The parable of Alabama Earl's inadvertent long-term investment

Dear Mr. Berko:

I am 38 and married with an IRA worth $337,000, and I can save more than $1,500 a month. I've had some extremely good luck playing the market this year because I made a bunch of short-term trades that gave me sleepless nights, but some divine guidance made most of them work out.

I want to have $6 million in the bank by the time I retire at age 60, but I don't have the stomach to take these risks, and I do not have the time to search for and research them. Can you recommend a broker who does these things, who is good at this, who is honest and who will take a $300,000 trading account? I would appreciate your help.

EL, Ft. Walton Beach, Fla.

Dear EL:


Let's pretend it's the summer of 1952. Bubba and brother Earl are thinking hard on buying two new Chevy pickups from a dealer in Mildew, Ala. So they decide to sit down under a big ol' tree and drink about it for a while, as folks from Alabama often do.

Bubba had 1,600 dollar bills in his Mama's bread box, and Earl had 1,600 silver dollars in a burlap potato sack he stole from Fogart's Feed Store. So they set down their money and get to sampling some moonshine. Well, one drink leads to another drink, and another leads to another and another, and it isn't long till they get to sleeping pretty good.

Because they were drinking McKibben Brothers Pure 'Shine, Bubba and Earl sleep soundly for 60 years, and when they finally wake up, it is, according to the Mildew Alabama Morning Herald, 2012. But, remembering their goal, they find their way to Shorty's Chevy and Seed to buy themselves new Chevys.

Once there, Bubba discovers that his 1,600 dollar bills are hardly enough to pay for a set of run-flat tires and a car radio. But Earl's 1,600 silver dollars, now worth about $30 each, are enough to buy him a bodacious new truck with all the gadgets -- with enough left over to pay for insurance and gas for the rest of the year.

While this isn't a true story -- Mildew, Ala. does not have a morning paper -- it accurately reflects the wisdom of buy-and-hold long-term investing. Many folks would jump at the chance to make a 50 percent return in six months or a year on a $10,000 investment, even though very, very few succeed. But it seems that a boom-boom, rah-rah, go-go trading frenzy has been hard-wired in most of today's investors, who think long-term is the time it takes for light to travel 182,000 miles!

And the print media endorses this view every day with stories about stocks that gained 60 percent in 3 months and multiple trading programs guaranteed to make you 25 percent a month. I can't recall any time when Business Week, The Wall Street Journal, Barron's, Fortune, Jim Kramer, MSNBC or Bloomberg ever discussed a long-term investment in a stock with an annually increasing dividend and recommended reinvesting those dividends for 20 years.

McDonalds (MCD-$98) is a great stock with a market cap of $100 billion. Its $2.80 dividend, which has increased an average of 35 percent a year for 35 consecutive years, currently yields 2.85 percent. If you bought 100 shares of McDonald's today, and if that dividend (let's be very conservative) increased only 12 percent a year, well, in six years, it would double to $5.60.

And in 12 years, it would double again to $13.20. In 18 years, it would have increased to $26.40 a share. And if you had reinvested every one of those dividends for 72 consecutive quarters (assuming the shares never increased in price), you would own 306 shares paying dividends of $26.40 a share, and you'd have an income of more than $8,000 a year. However, if the shares declined in market value, you'd accumulate more than 306 shares, and your total dividend income would be higher.

A few other dividend growth stocks to consider are Fastenal (FAST-$42), which has grown its dividend an average of 30.2 percent a year for the last 10 years. Norfolk & Southern (NSX-$76) has grown its dividend 22.4 percent a year for the last 11 years. Novo Nordisk (NVO-$112) has grown its dividend 23.1 percent a year for the last 16 years. Colgate Palmolive (CL-$92) has grown its dividend 12.9 percent for the last 48 consecutive years. Automatic Data Processing (ADP-$51) has grown its dividend an average of 13 percent for the past 37 years.

There are many other dividend/growth issues with similar metrics, and any above-average broker should be able to ferret out a good number of these issues for you.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at Visit Creators Syndicate website at

© 2011 Creators Syndicate Inc.

Published: Fri, Feb 3, 2012


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