RETIREMENT MILLIONAIRE August 2013

350R034983
RESEARCH REPORT

The Dividend Boost

Retirement Millionaire
The Dividend Boost
Stansberry &  Associates
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Baltimore MD 21202 USA
www.StansberryResearch.com

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 The Dividend Boost
Dr. David Eifrig Jr., MD, MBA

Most people don’t know this... But a corporate “loophole” lets you collect $5,000... $10,000... even
$30,000 or more in extra income... Starting with very little cash.

As you’ll see, some U.S. companies will pay you dividends that grow to five – or even 10 times –
bigger than normal over a period of time.I’m talking about programs that allow you to reinvest dividends
and compound your investment in some of the strongest businesses in America

The key to safely building your wealth is to create a safe and growing stream of investment income.
The best way to do that is to invest in a set of American businesses that have reliably distributed income
to investors for many decades. As I’ll show you, in some cases these investments have been paying out
uninterrupted yearly income for decades. These investments are my favorite super safe places in the
world right now to put your money.

However, our Dividend Boost strategy is about more than simply buying stocks with solid
dividends… the critical step is to sign up for a program that allows you to funnel that cash into more
shares of the company… and that allows you to do it cheaply, avoiding big fees and commissions.

Following this program, I can see investors getting at least 35% of dividend income on their initial
cost (so-called yield to cost). And I can see their initial investment easily doubling in 10 years. Put in
$1,000 today in this portfolio earning a 3.1% dividend... and you could have $2,000 paying you 17% a
year in 10 years... a great start to retirement.

In this report, I’ll explain how to set up your Dividend Boost program to start receiving a huge,
steady flow of income. But before we get started... you need to understand why...

Dividends Are a Sign of a Good, Shareholder-Friendly BusinessOne thing you’ll hear me say
over and over in Retirement Millionaire: Dividends Don’t Lie...

It’s a cornerstone of our investing strategy. Here’s what I’m talking about: A good accountant can
fudge 99% of the figures on a balance sheet or a profit statement. But he can’t fake a cash payment. If a
company is paying cash, it’s hard to fake the numbers.

For example, take Wall Street’s favorite number – earnings. Earnings are subject to all sorts of
bookkeeping adjustments like depreciation, reserve accounting, and different inventory valuations.
Because investors pay attention to earnings more than any other number, it becomes really tempting to
manipulate them.

But think about a dividend. A dividend is a fact. When companies pay their dividends, they mail out

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checks to every shareholder. The money leaves the bank and never comes back. It’s that simple.

Regular dividend payments are a real mark of quality. The management and directors know their
company better than anyone else. So when a company announces a dividend payout, it’s saying, “We have
cash we don’t need.” A strong dividend payment almost always indicates a healthy business. The company
is generating cash and wants to say “thank you” to shareholders.

And a company knows if it takes the dividend away suddenly, its stock will drop. It’s not always easy
to pay out cash to the shareholders every year... Cash is a scarce resource, and it’s critical to every business.
So when companies are able to maintain their dividends through bad times, it sends a strong signal to the
market that management knows what it’s doing... that it has good control of its company’s finances.

Similarly, rising dividends protect stock prices in bear markets. Thus, dividend stocks are by nature
defensive stocks. A rising dividend acts like a pontoon float and prevents the stock price from falling much.

Finally, a dividend payment signals management’s intention to reward investors for offering their
capital. As a stock analyst, I place great weight on the dividend payments when I size up a company. A
regular and increasing dividend payment is a sign of a healthy business.

So the first step in our Dividend Boost plan is to pinpoint the highest-quality dividend paying
stocks… But the question remains…

How Can I Juice My Dividend Income Stream?

The “Boost” part of our plan is based in simple – but critical – principle of compounding your
income.

It works like this... When the company mails you a dividend check... instead of using it to buy that
new lawnmower or take your spouse out to dinner... you simply buy more shares of the company’s
stock...

That’s it... As simple as that sounds, it’s an incredibly powerful tool when you put it to work. Let me
show you just how powerful...

