The investment strategy that made billions for big investors
Cesar Crivelli, CNPI, reveals how dividends can transform your finances. Learn from the successes of Luiz Barsi and Warren Buffett, and discover the power of reinvesting dividends.
Today we have a special analysis for you, check out this text written by guest Cesar Crivelli, CNPI.
Why investing in dividends can change your life?
Hello, I have been an investment analyst for almost two decades and together with Vest for the next few weeks I will be writing about investing abroad. I imagine you have already heard about dividends, this is a topic that interests Brazilian investors a lot, either because of the simplicity of the strategy or because of the recurring receipt of dividends in the account.
Here in Brazil, Luiz Barsi, B3's largest individual investor, has an estimated net worth of R$4 billion and is well known for having built his fortune by investing in dividend-paying companies.
In the United States, Warren Buffett, one of the greatest investors of all time, is also known for sometimes investing in companies that pay dividends periodically.
Just last year, Berkshire Hathaway, managed by Buffett, received no less than $5.7 billion in dividends.
These large investors, who chose to invest using a relatively simple strategy, have already demonstrated that dividends can be an excellent way to accumulate wealth over time.
Despite this proven success, many consider this to be an extremely simple, unattractive, and even a bit boring investment philosophy, as it does not offer 5x, 10x, 20x returns,
Would it be better to invest through a strategy that generates an inevitable return repeatedly or opt for a "big fish", which often does not happen and generates frustration? I invite you to give some thought to this choice.
Investing in companies that pay dividends means choosing good companies, but above all, companies that generate profits!
The dividend is nothing more than a part of the profit distributed among all the company owners.
By choosing a company that has been paying dividends for decades, or even centuries (yes, they do exist), you are buying a part of a company that has already proven its business model, that is consolidated in the sector in which it operates, that makes profits and shares them with its shareholders.
We are talking about giant companies, sometimes with operations all over the world, which normally operate in more stable economic segments, such as energy, telecommunications, sanitation, i.e., they are essential and less volatile services, even in difficult times.
Investing in shares, that is, buying a stake in a company, involves risk, but it can be reduced by investing in companies that are solid, whose products or services offered are necessary, which guarantees a certain stability in the companies' results.
You may think that these companies are old and outdated, but I tell you it is not so! One example is telecommunications companies, which sometimes need to modernize and invest in new technologies, such as 5G.
The outcome of an investment that follows a dividend strategy can be very positive, as long as the investor lets time do its work.
In the last 20 years, one of the biggest thermometers of the US stock market, the S&P500 index - made up of 500 of the largest US companies - has appreciated by +365.6% in dollar terms, not bad, right? We're talking about almost 8% a year.
But the story gets even better. If we consider the reinvestment of dividends paid by all these companies, the yield jumps to +590.4% in dollar terms, or something like 10.1% per year.
This difference between yields is popularly called the "snowball effect".
Font: Praxis Investimentos This, in my opinion, is the great secret when we talk about dividends, the art of reinvesting the amount received, buying more shares of the company, in order to receive even more dividends in the future!
Another aspect that we Brazilians should keep in mind is the effect that the variation of our currency, in relation to others, such as the dollar, can have on investments.
In recent decades, despite many ups and downs, our currency has lost value against the U.S. dollar, and not a little.
International travel weighs more and more heavily on our pockets, imports become more expensive, in short, the exchange rate influences our lives and our investments.
But those who have chosen to invest outside Brazil, sending resources out of the country, have managed to make good profits in recent decades. The graph below illustrates just that.
When we add the exchange rate variation - what I call the accelerated snowball effect - the dividend reinvestment strategy generated a cumulative gain over the last 20 years of +1,094% in reais, or 13.20% annually!
Font: Praxis Investimentos
Although we experienced some moments when our currency was strong, the end result was a great increase in the return in local currency, just by investing in a simple strategy, outside the country.
Today it is very easy to open an international account, exchange currency and start investing outside Brazil - the opportunities are immense!
I invite you to discover my International Dividend Portfolio. In it I made what I consider to be the best selection of good dividend-paying companies listed outside Brazil.
In this partnership with Vest, I offer 30 days of free access to my members' area, where, in addition to the suggested portfolio, you can consult several e-books on investing abroad, as well as investment theses and update reports that I frequently write to subscribers. .
If by any chance you don't like the content, or you think the dividend strategy doesn't fit your profile, simply unsubscribe and you won't be charged anything.
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Cesar Crivelli, CNPI, Investment Analyst, CVM Securities Consultant, and founder of Praxis Investimentos. Did you like it? You can subscribe to his newsletter about investing abroad or follow him on Instagram at the profile @cesar.crivelli
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The analysis and writing provided herein were conducted by a third party independent of Northbound Securities LLC, doing business as Vest. Northbound Securities LLC did not participate in preparing this content and does not endorse or assume responsibility for its accuracy or completeness. For illustrative purposes only, it does not represent an investment recommendation. For more information, please refer to our Social Media Disclosure.