If you're an avid reader of MoneyMorning, you've probably heard about “value-traps” - companies that seem cheap because they're trading at a massive discount to its sector, peers or net asset value for a period of time.
But do you know what an “income-trap” is?
Well, they're companies that seem attractive because of their high dividend yields.
You may not believe me, but many investors have lost a lot of money investing in income-traps.
But you don't have to be one of these investors.
Because today, I'll reveal a simple formula that can help you not only avoid “income-traps”, but also identify the REAL income-generators.
How to generate a R700,000 windfall starting with R10,000 using the oldest wealth trick in the world
This wealth secret is the most powerful force in finance. It’s the force behind almost every fortune. The brilliant financial writer of the Dow Theory Letters, Richard Russell, called it “The Royal Road to Riches.” And it’s been mathematically proven time and time again as the #1 ’how to get rich quick’ trick in the modern world.
Even Einstein joked that it is “the most powerful force in the universe.”
And in my brand new book, The Little Book of Big Income – 7 Filthy Secrets to Get Rich Quick, I’ll show you how to use it to turn R10,000 into more than R700,000.
But you must act fast…
My publisher is only allowing me to give away 300 hundred copies as a special launch offer,
A two-minute formula every investor looking for income must know…
Income investors like to use the popular dividend
yield as a measure of how much income they’ll receive. But there’s a more accurate way to tell how much income you have received from day one.
It’s a simple formula called yield-on-cost and it tells you how much income an investment is paying you from day one.
And the formula is easy to use: Simply divide a company’s current annual dividend by the price you paid for the stock.
Current Annualised Dividend ÷ Original Share Price=Yield-on-cost
This two-minute calculation reveals what your dividend yield is today based on the price you paid for your original investment – A more significant number than just checking a stock’s current yield.
Let me show you how it works with an example…
Why yield-on-cost is so important to income investors
I’m going to use printing company Novus (JSE: NVS) as an example and apply the yield-on-cost formula.
What we need to know first, is how much the share originally costed and how much dividends did the company pay to investors.
So let’s say you bought Novus at the beginning of 2017. You would’ve paid around 989c per share. In addition, the company’s yield was an attractive 7% and you would’ve received a 56c per share dividend.
Fast-forward to today, and Novus’ stated dividend yield is even better at 11.38%. So this could attract income investors looking for high yields.
But when you apply the yield-on-cost formula, you’ll discover Novus “true yield” today is far from that.
You can see that Novus’ true yield is HALF its current yield – a true “income trap”!
All it takes is 2 minutes to avoid “income traps” and find the “real yield” of an investment
If your objective as an investor is to generate consistent income from shares, comparing current dividend yields isn’t enough. They’re misleading.
So when you’re hunting for the next dividend payer or high-yield investments, you must use yield-on-cost to identify REAL income-generators.
And it will only take a couple of minutes to work it out.
Always remember, knowledge brings you wealth,
If you’re looking for ways to generate an income, then I urge you to read my FREE book
, The Little Book of Big Income
. But you have to hurry we’re only giving it to the first 300 readers who respond