“U.S. 801K Plans — double the returns from 401Ks!”

There’s a new teaser going around from a Stansberry newsletter, this time it’s from the 12% Letter by Tom Dyson, and it’s teasing us about a secret retirement plan they call the 801K. They’ve got a special report to send you called How to build a $1,000,000 Retirement with “U.S. 801(k) Plans” … and all you need to do to find out what these 801K plans are is to try a subscription for $99.

So there are two parts to this tease, the way I see it — there’s the actual “801K” concept, and then there are eight individual companies that provide these plans, which Dyson thinks are the best ones to buy.

First, the idea of the 801K:

“These companies encouraged the direct investment by paying out unusually high dividends and designed programs that automatically reinvested the profits. This ensured that ordinary Americans like you and me could start out small, with as little as $25, and quickly accumulate thousands of dollars in savings, without ever investing another penny.”

“But don’t ask your broker or financial advisor about “U.S. 801(k) Plans.” They will try to push you instead into a mutual fund that returns, at best, 10% a year. Remember, brokers can’t collect big fees and commissions with “U.S. 801(k) Plans” because you buy shares directly from the company.”

“Perhaps this is why the government restricts the advertisements of these opportunities. If they didn’t, some brokers might actually go out of business! Like I said, you’re not likely to hear about “U.S. 801(k) Plans” any place else.”

So, you may have figured this out on your own, but 801K plans are simply Dividend Reinvestment Programs (DRIPs). This is a program whereby companies — usually big, stable ones — sell stock directly to shareholders with an agreement for a regular ongoing investment and the reinvestment of all dividends. You invest a set amount, usually every month, not unlike with a mutual fund investment program, and the share price doesn’t matter because they’ll issue partial shares.

Some companies charge a fee for this, some do not, and some even offer a discount for purchase via reinvested dividends … but it is indeed a direct relationship with the company that doesn’t involve a traditional stockbroker. Services like Sharebuilder.com also do this, so you can initiated a DRIP plan even for companies that don’t offer them directly, but they charge either a small commission or a monthly fee.

There is plenty of good basic info on DRIPs out there — including from the Moneypaper, the Motley Fool and others. Most companies require you to be an owner of at least one share listed in your name already, some don’t or will help you to get that share, or there are some “single share” services that will help you to easily buy and get a certificate for a single share. This “single share” business is probably the biggest impediment to DRIP adoption, aside from the fact that you have to have separate plans set up with each company unless you want to join a club or pay for a service that does it for you (and really, it looks like fees for that negate much of the advantage of the DRIP for many stocks).

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But several “801K” companies were teased in this email, too — what are they? More than half of the S&P 500 offer these plans, as do many other companies, so I’m not certain that the clues given here will be enough to smoke out the company names … but we’ll try. Here’s what I know about the first two, I’ll try to get to the other six shortly:

“U.S. 801(k) Plan” Company #1 – This company is a fast-growing restaurant chain. It’s been in business for more than 30 years and operates in more than 20 different countries (and counting). In fact, it’s raised dividends every year but one since 1976, which are rising at more than 30% per year – almost twice as fast as the stock price.”

I thought this might be Wendy’s (WEN), but it hasn’t quite raised dividends every year. The 20+ countries, “more than 30 years” history and the DRIP plan and the rate of increase in share price could, arguably, fit.

Brinker (EAT) also fits in some areas — they’re in about 23 countries, but haven’t payed a consistent or rising dividend. Most of the other big restaurant chains are either way too big (even Burger King is in 65+ countries), completely North America-based (only a couple foreign locations), or don’t pay dividends, or, and this cuts most of them out, haven’t been around for 30 years.

But, strange as it seems, I’m pretty certain that this one is actually McDonald’s (MCD)

I know Tom Dyson likes McDonald’s as an income play — he previously teased the stock as The World’s #1 Dividend Machine — so I imagine he was being sneaky, it could well be that McDonald’s actually operates restaurants in more than 20 countries, since most of their restaurants (70%+ internationally) are actually franchisor-operated. The other stuff — company history, dividend history, all matches well. It was at the nadir for this company, in 2002, that they cut their dividend for the first time since 1976, and it has since grown significantly, including a $1 dividend back in November. The DRIP info for McDonald’s is here.

“U.S. 801(k) Plan” Company#2 – This New Mexico-based banking company holds $42.5 billion in high quality assets and has delivered consistent dividend income every year for the past 14 years. It currently pays a 10.10% dividend.”

This one is definitely Thornburg Mortgage (TMA) — DRIP plan info here.

