Do it This Way, and Your Money “Pays You”

One of the best ways to create cash flow right now is through stock dividends— especially through stocks with exposure to the emerging markets.

Cash flow is the amount of money your portfolio “pays you” each year. And by buying a diversified basket of dividend-paying stocks, it can be surprisingly stable.

When markets tumble, stock prices tend to fall a lot harder than dividend payments. That means owning dividend-paying stocks helps you weather turbulent times and preserve your savings.

Dividend income also helps you offset inflation pressures as markets recover. That’s because dividend payments tend to rise in these up cycles, too, leading to a growing cash-flow stream.

It’s often overlooked, but dividends make up the lion’s share of stock-market returns. According to one study, dividend income made up 35% of the total returns of the S&P 500 between 1926 and 2009.

There are two important reasons why this trend is set to accelerate. First, record low bond yields mean that dividend income is more sought-after than ever. And second, as the baby boomer generation hits retirement age, more and more investors are going to look for dividend income from their portfolios.

You can add dividend cash-flow to your portfolio by buying shares in an exchange-traded fund that trades in New York and charges fees of 0.56% a year.

This fund invests only in the stock of companies that have increased their annual dividend payments for at least the last five consecutive years.

This dividend-raising consistency is critical. The last thing you want to do is rush out and buy a bunch of stocks with huge yields. Often, company boards decide to issue big dividend payments to attract investors into a lackluster stock. This could expose you to serious losses.

Also, unusually high dividends are prone to fall back to earth fast. (As a rule, you should be careful with stocks that yield over 5%… or stocks that issue one-time dividend payments. That’s not to say that they won’t be good investments. But an extra dollop of skepticism could help you avoid duds.)

The fund is well diversified geographically. But it still gives you significant exposure to high-potential emerging markets. This means it also allows you to profit from a rise in stock market prices, as these markets continue to grow richer.

Editor’s note: In the current issue of International Living magazine, Chris reveals the full details about this ETF (exchange-traded fund). You get instant access to the complete dividend article when you subscribe to the magazine here.


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