Dividends gaining momentum...

Dividends gaining momentum... A new cash gusher... The island of the blind... Giving health care away... Doc Eifrig and ABT... Another solar company bankruptcy...

 The evidence about dividend-paying stocks is building up. And it's getting harder and harder to ignore...

The S&P 500 Total Return Index closed yesterday at a new all-time high of 2,449.08 – beating its October 9, 2007 record of 2,447.03. The Total Return Index is based on the same stocks as the S&P 500, the traditional benchmark of stock market performance... But instead of just counting capital gains, it factors in dividends as well. (The S&P 500 Index is just capital gains.) The S&P 500 index is still about 9% below its 2007 peak. If you go back to the market's top in 2000, the S&P 500 is still down about 3%. But the Total Return Index is up 21%.

I expect more and more investors to come to believe that they must own dividend-paying stocks to make money in the stock market.

 According to Standard & Poor's senior index analyst Howard Silverblatt, if you go back to the end of 1989, a $10,000 investment in the S&P 500 would be worth $40,154 in capital gains... and reinvested dividends would add another $24,396, for a total value of $64,550 today. So reinvested dividends made the difference between a 302% gain and a 546% gain. (Nothing like an extra 244 percentage points to get your attention.)

In the 1980s and 1990s, dividends went out of style. During the '90s, dividends generated less than 20% of stock market returns. When a bull market is raging, capital gains become more important and dividend yields fall. Also, the tech companies that contributed the most to the '90s-era frenzy were less inclined to pay out dividends. It was believed they'd do better by retaining capital and reinvesting in their businesses. All of that convinced investors that dividends were not important anymore.

But historically, dividends have been very important. Going back to 1926, dividends have provided about 41.85% of the total returns from stocks, Silverblatt reported. The pendulum has been swinging back in the direction of dividends for more than a decade now, and I expect it'll continue to do so for another decade...

The huge bull market ended in 2000, and the stock market has gone sideways ever since. I expect the market to continue moving sideways over the next several years and its price-to-earnings ratio to head lower. Without capital gains to provide returns, dividends will naturally take on greater importance. (Also, corporations will figure out that it's important to pay dividends – like Cisco did last year and Apple did this year – so they'll pay out more overall than in the past.)

 In this month's issue of Extreme Value, due out Friday after market close, I (Dan Ferris) have a new recommendation for readers – a dividend-paying company that has totally revamped its business. It just raised its dividend for the first time since 2008, confirming our belief that the business is more valuable than ever and management (which owns 19% of the stock) is unlocking immense value for shareholders.

In fact, the company spun off part of one of its businesses to its shareholders in early 2008. The spinoff's stock is up 80% since then. And guess what? It's spinning off a piece of another business this year. I expect that spinoff will again create tremendous value in the next couple years for shareholders who get in today.

This company's business is based on real assets with long-term revenue streams that gush large amounts of stable cash flows. Management has proven it's made up of consummate, disciplined value investors. They buy high-quality assets when they're distressed and hold them for the long term. They're known for doing the right thing at the right time. They aggressively bought back their stock in the depths of the financial crisis, when it was dirt-cheap. That's a feat of financial genius.

Most companies stopped buying back their shares when the market tanked in 2008-2009. Even Wal-Mart stopped buying back shares for a while. But this company saw an opportunity and seized it, creating huge value for shareholders. To discover this safe, cheap opportunity, you'll need access to Extreme Value. Click here to learn more about subscribing.

 When the government is in charge of deciding who gets health care, suddenly everyone is sick!

Nowhere is this concept more apparent than on the Greek island of Zakynthos, where 1.8% of the population, an unusually large proportion, has made disability claims for blindness. (About 0.3% of the U.S. population is legally blind, according to Centers for Disease Control data.) The Wall Street Journal this morning reported fraudulent disability claims cost Greece hundreds of millions of euros a year.

To crack down on disability fraud, the Greek government required claimants to show up in person to register their names in a centralized database... resulting in 36,000 fewer claims nationwide last year. Of 700 Zakynthians collecting blindness benefits, only 190 registered. "It appears the 'blind' of Zakynthos saw only the color of money," a Greek newspaper reports.

The mayor of Zakynthos was pelted with yogurt when discussing the disability fraud crackdown at a recent public appearance. It makes me wonder... Here in the northwest U.S., our economies are as mired in government waste as any in the country. I'd hate to get hit with a 100-pound salmon. Remind me not to discuss austerity measures in public.

 When you give things away to people who didn't earn them, you've eliminated any potential downside. So all they see is upside, the stuff they can buy with free money or the services they can get without paying for them. When people must earn what they consume, they tend to see things differently. They see what they must do without in order to get what they want. They immediately become students of Economics 101, balancing endless wants against the finite amounts of money and time available to satisfy them.

When you take away the risk of misallocating resources, resources get misallocated all over the place. That's what Europe is teaching the world right now, if we'd only listen... Obamacare will be even worse than Greek disability fraud. Health care is more abundant and much bigger business here. (The U.S. is No. 1 worldwide in health care spending per capita.) That feeds the illusion that it ought to be free of charge or otherwise cheaper for everyone. If the Supreme Court doesn't strike down Obamacare, you'll find out quickly how expensive health care becomes when you give it away.

