One of the principal reasons why many investors perform poorly, is due to unrealistic expectations. As the speed an investor can change stock position has transformed from days to minutes to seconds, the ability for investors to follow fads has increased in tandem. Ambitious traders want to find the next Apple, in hopes of pocketing 50 to 100% gains; however, the way to get rich from investing is not an outsized gain here or there, but rather through consistency.

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Learn from the Masters
The world's best and most successful investors didn't become that way by timing a stock to outsized gains. They did it by producing long-term positive returns. The king of the investing titans, Warren Buffett, Chairman and CEO of Berkshire Hathaway, has returned nearly 20% a year on average, but he's done so for over 50 years. Seth Klarman has returned about 18% a year, in a time frame measuring over 20 years. David Einhorn, of Greenlight Capital, has returned around 15% a year, for over 10 years. Notice that no great investor makes the list by earning 50% a year for a couple of years.

While few investors may have the opportunity to earn Klarman or Einhorn type returns, the majority of stock market investors can do very well for themselves, if they learn to have realistic expectations. Instead of trying to outsmart the market, one stands a chance of doing very well over the coming years, thanks to the historic dividend yields that are being served up today.

Easy Income
Today, banks are paying depositors nearly 0% to house their money. U.S. Treasuries will pay you 2% a year, if you agree to never touch your money for 10 years. Yet when the price of essentials like milk, gas and electricity are going up by 3 to 5% a year, anything you make from a bank or T-bill is eaten up by inflation. On the other hand, quality stocks like Chevron (NYSE:CVX) are yielding over 3% and trades at nearly eight times earnings. Brookfield Infrastructure Partners (NYSE:BIP), which owns safe cash flow infrastructure assets, yields over 5% and trades at seven times earnings.

Media company Meredith Corp (NYSE:MDP) currently trades for $29 a share, allowing investors to own the business at 11 times earnings and a 5.3% yield. Stable cash flows provided by the company's TV networks are returned to shareholders in the form of increasing dividends. Intel Corp (Nasdaq:INTC) has over $7 billion in net cash in Q3 and earns, on average, about $6 billion more each year in free cash flow. That's more than enough to support the company's $3 billion in annual dividends or a yield of over 3%. With that much excess cash left over, INTC will likely continue to reward shareholders.

The Bottom Line
Dividends play a crucial role in generating significant value for investors especially over time. The longer the holding period, the more likely dividends, along with capital appreciation, will produce returns that significantly exceed inflation.

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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.



Tickers in this Article: BIP, INTC, MDP, CVX

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