A historic chain reaction is about to send the price of silver skyrocketing. It's already surged 20% since May. And according to at least one highly placed industry insider, the run is just getting started. Because he recently told Bloomberg that prices could top out at over $140 an ounce. If they do, the tiny $1 trade I've put together could turn $10,000 into $1,135,514.

For most people, owning dividend-paying stocks is like going to the dentist: you do it because you need to, not because it's fun.

But dividend-paying stocks are now the only decent option for income investors in this era of low-yielding bonds and no-yielding money markets. In the yield desert we live in, a 4% dividend yield is manna from heaven.

But behind the boring façade, dividend stocks are actually kind of sexy. And they can make you rich.

Not to brag, but I will: Investing Daily has top newsletters for dividend investors. Our Utility Forecaster is routinely ranked among the top newsletters by Hulbert Financial Digest. And we also have powerful portfolios of top dividend stocks in Canadian Edge and Personal Finance as well. In fact, Personal Finance just added one with a yield that tops 7%.

Now I know you've heard about the benefits of dividend reinvestment … the power of compounding and all of that. I won't waste your time on the theory.

But when was the last time you sat down and did the math? Do you truly understand how powerful reinvested dividends can be?

I know, you hate math. So I'll do it for you.

The Math

Let's assume we buy 200 shares of a $50 stock for $10,000. The stock yields 4%, or $2 per share, every year. We reinvest all dividends into purchases of new shares. Let's further assume that the share price goes up 5% a year and the company raises its dividend 5% a year – reasonable assumptions for the high-quality stock with solid cash flows that we recommend.

 

In fact, share price appreciation of 5% per year is a conservative assumption given the historical performance of our portfolios. (For the purpose of this example, we'll assume we reinvest dividends at the end of each year, and we won't take commissions or taxes into account.)

 

Year	Dividend per share	Dividend payment	# of shares owned	Share price	Total value
Initial purchase			200	$50.00	$10,000.00
End of Year 1	$2.00	$400.00	207.62	$52.50	$10,900.05
End of Year 2	$2.10	$436.00	215.53	$55.13	$11,882.17
End of Year 3	$2.32	$500.03	224.17	$57.88	$12,974.96
End of Year 4	$2.43	$544.73	232.83	$60.78	$14,151.41
End of Year 5	$2.55	$593.72	242.13	$63.81	$15,450.32
End of Year 6	$2.68	$648.91	251.82	$67.00	$16,871.94
End of Year 7	$2.81	$707.61	261.92	$70.36	$18,428.69
End of Year 8	$2.95	$772.66	272.38	$73.87	$20,120.71
End of Year 9	$3.10	$844.38	283.27	$77.57	$21,973.25
End of Year 10	$3.26	$923.46	294.61	$81.44	$23,993.04

 

Two observations:

• Your $10,000 investment turned into $23,993.04 after 10 years. That's a total return of 139%, or an annualized return of 9.1%. That's well above average for the stock market over time.

• The stock's dividend in Year 10, $3.26 a share, represents a yield of 6.5% on your original share price. In effect, you've turned a solid 4% yielder into a high-yielding stock. In a few more years, you'll be raking in a double-digit yield on your original investment.

As this shows, dividend-paying stocks can form the foundation of a wealth-building portfolio.

 Most of us also invest in growth stocks that can provide a lot more capital appreciation – including some more aggressive picks for explosive growth. But when you have a chance to pick up shares of solid-yielding blue chips like Boeing (NYSE: BA), Duke Power (NYSE: DUK), Pfizer (NYSE: PFE) and Verizon Communications (NYSE: VZ), do it.

Even better, get one or two of our newsletters with powerful dividend portfolios, and be introduced to a slew of perpetual-motion, dividend machines that don't often make the headlines.

 

 

But YOU should love it.

In a wild election year, one of the most shocking stories is about Russia-based hacking.

The FBI has tied the attacks to Russian president Vladimir Putin, but it's not just him. Hackers around the globe are waging cyber-warfare.

We've found a little-known security business that's locked up key accounts with the Pentagon and the world's biggest corporations.

It's easier to make big profits by investing in under-the-radar stocks like this than by trying to squeeze a few extra dollars out of the S&P.

In the last Energy Letter, I discussed the winners in the energy sector for the third quarter of 2016. Today I will focus more narrowly on the winners among master limited partnerships (MLPs).

As I did for the energy sector, I screened for Q3 total shareholder return (including distributions made during the quarter) using the proprietary stock screen I developed for The Energy Strategist. This screening tool is Excel-based, and extracts data from the subscription-only S&P Global Market Intelligence database.

I started with a list of current MLPs from the Master Limited Partnership Association (MLPA). In addition to the partnerships involved in the extraction, transport, and refining of fossil fuels, the MLPA encompasses MLPs in categories like real estate and asset management.

After eliminating those trading on the pink sheets I ended up with a list of 133 MLPs with enterprise values (EV) ranging from $100 million to $80 billion. The median Q3 total return among these was +6.2%, which was significantly better than the median Q3 return of the broader energy sector (+3.9%) or of the Alerian MLP Index (+1.7%).

Here are the third quarter's top performers:

• EV - Enterprise value in millions of U.S. dollars, as of Oct. 14
• EBITDA - Earnings before interest, tax, depreciation and amortization, in millions for the trailing 12 months (TTM)
• FCF - Levered free cash flow, in millions
• Debt - Net debt at the end of the most recent fiscal quarter
• Q3 Ret - Total shareholder return, including dividends, in Q3 2016   

As with the broader energy sector, coal producers were at the top of the list. Foresight Energy (NYSE: FELP) was the top-performing MLP for the quarter with a gain of 143.6%.

The worst performers were a more diverse group, but unsurprisingly included oil and gas producers, fertilizer manufacturers, and refiners:

Notably, this bunch generated negative free cash flow on average over the past year, is still more expensive than the top performers based on EV/EBITDA despite the Q3 declines, and has higher relative debt.

The fourth quarter is likely to see some improvement in the fortunes of the oil and gas producers given the recent gains in oil and gas prices. Continue to tread carefully with the coal MLPs, however, as the long-term outlook for coal isn't good.   

After skimming big coal-mining profits for subscribers last quarter, we've already moved on to the next great opportunity, one that exploits the broad strength we see across the MLP sector. Join us at The Energy Strategist for the one trade you need to make right now.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

 

Every sign in the investing universe is pointing to one inevitable fact: Silver prices are about to go vertical.

Demand is booming. Supply is dwindling. And now, a powerful precious-metals indicator has just hit a critical milestone. One that's set off a silver bull market every single time in the past 30 years. When silver prices hit their apex this time, they could easily eclipse $89 an ounce. And if they do, the $1 trade I've constructed could soar by over 6,488%...