I’ve been getting lots of questions about this secret toll-free phone number this week, so I thought I should try to take a look for you today. Apparently it’s all about some way to boost your dividend by calling a special phone number — which can’t help but conjure up a mental image of vast riches headed your way, even though we all probably know that it’s a ridiculous notion that you could get a bigger dividend just by calling and asking for it.
But as always, there’s a bit of truth to the ad, too — so what are we looking at here? The ad is for Tom Dyson’s 12% Letter, and it’s mostly about the huge dividends that some folks have received by using this special “secret phone number.” Here’s an excerpt with an example:
“But I think there’s one quick 5-minute phone call every person at or near retirement age should consider making right now.
“In short, it’s a secret toll-free number – one 99% of investors know nothing about – that, when you call, actually enables you to increase the dividend yield on stocks you already own (or want to buy) by 1,000% or more…
“New Jersey resident Fred Ruby is the perfect example. A self-proclaimed ‘amateur investor with no particular expertise in the stock market,’ Ruby called the secret phone number after buying one of his favorite companies, Johnson & Johnson.
“Now, while most shareholders take home the company’s “standard” 3.4% dividend, Ruby collects a whopping 63% yield on his initial stake!”
Why haven’t you heard of this? Dyson has an answer for that, too:
“… if calling this secret phone number is so lucrative, how come EVERYONE doesn’t know about it?
“Well, the answer is, even though the service provided through this phone number is perfectly legitimate (and supported by more than 650 U.S. corporations), SEC rules DO NOT allow these corporations to advertise the number to the public (I’ll explain why in a minute). So most folks have no clue it even exists.”
And a bit more:
“The folks I’ve been describing in this letter have been able to turn ordinary miniscule dividend yields into 20%… 30%… even 40% or more, simply by taking advantage of what was once an obscure corporate perk…
“Don’t worry, you don’t have to use options or sell covered calls… or anything tricky or speculative like that. It simply takes one small but radical change in the way most people buy ordinary stocks. It’s a little-known perk Fortune 500 employees have been taking advantage of for decades.
“I call this secret benefit the ‘424 Dividend Boost’ because for years it enabled employees to make a full 1,000% – 2,000% MORE than normal on their shares of company stock.”
Ah, so I should have read through the whole thing before starting to write to you today! Those of you who’ve been castaways on Gumshoe Island for any length of time have probably heard of this “424 Dividend Boost” before, it’s a term that Dyson has used in his ads for a couple years, seemingly replacing his previous made-up term for the same strategy, the “801k plan.”
So yes, we’ll look into those “secret” phone numbers in a moment, but the basic strategy that’s being used here is … wait for it … Dividend Reinvestment! Wow!
And more specifically, though I’m sure Dyson also would probably suggest that reinvesting dividends through a discount brokerage account works just fine, the tease is for direct stock purchase and dividend reinvestment plans that you can enroll in through the companies themselves.
And yes, you can really turn that 3.4% yield on JNJ shares into a 63% yield, but the key qualifier is that on the original stake bit… and we’ll throw in a second qualifier, that you have to be willing to wait a few years, or a few decades.
The math is fairly simple — if you bought shares in JNJ 15 years ago you probably would have paid about $20 a share, split adjusted. The annual dividend was about 38 cents per share at the time, so that was a fairly paltry dividend of just under 2%.
But JNJ has raised the dividend each year … and the magic of compound dividends does it’s little zappity-doo-dah on those shares, too, so the yield on your JNJ stake now — relative to your original investment — would be truly massive.
Even if you don’t reinvest the dividends, the effective yield on your original stake is quite nice, you paid about $20 per share and the annual dividend has risen so substantially that it’s now at $2.16, so your yield would be better than 10%.
But over those 15 years, if you allowed those dividends to reinvest into new shares instead of taking them in cash, your shareholding would have gone up substantially, too. So if you had 100 shares the first year, the dividends would turn that into 102 shares … and a few more the second year, and those new shares earn dividends, too, so the effect magnifies a few years in as the dividend rate goes up and your share base builds as well. With a company that has as strong a history of dividend increases as JNJ, the impact could easily get you an effective yield of 68% after a decade or two.
