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People ask me about my most profitable investment.

It was an investment I made back in October 1999. Today, it pays me a yield equivalent to 27%, and it has forever changed how I look for income opportunities.

In 1999, I was speaking at an economic conference in New York. During one of the breaks, I struck up a conversation with two gentlemen who both happened to work in the oil and gas business. At the time, I was doing some consulting work for a lawsuit involving a number of large oil companies and had been knee-deep in oil price and production data.

Oil and natural gas prices had been on a steady 20-year decline following the "oil shock" of 1979. By the time 1999 rolled around, analysts had universally soured on the sector. Prices were going lower, they said. In March 1999, The Economist devoted a whole issue to the glut of world oil.

Discussing the future price for oil, The Economist said, "$10 [per barrel] might actually be too optimistic. We may be heading for $5."

In October 1999, I didn't agree with the analysts or the common view that oil prices were going to sink lower. As it turns out, neither did my newfound friends at the conference. Over the course of the meeting we exchanged information and data to back up our thesis.

Immediately following that conference, I made an investment in Burlington Resources, an oil and gas company that was later bought by ConocoPhillips (NYSE: COP).



You can see what has happened to oil prices since then...

Although I think oil prices may be vulnerable in the short term, I still hold a small position in COP. That's because my cost basis is roughly $10 per share. With the shares trading at just under $73 today, and after stock splits and dividends, I've seen a gain of more than 700%.

In fact, if oil prices drop a little more, COP may be a good buy. The company just announced good earnings, beating out a lot of the other majors. But COP is going to be under pressure in this market over the next month.

Why am I not worried?

Because while ConocoPhillips pays an annual dividend of $2.76 per share, for a yield of 3.7% today, my yield on cost is north of 27%.

That's because ConocoPhillips is one of the most relentless dividend payers on earth. In 1999, when I first bought my stake in Burlington Northern (which then turned into my stake in Conoco), the stock paid a quarterly dividend of $0.17 per share. Today that dividend is $0.69 per share -- a 306% increase.

That's what has changed about my search for income.

Many income investors won't look twice at a stock yielding 3%. They want to own stocks that pay the highest yields right now. I don't blame them. I want the same thing.

But ConocoPhillips is proof that when it comes to income, making big and lasting returns is not only about locking-in outsize yields. Sometimes you have to dig a little deeper to see how much potential a "low-yielding" stock like COP actually holds.

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