Would you buy a stock and keep it for 10 years if its price was flat as a pancake? I did and I doubled my investment! How is that possible? It’s the power of compounding dividends.
First look at this chart, this stock hasn’t moved more than $1.00 in the last 6 years, and it is almost the same price today as what I bought it for mid-2008. I bought it at $24.85 and sold it this week at $25.40. I only sold it because Barclay’s “called” the stock, requiring all the shareholders to turn in their shares for $25/share.
This is an excellent example of a “preferred stock” that is in my IRA “Cash Flow Machine”. It pays a 8.13% dividend at $2.03/year. It trades under the symbol BCSPRD (Fidelity) you can look it up on Yahoo Finance under BCS-PD. Barclays Bank is a UK based and worldwide financial powerhouse. It carries a S&P BB rating (not bad at all). Typically preferred stocks are priced at $25/share.
At 8.13% dividend rate, you will double your investment every 9 years by just re-investing your dividends each quarter. This is without the stock changing price. The chart above shows the benefits of compounding, reinvested dividends for a $50,000 investment over 10 years.
For those of us who need a well balanced portfolio and are always looking for non-volatile stocks preferred stocks are a great choice.
Here are my current Preferred Stock holdings, they make up about 16% of my IRA “Cash Flow Machine”.