There’s no shortcut, however — secret phone number or no, there’s no way to make the compounding work faster, or to get a larger dividend than other shareholders, you just have to choose the right dividend growth stock that you want to hold for the long term, let your dividends reinvest and compound, and enjoy the patient wealthbuilding.
The “secret phone number”, in all likelihood, refers to the transfer agent or firm that handles each company’s direct dividend reinvestment plan. You can buy JNJ in your discount brokerage account and tell your broker to reinvest the dividends, and in most cases your broker will do that without a fee … but what’s being teased here is a more direct way.
Hundreds of companies have direct stock ownership plans, where you effectively cut out the brokerage and buy your shares from the company — usually this is done through some sort of periodic investment plan, where you might sign up for $50 per month (or whatever) with Johnson and Johnson to buy stock, including partial shares, and let them reinvest the dividends for you into new shares. Every company is different in the kinds of Dividend Reinvestment Plans (DRIP) and Direct Stock Purchase Plans (DSPP) they offer, but most have some sort of monthly or quarterly investment option if you’re interested and most will process your reinvestments without a fee.
It’s hard for me to justify most direct stock purchases like this now, in a world where extremely cheap and often free stock brokers are commonplace and easy to use, but there are some cases where it makes sense — some companies offer a special discount to direct shareholders, letting them reinvest the dividends into, for example, 10% more stock each quarter. And for some investors, the psychological impact is important — if you buy direct through a company you’re more likely to let the money sit there and compound, you won’t be as tempted to sell it to raise cash in your brokerage account for the next hot stock tip, largely because it’s a bit of a pain in the neck to sell stocks that are directly held with companies or their transfer agents (you can certainly do it, but you don’t have the cash in your account five minutes later, and in most cases the commission to sell shares is considerably higher than the average discount brokerage commission).
But if you’re curious about those “secret phone numbers,” which I expect are the customer service numbers for these companies’ dividend reinvestment plans, the number you could potentially use to set up the plan or to get info on how to transfer your shares into the company plan. Most companies will let you do this all online, too, just FYI … but we’re told about secret phone numbers, so let’s find out the secret.
There are a limited number of “transfer agents” who manage the direct stock purchase plans and dividend reinvestment plans for these companies — the one that usually comes to mind first, because they seem to manage the plans of many of the real big blue chip dividend growth firms like Johnson and Johnson, Wal-Mart, Intel and ExxonMobil, is Computershare. You can search for stocks in Computershare’s system here if you want to go that route, though pretty much any company that has a direct plan like this will have information about it on the company website, usually on the Investor Relations page and usually not very heavily emphasized (it’s true that companies are not allowed to actively market their direct stock purchase plans, so you won’t see billboards about this anywhere). But that doesn’t get you a “secret phone number,” does it?
So we’ll go one step further — it looks to me like the “secret phone number” for Johnson & Johnson is 800-328-9033, that’s the shareholder number, so if you own some JNJ shares and decide you want to transfer them into this direct purchase/reinvestment plan, that’s the number you’d call. The contact number for each company is different, so if you want other numbers for Computershare clients, for example, you can find them here. There are other transfer agents and firms that run these plans for companies, as I mentioned, so you’ll come across other names as well — one other prominent one is Bank of New York Mellon, you can see the list of 500 or so companies that they work with here (sorry, I don’t know if BNY Mellon provides a “secret phone number” for each company).
My deepest apologies if you were hoping for a 68% dividend this year — that would require incredible luck, or a time machine. I’d agree that one of the best ways to build a portfolio is to select dividend growth stocks and to let your dividends reinvest and compound over the years, but it’s easy to see why the folks at the 12% letter use a sexy “secret phone number” tease and imply that there’s a better dividend out there that you’re missing out on … somehow, a “secret” and a special dividend “boost” sound much better than patient compounding.
So … got any favorite dividend growth stocks we should be looking at for our DRIP portfolios? Any other “secret” phone numbers we should be calling for incredible riches? Just let us know with a comment below, thanks!
And if you’ve ever subscribed to Dyson’s 12% Letter, please click here to tell your fellow investors what you thought of the subscription (or you can see existing reviews of the 12% Letter here).