Dan Ferris

Not one investor in a hundred realizes this, but now is a once-in-a-lifetime opportunity for income investors.

Most people will never recognize this opportunity because they don't know what a truly great income investment is. Most income seekers like to buy things like commercial real estate stocks (REITs) to collect rents.

REITs have a big problem: They're required by law to pay out 90% of their distributable earnings. So if they want to grow, they have no choice but to take on debt or dilute your interest by selling more shares. That's why so many REIT dividends have been cut over the past two years. Banks are in horrible shape and getting worse all the time, so it's only going to get worse for businesses like REITs that depend on a lot of debt financing.

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Take another traditional income investment: risky commodity stocks with high current yields. Investors love royalty trusts because most of them are in the energy business. These stocks paid double-digit dividends when oil was over $100 a barrel. It was great earning those big yields... until the sector fell more than 70%.

I'm not interested in those traditional income investments because right now we can buy mature, World Dominator businesses that have large competitive advantages at huge discounts. These are – and always will be – the Holy Grail of income investing.

A "World Dominator" is a company with an absolutely dominant position in its industry... like Procter & Gamble, ExxonMobil, or Wal-Mart. World Dominators can raise prices to keep ahead of inflation, get financing (or not need it) when other companies are finance-starved (like right now), and are large and well-managed enough that you can count on fewer (if any) bad surprises happening to them.

You should be looking for companies like these if you're interested in collecting large amounts of investment income for decades. Here's why...

Most World Dominators are past their capital-intensive, high-growth cycle... so they can funnel surplus cash to shareholders in the form of dividends and share buybacks. Instead of funding growth, cash goes to you.

World Dominators are also usually the lowest-cost provider of their product or service. They tend to crush the competition and have exceptional brand names. That means they often generate enormous amounts of cash. And that cash can support dividends through good times and bad.


Dan Ferris

Dan Ferris is the editor of Extreme Value.