Let’s say you find a stock you like that pays a safe, rich 5% yield. (We’ll use round numbers to keep
the math in this example simple.) You buy 100 shares for $10 each. We’ll assume the share price and the
dividend stay fixed at $10 and 5%, respectively.

At the end of the first year, you’ll receive $50 in dividends (5%). You take that payment and buy five
more shares... This increases your position to 105 shares. In Year 2, you earn $52.50 in dividends. You
reinvest this too, adding another 5.25 shares to your position.

You now own 110.25 shares. Repeat this process for 12 years and in the 12th year, you’ll make
$85.52 in dividends. That’s an 8.55% dividend yield off your initial $1,000 investment.

This is what accountants call “compound” investing. Your dividends turn into stock. This extra stock
then produces dividends of its own. That dividend becomes stock and so on... Compounding interest
or dividends is one of the strongest ways to build wealth in finance. Warren Buffett built his fortune by

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compounding dividends.

Share Dividend New Total Yield on

Year Shares Dividend Value
Price Rate Shares Shares Cost
1 $10 100 $0.50 $50.00 5 105 $1,050.00 5.00%
2 $10 105 $0.50 $52.50 5.25 110.25 $1,052.50 5.25%
3 $10 110.25 $0.50 $55.13 5.5125 115.763 $1,055.13 5.51%
4 $10 115.763 $0.50 $57.88 5.78813 121.551 $1,057.88 5.79%
5 $10 121.551 $0.50 $60.78 6.07753 127.628 $1,060.78 6.08%
6 $10 127.628 $0.50 $63.81 6.38141 134.01 $1,063.81 6.38%
7 $10 134.01 $0.50 $67.00 6.70048 140.71 $1,067.00 6.70%
8 $10 140.71 $0.50 $70.36 7.0355 147.746 $1,070.36 7.04%
9 $10 147.746 $0.50 $73.87 7.38728 155.133 $1,073.87 7.39%
10 $10 155.133 $0.50 $77.57 7.75664 162.889 $1,077.57 7.76%
11 $10 162.889 $0.50 $81.44 8.14447 171.034 $1,081.44 8.14%
12 $10 171.034 $0.50 $85.52 8.5517 179.586 $1,085.52 8.55%

But we’re not finished yet... The real magic in compounding happens when you pick stocks that pay larger
dividends each year.

Imagine a dividend that grows 10% each year. Your position compounds at twice the speed. The 5%
dividend yield turns into a 34.2% “yield on-cost” (as it’s called) in the 12th year.

Here’s how...

The Dividend Rate Grows

Imagine if you could find a company that in creases its dividend by 20% a year. You’d double your
money in Year 8. And your yield on-cost would be more than 39%.

Share Dividend New Total

Year Shares Dividend Value Yield
Price Rate Shares Shares
1 $10 100 $0.50 $50.00 5 105 $1,050.00 5.00%
2 $10 105 $0.55 $57.75 5.775 110.775 $1,057.75 5.78%
3 $10 110.775 $0.61 $67.57 6.75728 117.532 $1,067.57 6.76%
4 $10 117.532 $0.67 $78.75 7.87466 125.407 $1,078.75 7.87%
5 $10 125.407 $0.73 $91.55 9.15471 134.562 $1,091.55 9.15%
6 $10 134.562 $0.81 $108.99 10.8995 145.461 $1,108.99 10.90%
7 $10 145.461 $0.89 $129.46 12.946 158.407 $1,129.46 12.95%
8 $10 158.407 $0.97 $153.65 15.3655 173.773 $1,153.65 15.37%
9 $10 173.773 $1.10 $191.15 19.115 192.888 $1,191.15 19.11%
10 $10 192.888 $1.20 $231.47 23.1465 216.034 $1,231.47 23.15%
11 $10 216.034 $1.30 $280.84 28.0844 244.119 $1,280.84 28.08%
12 $10 244.119 $1.40 $341.77 34.1766 278.295 $1,341.77 34.18%

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 The stocks I’m about to identify are ideal for this kind of investing strategy.

The three companies I’m about to describe have increased their dividend payout every year going
back decades.

Putting an equal amount of money in each of these stocks today will help you to take full
control of your long-term investing... creating a consistent, growing income stream that will build
your wealth safely...

