income down the road, stick to dividend growers that consistently raise their payouts in meaningful measures.