Thornburg is a mortgage REIT that specializes in Jumbo adjustable rate mortgages — the theory is that because they’re dealing with big mortgages, the rich people that owe them money are less likely to default than are subprime borrowers. I don’t know whether or not that’s true, but pretty much all the mortgage-related companies are being tarred by the same brush right now, so if you think TMA stands out as better than its compatriots now might be a fine time to look into it.

One nice thing about TMA is that, because they focus on adjustable rate mortgages, they should theoretically be less susceptible to interest rate risk — assuming, of course, that their spread doesn’t go negative, which is always possible in a world where the yield curve can invert (they borrow money, then lend it in the form of mortgages, and they need their ARMs to pay off more than they have to spend to continue borrowing the money).

So … those are the first two candidates for your 801K plan in case you’re interested in DRIP investing. I’ll try to cover the other six as soon as I can … or you can beat me to the punch and tell us all the sleuthed solutions to these over in the Gumshoe Forum.

Want to keep up with the Gumshoe? Click here to subscribe now — free email alerts.

This writeup is a bit old, you can find an updated look at the 801k ads here.


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Mike S.
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Mike S.
April 8, 2008 11:54 am

“Investing for 5 Months Now” – Don’t buy gold now. It is too expensive. Buy real estate funds in the good old USA. It is cheap now. I bought some shares in Ishares Tr COHEN&ST Rlty and am up 17% injust a few months.

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Bruce
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Bruce
April 20, 2008 11:32 am

I subscribed to Agora one time and that was enough. The ‘Oxford Club’ was late to buy and late to sell. They had more lag than a simple moving average crossover on Stocks.com. Bonner even admitted buying his chateau in France without inspecting that it had a roof in some rooms. I find it pretty hard to trust my investments to an eliteist dodo that doesn’t have basic common sense to walk through each room of a place you are buying and see if you can see the sky. (My take is that Agora is a club of middleage smartass kids that have no self esteem of their own because they inherited ‘old money’ from their hard working parents and have never ran a real business or met a payroll in their lives. If they had, they would understand what humility really is.

(Legit newsletter for income)
For CanTrusts/CanRoys, I have subscribed to Roger Conrad’s Canadian Edge (.com) for years. He is a super hardworking analyst with a credible history…plus he will return your email questions.
Richard Lehmann’s (from Forbes) is good as well, but he is a bit more conservative.

Here is a warning from someone trying to retire early at 55.

On IRAs…in your long term planning make sure you will really be in a lower tax bracket when you retire. Remember, you DO NOT get LONG TERM CAPITAL GAINS TREATMENT when you pull your money out like you would in an plain old taxible account.

SEPP rules were changed a couple years ago and the Federal MidTerm Rate is now mandatory to compute distributions should you want to retire before 59 1/2 with the 10% penalty. The MidTermRate has crashed with Bernanke’s rates since August. I retired early and earn 10%+ on my investments…the FMT Rate is down to 3.29%…I don’t want to grow my IRA anymore, but I am force to do so at the expense of monthly cash flow.
See http://www.72t.net/

Roth’s? Give some thought to the govt taking away the ‘no tax’ clause later for some ’emergency’ reason. Who can you trust?

The Central Planning Bureaucrats are killing our freedoms worse than any derranged monarch in history.

Sorry for the long rant, but I wanted to pass along some of the cr@p that I have been running into and wish someone had passed on to me earlier in my life.

Best regards,
Bruce

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cyhi12664
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cyhi12664
May 21, 2008 10:50 am

I to have my IRA with scottrade and have had it there for years. I wanted to invest in silver in my IRA and didn’t want the hassel of transfering it to another high priced outfit. So I bought SLV, a silver ETF that per share price closely matches 10 ounces of silver. Cheapest way I saw to fund an IRA with silver.

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MK
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MK
June 7, 2008 5:12 pm

801k Plans – – I just got my first report from these guys, T. Dyson et al., and was very excited and then I realized, “Well, here we go again, better check this out.” I was amazed at how fast I went to Google and once I placed 801k and hit search, your Gumshoe page came up and voila! Here I am with all of you. I am most happy to have found Gumshoe and all of the comments by individuals who are willing to share. I am in a learning mode, recently purchased an 801k (ha ha),
stock but didn’t even realize the value of what I had purchased until reading all of this today. Not asking questions and not taking action are two of the biggest mistakes we can make in life. I am grateful for this information. I have many questions and a number of them were answered here today. Ok, since I am new here, maybe I missed something. Where did you come up with
Gumshoe? Thanks……….MK

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Lucy
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Lucy
June 22, 2008 2:24 pm