The 6 Secrets To Getting Rich On Wall Street: Part 4

The 6 Secrets To Getting Rich On Wall Street: Part 4

Posted On May 28, 2021 3:01 am

In part one of this series, I explained the single most important secret to getting and staying rich on Wall Street.

In part two I showed why the safety of individual companies is the next step in achieving a rich retirement.

In part three, we saw why quality at a reasonable or attractive valuation is the easiest road to riches you can travel.

Now let’s take a look at why safe yield is so important to achieving your long-term financial goals.

Secret #4: Safe Yield

Yield, growth, and valuation are the holy trinity of total returns.

Over time they are the only three fundamental metrics that determine returns.

Risk management, safety, and quality are all ways to protect your nest egg from making costly mistakes over time, such as buying value traps, or panic selling during normal and healthy market corrections.

But yield, growth, and value are what determine whether you retire in comfort, retire in splendor, or don’t retire at all.

Of course, success on Wall Street is far more complex than merely buying the highest-yielding companies.

From 1973 to 2020 companies that cut their dividends underperformed those that raised their dividends by 3% per year.

  • over 30 years 3% superior returns = 2.3X the wealth compounding

Dividend cutters are also the most volatile companies over time, meaning those lower returns come with more gut-wrenching downturns and a bigger risk of panic selling at precisely the wrong time.

My motto is “safety and quality first, and prudent valuation and sound risk management always.”

The Dividend Kings safety and quality scores factor in 147 fundamental metrics covering

  • dividend safety
  • balance sheet strength
  • short and long-term bankruptcy risk
  • accounting and corporate fraud risk
  • profitability and business model
  • growth consensus estimates
  • cost of capital
  • long-term sustainability (ESG scores and trends from MSCI, Morningstar, S&P, FactSet, and Reuters’/Refinitiv)
  • management quality
  • dividend friendly corporate culture/income dependability
  • long-term total returns (a Ben Graham sign of quality)

It actually includes over 1,000 metrics if you count everything factored in by nine rating agencies we use to assess fundamental risk.

Every metric in this safety and quality model was selected based on

  • decades of empirical data
  • the experience of the greatest investors in history
  • nine rating agencies
  • and what blue-chip economists and analyst firms consider most closely correlated to a company’s long-term success.

We use one of the most comprehensive safety and quality models in the world, to create one of the highest quality watchlists on earth.

The DK 500 Master List includes the world’s highest quality companies including

  • all dividend champions
  • all dividend aristocrats
  • all dividend kings
  • all global aristocrats (such as BTI, ENB, and NVS)
  • all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)
Rating Dividend Kings Safety Score (77 Safety Metric Model) Approximate Dividend Cut Risk (Average Recession) Approximate Dividend Cut Risk In Pandemic Level Recession
1 (unsafe) 0% to 20% over 4% 16+%
2 (below- average) 21% to 40% over 2% 8% to 16%
3 (average) 41% to 60% 2% 4% to 8%
4 (safe) 61% to 80% 1% 2% to 4%
5 (very safe) 81% to 100% 0.5% 1% to 2%

Our dividend safety scores are based on historical dividend cut data going back to 1945 and confirmed during the two worst recessions in 75 years.

During the Great Recession and Pandemic, our safety model predicted six blue-chip dividend cuts on our Phoenix list. In reality, there were five.

This ultimate baptism by fire is why I entrust 100% of my life savings to the Dividend Kings safety and quality scores.

Today low-interest rates have many investors bemoaning the lack of safe yield. It’s always a market of stocks, not a stock market, meaning whatever your goals, wonderful companies are always available at attractive valuations if you know where to look.

MPLX 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

MPLX’s 9.8% yield is the safest ultra-yield on Wall Street. Despite anemic 2% long-term growth consensus from analysts, it still has more than double the market’s consensus return potential.

S&P 500 2026 Consensus Total Return Potential

(Source: F.A.S.T Graphs, FactSet Research)

For those seeking the highest blue-chip yield, Magellan Midstream is the #1 choice.

MMP 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

Both MPLX and MMP are MLPs, meaning they come with K-1 tax forms that some people prefer to avoid.

If that’s you then Enbridge is a great alternative.

ENB 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

What if you’re nervous about energy, and prefer to avoid the sector?

Then British American Tobacco is the best ultra-yield option.

BTI 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

BTI literally offers Buffett-like return potential for the next five years. And management thinks it can deliver 15% to 17% CAGR long-term returns. Not just for a few years, but for decades to come.

None of these companies are fast-growing. But when you can lock in a mouthwatering safe yield, that grows steadily over time at rates that match or surpass inflation? You don’t need rapid growth to retire rich.


About author

Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I'm a proud co-founder of Wide Moat Research, Dividend Kings, and the Intelligent Dividend Investor. My work can be found on Seeking Alpha, Dividend Kings, iREIT, and the Intelligent Dividend Investor. My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives. With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams and achieving long-term financial goals.

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