This fact has been repeatedly driven home during my tenure at our sister publication High Yield Wealth.
When one of our High Yield Wealth recommendations would declare an exceptionally large dividend, the share price of the company issuing the dividend would spike higher. The price wouldn’t only spike higher, the price trend would maintain the trajectory.
I offer two prominent examples from our High Yield Wealth recommendation list.
Unexpected Total Return at Target
Target Corp. (NYSE: TGT) was our March 2014 recommendation. The retailing giant’s share price languished under a massive security breach and a disastrous Canadian expansion.
But Target was still profitable. It continued to generate ample cash flow to service and grow the dividend. This matters. Target had increased its dividend every year for the past 47 years. I knew that trend would continue.
What I didn’t know was the extent to which Target’s dividend growth would continue.
Target management signaled the company’s financial condition to the investing public. It signaled by increasing its quarterly dividend 21% in August 2014. Target shares spiked $3 on the unexpectedly high dividend declaration and the shares trended higher over the subsequent year.
We at High Yield Wealth closed our Target recommendation a year later to capture an unexpectedly high 38% total return.
Moelis & Co. (NYSE: MC), a boutique investment bank, offers a more recent example. Moelis was our January 2017 recommendation.
We recommended Moelis for its exceptional opportunities to grow its business. The opportunities were even more exceptional than we thought. Moelis grew its business and increased its quarterly dividend 15.6% after our initial recommendation.
Like Target, Moelis shares spiked $3 on the divided news. Unlike Target, the percentage increase was much larger because Moelis shares traded at a lower base price.
Moelis shares have risen since. What’s more, the rise was given an adrenalin shot last month.
Moelis declared and paid a special quarterly dividend nearly three times the expected quarterly payment. Moelis shares trade near an all-time high as I write.
We have had similar experiences with unexpectedly large dividends throughout our High Yield Wealth recommendation list. Our experience inspired us to think: Is there a strategy to collect even more dividend income and capture even greater total return?
After months of painstaking research on high yield dividends, we found the answer is “yes.”
We found that outstanding returns can be generated when buying unexpectedly large dividends — dividends much larger than dividends offered by Target or Moelis.
I mean much larger. Dividend increases 10 times the increase of the Target and Moelis are paid. The profit potential presses and readily avails itself for capture.
These high yield dividends and the outstanding returns they generate can be realized even after the dividend is declared. You can still profit after the initial share-price spike.
Spot the Right High Yield Dividends
That is, you can profit if you know what to buy.
Not all dividends qualify. Buying the right dividend is key. Only a few are right, most are wrong.
For a variety of reasons — too much debt, too little cash flow, too poor business prospects, too little yield — most of these dividends are best ignored. Less than 20% of these large dividends lead to an outstanding return.
The good news? We have beacon of light.
You can learn to differentiate the right dividends from the wrong dividends. Better yet, you can profit from trading the right unexpectedly large dividend payments to which I refer.
Join Ian Wyatt and me for a free, live dividend investing event next Wednesday, July 26, at 2 p.m. EDT. You have nothing to lose. Expect the opportunity to generate big yield and huge total returns on your dividend investments.