I couldn't believe my eyes. But there it was, right in front of me.
At first, I felt like an idiot.
"Why didn't I buy this way back in the day?"
But then I realized that I've seen a version of this chart a hundred times. At least. And while the gains I'm personally sitting on might not be as astounding as this particular chart, I know full well the power behind it.
Then, suddenly, a smirk came across my face.
"It's so stupidly simple," I told our publisher. "After all these years in the financial publishing industry, I still can't believe more people don't understand this concept."
The lazy way to trade the same stock for repeated profits
You're Not Going To Believe This Chart
I want you to take a look at this chart.
It's a total return chart (including dividends) of Magellan Midstream Partners, which trades under the ticker symbol MMP.
When we added MMP to our Daily Paycheck portfolio in February 2010, it had a solid yield of 6.7%. And since then, it's absolutely beaten the pants off of the S&P 500.
Now let me be clear about why that's important...
First, remember that we're not talking about some pharma company that suddenly discovered a miracle drug. It's not a tech company that invented a revolutionary new gadget either. We're talking about a freaking energy pipeline company.
Not bad. But that's not even half the story here.
The Real Power Behind MMP's Total Return
Magellan operates one of the largest pipeline systems in the United States. Along with its 9,700 miles of refined products pipelines (think gasoline and diesel), it also owns and operates roughly 2,200 miles of crude oil pipelines and 1,100 miles of ammonia pipelines. MMP's massive system also includes 53 interconnected pipeline terminals, 27 independent stand-alone terminals and five marine terminals -- with storage facilities that can handle roughly 100 million barrels of product. Overall, MMP's network has access to nearly 50% of the country's refinery capacity.
Now, of course, the growth of the energy sector -- and particularly the advent of fracking technologies leading to the recent energy production boom -- has played a big part in MMP's growth. It also helps that most of MMP's business is fee-based, meaning that it's not as sensitive to commodity price swings as, say, an oil exploration company.
There's no question about what makes MMP a compelling investment from a business perspective. But the real story here is the dividend.
You see, much of MMP's total return has come in the form of dividends. As "pass-through" entities, master limited partnerships (MLPs) like MMP are not subject to federal corporate income taxes. The result is that more cash is available for distributions than would be available if the company had to first send a large cut off the top to Uncle Sam. That's why many MLPs have dividend yields of more than double or triple the average S&P 500 stock.
Between this and solid overall management, MMP has increased its quarterly dividend 37 times in a row since we originally added it to the Daily Paycheck portfolio in 2010 (from $0.36 per share to $1.13). That's an increase of about 214% in a little over nine years. And MMP has never lowered its dividend -- not even during the financial crisis of 2008-2009.
So anyone who bought the company back when we recommended it is now collecting a 22% yield on their original investment [($1.13 x 4 quarters)/$20.32 purchase price].
Let that sink in for a moment. This means even if MMP never raises its dividend ever again, these shareholders would still more than double their money (again) in five years.
And make no mistake, MMP could continue increasing its dividend for years to come. After all, it's already increased its dividend 68 times since it first started trading back in 2001.
If You're Not Focused On Dividends, You're Missing Out
But Magellan Midstream isn't alone in this regard. According to Standard & Poor's, nearly half of the market's total return has come from dividends since 1926. That means if you ignore the power of dividends, you risk giving up nearly half of the market's returns.
You'd also be ignoring some of the market's best performers. Ned Davis Research found that from 1972 through 2014, dividend-paying stocks in the S&P 500 returned 9.3% annually, MORE THAN TRIPLE the 2.6% annual return for S&P stocks that didn't pay a dividend.
It's no secret that investing in dividend payers is a proven long-term strategy. But until you actually see the numbers... look at the charts with your own eyes... it's easy to forget.
That's the lesson I learned from staring at MMP's chart. And I'm not going to forget it.