If you've followed my past articles, then you already know I invest exclusively in the world's greatest businesses -- the kind that dominate their markets and go out of their way to reward their shareholders via dividends and share buybacks.
In fact, as you'll see in a moment, one of my favorite companies just increased its dividend... For the fifth consecutive year.
Sadly, many investors don't put their money in stocks like this. Instead, millions of small investors end up pouring cash into risky securities that I think are likely to lose money. They think they need to invest in volatile, unproven companies in order to get rich. They want to "go where the action is."
I'm convinced this is why most investors lose money in the stock market.
Take a stock like Facebook (Nasdaq: FB), for example. Facebook was undoubtedly one of the most talked about IPOs of the year. With more than 840 million users, financial talking heads everywhere were praising the company for its potential growth.
But there was a problem... Facebook hadn't proven itself. The day the company went public, it was trading at a P/E ratio of more than 100 -- a ridiculously high valuation -- despite never paying a cent in dividends or buying back a single share of stock.
Once the company went public -- and people realized how overvalued it was -- investors punished the stock, pushing the price down 50% in a matter months.
I say "no thanks" to these types of risky investments. I've been investing actively for two decades, and during that time I've learned a lot of valuable lessons. The single most important one is this...
The best way to become wealthy in the stock market is by owning stocks that dominate their sectors, are essential to our way of life, and that continually reward their shareholders with cash dividends and share buybacks.
In fact, when I created my list of the 10 Best Stocks to Hold Forever back in July 2011, these are the exact sort of businesses I focused on.
Nothing is guaranteed, but I've found that the most consistent returns come from these types of companies.
Since I went public with my list of ten "Forever" ideas, they've collected and returned an average of 18%, handily beating the broader market over the same time frame. If you look back during the last three years, the difference is even more pronounced. Since 2009, my ten "Forever" stocks have returned an average of 77%, significantly more than the S&P 500's 44% return during the same time span.
Just take a look at one of my 10 "Forever" stocks -- Philip Morris International (NYSE: PM) -- for example.
As one of the largest cigarette producers on the planet, Philip Morris is undoubtedly one of the world's greatest businesses. The company sells its products in 180 countries and owns 7 of the world's top 15 global cigarette brands.
But not only is this one of the most the dominant companies I've ever seen, since it was spun-off from its parent company -- Altria (NYSE: MO) -- back in 2006, Philip Morris has made a mission of rewarding its shareholders.
Between 2008 and 2011, Phillip Morris paid out over $18.6 billion in dividends while increasing its payments per share by 67%. And the company just raised its quarterly dividend another 10.4% to $0.85 per share -- the fifth increase in five years.
Then there are the buybacks. As of the end of the most recent quarter Philip Morris had repurchased 450 million shares -- that's more than 20% of all shares outstanding, worth $23 billion. Going forward, the company has announced a new three-year plan to repurchase another $18 billion of its stock.
All of these moves make the stock more valuable -- even if earnings don't rise a cent. And as you can see from the chart below, that's showing up in the share price as well.
Since the market bottomed in 2009, Philip Morris has returned 214% -- handily beating the S&P 500 by 81 percentage points. In the past year alone, shares of Philip Morris have returned 38%.
Right now, shares of Philip Morris yield close to 4%, considerably more than the 2% yield offered by the S&P 500. And given the company's history of dividend growth, I fully expect Philip Morris will continue to increase its dividend in the years to come.
Risks to Consider: Of course with investing, there's never a surefire thing. No stock is guaranteed to go higher, even "Forever" stocks like Philip Morris. And given the nature of the company's business, I completely understand why some investors would be hesitant to invest.