 On the subject of health care... one pharmaceutical stock appearing on the "new highs" list a lot lately is Abbott Laboratories. Dr. David "Doc" Eifrig recommended Abbott Labs in the February 2011 issue of his Retirement Millionaire newsletter. It's a blue-chip health care stock with a solid (3%) yield... The company has paid a dividend for 84 years and increased it every year for 38 years. And despite everything happening in the economy, Abbott Labs is still growing sales. Over the past five years, the company grew net sales 38%, from $22.3 billion to $30.8 billion.

Since his recommendation, Doc is up 33.5% on Abbott. But more than just a good pick... his Abbott Labs recommendation is part of a larger strategy... In Retirement Millionaire, Doc picks stocks that do well in good times and bad – typically the biggest, safest companies in the biggest, safest industries, like McDonald's (fast food) and Chevron (oil). Doc has recommended several stocks in the health care sector... It's a megatrend in the works, he says. As Doc explained to his subscribers in the June 2011 issue...

Doc's Retirement Millionaire portfolio is currently stuffed with high-quality health care stocks that should provide high, steady returns for years. To learn more about Retirement Millionaire (where you can learn the stocks Doc thinks will benefit most from the health care megatrend), click here...

 Another solar boondoggle bites the dust...

Last April, the U.S. Department of Energy loaned $2.1 billion to Solar Trust of America (STA). STA is the world's largest solar project, and its loan was the second-largest handed out by the Energy Department during current Secretary Steven Chu's tenure. "This project construction is expected to create over 1,000 direct jobs in Southern California, 7,500 indirect jobs in related industries throughout the United States, and more than 200 long-term operational jobs at the facility itself," said Uwe T. Schmidt, chairman and CEO of Solar Trust of America. "It will play a key role in stimulating the American economy."

Yesterday, the Solar Trust of America, LLC, the parent company, filed for Chapter 11 bankruptcy.

 Last year, Solyndra, another solar company, filed for bankruptcy. It had received a $535 million loan from the Energy Department. And it was an Obama favorite. Solyndra and STA are just the warm up... We're waiting for First Solar, the bellwether in the solar industry, to go bankrupt. And it shouldn't be long. To read our most recent comprehensive write-up on First Solar, click here.

 New 52-week highs (as of 4/1/12): Gold Standard Ventures (GV.V), PowerShares Buyback Achievers Fund (PKW), ProShares Ultra Technology Fund (ROM), ProShares Ultra Health Care Fund (RXL), Virginia Gold Mines (VGQ.TO), Constellation Brands (STZ), Coca-Cola (KO), Prestige Brands Holdings (PBH), Cisco (CSCO), Intel (INTC), Altria Group (MO), Philip Morris International (PM), and Tetra Tech (TTEK).

 Have you put dividend-paying stocks at the heart of your portfolio? How long have you been buying them? Tell us how they've fared. Send your feedback to feedback@stansberryresearch.com.

 "I have been a subscriber for a month or so now and I really like what you say. I am a superintendent/project manager for a small home builder in Minnesota, needless to say, the home building market is bad and I do not see the light for some time! The owner of my company and I once worked for a large national builder so we have seen and rode the good times! There was a time when we were so busy I could not see straight! We made good money and had a lot of fun to boot! Many of us in this industry knew these days were going to come, no one knew it would have come so fast, fallen so far and for so long! (maybe you, but I didn't know of you back in 2006) I planned and lived within my means but now after many years of bad markets and I am starting to bleed and need help to stop it.

"I know very little about investing and am trying to learn, I can design and build a great home but can't figure this stuff out very well. All these things I read about in your emails, how do i get them working for me? How can I get further help?" – Paid-up subscriber Brett Palesch

Ferris comment: Before you invest one more penny, read Chapter 20 of Ben Graham's book, The Intelligent Investor. It's called "Margin of Safety as the Central Concept of Investment." It'll teach you to buy stocks only when they're safe and cheap enough. Then, read Chapter 8 of the same book, which will teach you how to take advantage of the stock market's ups and downs.

Then, get yourself a copy of Joel Greenblatt's book, The Little Book That Still Beats the Market. It'll teach you to buy great businesses... but only when they're cheap enough to make money on them.

Get to know the material in those two books well, and you'll have a solid grounding in the essential principles of investing.

 "Friday's Digest was another great one! I look forward to reading the digest each morning as well as my various subscriptions as soon as they hit my inbox. I find it strange that subscribers willingly pay you and then take offense to your attempt to educate all of us. Isn't that what we are paying you guys for... a different viewpoint than the trash being pedaled to the masses by the Wall Street crooks? Anyway, don't give up although I am sure it must be frustrating. Eventually maybe more and more people will wake up." – Paid-up subscriber Zack Barbee

Regards,

Dan Ferris and Sean Goldsmith

Medford, Oregon and New York, New York

April 3, 2012