To start... I recommend you buy this...

Dividend Boost Stock No. 1: Medtronic (NYSE: MDT)

In the health care sector, Medtronic (NYSE: MDT) is synonymous with pacemakers. For
generations, Medtronics has been a leader in using electronics to stabilize and manage heart rhythms
and maintain lives. It was one of the first to create an implantable pacemaker that could withstand the
giant magnets of an MRI machine.

But the company has grown and diversified. Today, Medtronic gets about 52% of its revenues
from its cardiac and vascular group and 38% from restorative therapies. The final 10% comes fromits
diabetes segment.

Revenues grew about 5% from 2012-2014.

But what excites me about MDT as a DRIP pick is that it’s paid a dividend for 37 years and
increased its dividend for 34 consecutive years. A company that keeps growing by producing cutting-
edge technologies and rewarding shareholders is the kind of company we love to own at Retirement
Millionaire.

MDT’s payout ratio is a safe 37%. Earnings (currently around $3.02 per share) could fall in half, and
the dividend would still be safe.

Medtronic currently pays a $2.00% dividend and trades for less than $65 a share. The dividend
has grown from 34¢ a share to $1.22 over the past 10 years – an increase of over 250%. The five-year
growth rate is 8.33%.

Dividend Boost Stock No. 2: Pepsico (NYSE: PEP)

A household name, Pepsi (NYSE: PEP) is a global manufacturer and marketer of foods and beverages.
Some of its leading brand names include Quaker Oats, Fritos, and Gatorade. Its CEO is one of the few
female CEOs in the world, a plus in my mind (and research supports better stock performance with
females in power).

Like many of my favorite picks in Retirement Millionaire, PEP grew revenue sales during the
recession. It had $43 billion of sales in 2009, $66 billion in 2013. Profit margins are not as rich as a
technology company, but at 9.43%, sales growth from an improving overall economy could easily add to
bottom-line profits.

The company is also shareholder-friendly. It has bought back $7 billion in shares the past three

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years. In addition, it pays a safe 2.9% dividend at a payout ratio of 51%. Dividends account for another
$3 billion of cash distributed to shareholders annually. Pepsi has increased its dividend 41 years in a row
too.

Dividend Boost Stock No. 3: Microsoft (Nasdaq: MSFT)

Computing software giant Microsoft (Nasdaq: MSFT) operates around the world in many seg-
ments of the computing business and gaming world. Everyone uses (or at least knows about) Microsoft’s
software or computing systems. In 2014, the company sold almost $87 billion in goods and services. It
sold almost $78 billion the year before…. Microsoft knows how to make money.

Its competitors are Google, Oracle, and Apple. But Microsoft outdoes each of them on almost any
metric. In revenue, it beats Oracle by $48 billion. And it has better gross margins than Apple by almost
double – 69% versus 38%. Its operating margins are tops, too, at 32% versus 29% for Apple and 23%
for Google.

MSFT does a couple things we like to see in a good business. First, it generates tons of cash. Its cash
on the books currently totals about $83 billion. Second, the company is paying some of that extra cash
back to shareholders. It distributes a bond-like 2.6% cash dividend and regularly buys back outstanding
shares.

MSFT has paid out $22 billion and bought back $14 billion of its stock total over the past three
years. With fewer shares outstanding, our percentage ownership keeps rising. For a computer technol-
ogy company, this sort of return to shareholders is unheard of. Apple and Google pay essentially nothing
to their shareholders.

And MSFT is sitting on $83.1 billion in cash. Its dividend could easily rise to 4% for the next 10
years with that cash hoard.

The Nuts and Bolts of Reinvesting Dividends

So what’s the most efficient way to funnel all the income these stocks will generate into new
shares? For compounding income to work its magic, you can’t have your capital eaten up by fees and
commissions.

You’ll find a lot of advice that the best way to grow your wealth is through reinvesting your
dividends by using something called a Dividend Reinvestment Program (DRIP).

