So says Charlie Munger.
He’s not a household name like Warren Buffett, his business partner at their Berkshire Hathaway conglomerate. But Munger is one of the world’s wisest – and wealthiest – investors. At the start of this year, Forbes reported that the 98-year-old was worth $1.9 billion.
And he puts his success down to one thing above all else – patience.
“Investing,” says Munger, “is where you find a few great companies and then sit on your ass.”
Brad is a widely followed income investing expert and friend of Legacy Research.
He lost it all as a real estate developer during the 2008 crash. But he built back his millions in the stock market with what he calls “SWAN” – or sleep well at night – stocks.
Many of these stocks have fallen this year along with the rest of the market. But they have proven track records of growing earnings and paying out rising income streams to shareholders… no matter what the economy is doing.
You buy them. Then you do nothing for years… even decades… while your income checks roll in.
Today, we’ll take a closer look at Brad’s strategy. Then we’ll look at one of his favorite SWAN stocks. It’s a recession-proof business that’s paid steadily increasing income to shareholders every year for 47 years.
You may be just starting out on your wealth-building journey. Or maybe you’ve already grown your nest egg… and want to protect it.
Whatever stage you’re at, The Daily Cut is here to help you get from where you are… to where you want to be.
That’s why we showcase the best ideas, insights, and recommendations from Teeka Tiwari, Jeff Brown, Nomi Prins, and the rest of the Legacy Research team.
But this has been a brutal year for investors – especially for folks invested in tech stocks and crypto.
So, we’ve been working hard to bring you new strategies to profit… even through hard times.
We were looking for someone who could help our readers through the crisis. And his focus on SWAN stocks is the perfect fit for these turbulent times.
Even better, Brad is like a kid in a candy shop right now.
Most folks don’t know it… But bear markets in stocks create bull markets in income.
Stock prices and dividend yields move opposite each other. The lower the stock price goes, the higher the yield you can earn on it, all else being equal.
And right now, many of Brad’s favorite SWAN stocks are selling at steep discounts.
So, he’s been urging his readers lock in the higher yields on offer while they’re still available.
When stocks are getting whacked, like they have been this year, it’s tempting to join the stampeding herd and sell.
But that’s the opposite of what you should be doing.
When you sell in a bear market, you’re locking in your losses. You’re also guaranteeing you’ll miss the next bull market rally.
So, instead of obsessing over day-to day moves, Brad focuses on companies’ long-term fundamentals. Over to him for more on that…
In the short term, market moves are driven by popularity and emotions. This results in irrational herding behavior. Investors fall prey to greed during bull markets… and pile on near the top. And they fall prey to fear during bear markets… and sell near the bottom. They buy high and sell low – the opposite of what they should be doing.
But it doesn’t have to be that way. You can choose instead to focus on a company’s fundamentals. These include its sales, earnings, and dividend payouts. Investors often ignore these because they’re so focused on what the stock chart has been doing. But these fundamentals dictate a company’s share price over the long term.
It’s all in this next chart.
It looks at the dividend growth and earnings per share (“EPS”) at McDonald’s over the past 20 years.
EPS tells you how much money a company makes for each share of its stock. And it’s one of the most widely followed gauges of a company’s profitability.
Over the last 20 years, EPS at McDonald’s has fallen from the previous year just four times. And one of these times was in 2020, right around when the pandemic struck.
This steady EPS growth has allowed the company to sustainably increase its dividend over time. That’s despite the economic lockdowns in 2020 due to the COVID-19 virus and the Great Recession that lasted from 2007 to 2009.
In fact, as I mentioned up top, McDonald’s is on a 47-year streak of raising its dividend payments… going all the way back to 1975.
It went from $1.38 to $1.52 a share – a 10.1% jump.
And it brings the company’s dividend yield to 2.2%
That’s not a blow-your-socks-off yield. But it’s safe and growing, which are two important marks of a SWAN stock. Back to Brad…
As the old-timers say on Wall Street, “The safest dividend is the one that’s just been raised.” A dividend increase is a sign of a company’s financial strength. And if a company has been able to increase its dividends every year without fail… for almost a half-century… that’s a sign of an exceptionally well-run and profitable business.
I typically steer my subscribers away from stocks yielding 10% or higher. Many times, these are what I call “sucker yields.” They’re yields paid out by low-quality companies. They usually wind up getting into trouble and slashing their payouts… often several times…
That’s why so much of my research is focused on proven dividend-raisers like McDonald’s. They have sustainable and growing dividends. And we want to consistently boost our income, no matter what the market throws at us.
That’s why Brad calls them SWAN stocks. That growing income stream helps us sleep well at night.
Take the story Teeka Tiwari’s analyst Andrew Packer told about earning 11% on McDonald’s.
In early 2009, Andrew bought MCD shares for $55.
Today, they trade for about $274. So, he’s up around 398%, thanks to the share price rise off those bear market lows.
And that’s only half the story…
MCD pays an annual dividend of $6.08 a share. That’s an 11% yield on Andrew’s entry price of $55.
Normally, you have to take enormous risks to secure a 11% yield.
But thanks to Andrew’s decision to invest in a proven dividend-raiser when nobody else wanted to, that’s the “yield on cost” he earns on his MCD share today.
And it’s one of the most conservative and recession-proof companies in the world.
People may stop eating out in high-end restaurants during recessions. They don’t stop eating low-priced meals from McDonald’s.
And you can’t brag about a “boring” stock like MCD at dinner parties.
But the company has proven it’s able to raise its profits and reward its shareholders with rising dividends, through thick and thin.
So, if you’re worried about an economic downturn, it’s a great stock to buy today.
Brad also has a list of SWAN stocks that goes far beyond McDonald’s.
At his Intelligent Income Investor advisory, he’s put together a model portfolio of his favorite SWAN stocks across different sectors.
Having this diversified exposure can help steady your portfolio… and keep providing rising income streams… even if one sector takes a hit.
Learn how to access Brad’s full list of SWAN stocks recommendations here.
Editor, The Daily Cut