Created decades ago as a way around expensive brokerage commissions, DRIPs allow
individuals to buy into companies without going through traditional Wall Street firms. At the time,
this represented a huge benefit to the investor... In the 1960s and ‘70s, commissions represented
a significant cost and made small purchases prohibitively expensive... A 10-share stock purchase
(for a total of $300) might have another $100 commission tacked on top. The stock would have to
increase a huge 33% just to cover the transaction costs.

So companies were pleased when the federal government allowed them to sell stock to

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individual investors through DRIPs. People could buy their shares and reinvest the dividends, even
if they only had a little bit of money to start.

If you want to get part of your portfolio “off the grid,” DRIPs are a good investment.

But in terms of ease of investing and saving money, I’ve discovered an even better, less expensive
way to reinvest your dividends. Here’s how things have changed for investors since these programs
began...

First... most companies farm out the administration of their DRIPs to a third-party company,
called a “share registry.” These companies act as a transfer agent between you and the company you
want to purchase shares from. Over the years, these share registries have increased their fees. In
some cases, it can cost as much as $20 to set up the DRIP. The table below shows the fees for the

Stock Setup Fee Dividend Reinvestment Fee

MDT $10 + 5% reinvestment fee None
PEP $10 None
MSFT $2.50 + $0.10 per share commission None

stocks in this report…

All three companies have some sort of fee for using the DRIP. Notably, Medtronic’s DRIP not
only charges a one-time setup fee, but it also tacks on an extra 5% fee on the dividends you receive.
MSFT has a $2.50 trasnaction fee plus a 10 cent per share commission. This isn’t good news for us.

In addition, all three stocks use different registry companies... lots of extra paper work to keep
track of everything. This is ridiculous.

Instead… if you already have an online brokerage account... that standard stock trading
platform is the best way to reinvest your dividends... Buying all three of the stocks through the
same broker makes tracking your positions easier. Plus it’s more cost-effective. Here’s why...

Six of the seven brokers I describe in my report, “The Retirement Guide to Buying Securities,”

Broker Cost Per Trade Dividend Reinvestment Fee

TradeKing $4.95 None
Fidelity $7.95 None
OptionsXpress $8.95 None
TD Ameritrade $9.99 None
E*TRADE $9.99 None
Interactive Brokers $0.005 per share No automatic reinvestment

don’t charge a fee to reinvest dividends. Below is a breakdown of the broker fees for buying the
initial amount of stock and then reinvesting the dividends:

Interactive Brokers doesn’t allow investors to automatically reinvest dividends... You need to use
the dividends you receive in your cash account to buy more shares. But the cost to do this is small.
One of the representatives we spoke to said the cost would be “half a penny per share with a $1
minimum.” You have to first buy the shares and then select the option allowing dividend reinvesting.

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 Even the two most expensive brokers on the list – TD Ameritrade and E*TRADE – are a penny
cheaper than the $10 you would need to start a DRIP with Medtronic or Pepsi. Plus you’ll save on the
5% reinvestment fee Medtronic charges.

Buying all three of our picks (and reinvesting the dividends) would cost you $14.85 at TradeKing or
$29.97 at Fidelity. This is less than the minimum of $45 often needed to invest in the old style DRIPS.

Setting it up is easy too. Just make an initial purchase and pay the commissions (we list their charges
in our report, but the max is $9.99). Then you’ll have the option to have the dividends sent to your
“cash” account (or your bank account) or have them reinvested.

The web page to select your option to reinvest dividends varies from broker platforms. If you have
any trouble finding the option to reinvest your dividends, your brokerage’s customer service department
should be able to help over the phone.

Bottom line... for convenience and savings... don’t use the old school DRIP anymore for new
money... go with your online broker’s reinvestment option. And if you don’t already have a broker, it’s
easy to get an account with any of the seven brokers listed above.

As always, I recommend you put no more than 4% - 5% of your investment portfolio into any one of
these companies and maintain a 25% trailing stop.

As I explain at the start of this report... I think it’s critical that everyone take control of his finances to
ensure a safe nest egg.

If we invest in safe shareholder-friendly companies that grow their dividend steadily and plow those
payments into more shares of the company... we’ve got ourselves a moneymaking machine. Starting a
compounding program could turn out to be the greatest money decision you ever make!

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Retirement Millionaire
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