“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.

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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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Anonymous
Anonymous
13 years ago

Regular brokers also let you participate in DRIPs (I know Schwab and ETrade do). The dividend reinvestments are fee- and commission-free, but you have to pay for your initial purchase and sale. In this respect, they’re probably not for the monthly contributor, but if you can set up a decent initial position AND want to build shares through the DRIP, check out your current broker.

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Anonymous
Anonymous
13 years ago

Here are all the DRIPs companies recommended in the 12% Letter:
NGPC,MCD,TMA,MGU,NLY,TSX:WTE-UN

Anonymous
Anonymous
13 years ago

There’s been a lot of insider buying on TMA including a 2 million dollar purchase by the CEO.

One Guy
One Guy
13 years ago

Thanks for submitting the other DRIP company tickers, saves me a few minutes.

And I note that tons of companies in the real estate finance sector have huge insider buying recently … maybe they see a bottom here that other folks aren’t catching (or maybe they’re wrong). CHC and RAS, which I just sleuthed out today, both have a pattern of insider buying recently too. Wonder what will happen with these.

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Anonymous
Anonymous
13 years ago

True, the “801k Plans” hype may be only DRIPs (i suspected so before I ran across this site) but the trick is which of the hundreds(?)are the best i.e., get you to the wealthy status the fastest and safest way. If his choices are only 80% correct, its worth the 99 bucks for those who dont/wont do extra research.

Anonymous
Anonymous
13 years ago

Quote “If someone is paying the money to host a site, pay for Search Engines to ‘Find’ it and to process the resulting enquires from advertising something, they will be the ones making the money”

The examples quoted are not necessarily brokered through this company. The concept could make individuals money although over a longer term than is given the impression of.

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Anonymous
Anonymous
13 years ago

I was thinking of paying the 99 bucks. He says if you don’t like it he’ll do a pro-rated refund so what the heck!

Maya Sophia Uzwyshyn
Maya Sophia Uzwyshyn
13 years ago

First of all, I want to really thank ‘one guy’ for creating this post and beginning to clear this up a little. All of my coworkers (and my retired father who is in Canada who – I kid you not – forwarded me this email) and everyone was discussing this spam at my place of work trying to figure out whether this was a scam or not!

Thank you for the links also to the Motley Fool and other link to explain DRIPS. This again begins to clear some of this up but would investing with these companies directly also be tax deferred? Someone even at my work looked up 801(k) and there was no section of the tax code on this!

My questions here would be, does the author here think that “the Stansberry Newsletter” is a scam or is this genuine information? I get a lot of email from these guys (Canadian Gold Mines, A recluse in Colorado genius investor etc)and for some reason some of the recommendations seem wild but some seem to have something in them and are even interesting (for example purchasing a 3 month CD from everbank.com in Icelandic Krona because they are trading at 12.00 – I checked this and indeed the interest rates in Iceland are 12% compared to the rest of the european currency CD’s they sell at everbank but since I’m no currency expert I have real hesitations about putting money down for thes or the fluctuations here against the US dollar. Are these guys for real and why are they doing this?

My questions about the 801(k) would have to do with ‘one guys’ feelings as to whether the 801(k) methodologies are worthwhile if set up through something like Sharebuilder. My place of work just set up this as a 457plan option with Sharebuilder that uses this fractional share model. The price structure I believe is 48-96 dollars per year to do 1-4 purchases/month + 0.2% of the assets up to 100.00/year https://www.fl457.com/fees.asp

I’m really no stock investor so I have no absolutely idea if this fee structure is relatively expensive or cheap except that it would be costing me probably an additional (200.00 to invest/year)using this 801k methodology.

Would this be considered a fair fee in would one could fairly expect to return and are these companies really even poised say for a yearly 12% gain. The 801(k) email has got us all thinking over here about the poor returns on our mutual fund plans and there’s really little information on this on the internet. Thank you gain for your post

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One Guy
One Guy
13 years ago

Thanks for the comments, Maya. I’m not an investment advisor, so I can’t really answer your questions specifically — but shares bought from a company would not usually be tax deferred like an IRA or 401K (though you pay taxes only on your dividends each year, then on the capital gains only when you sell.)

These are generally large, solid, consistently profitable companies with decent and growing dividends — I think most advisors would agree that they are good candidates for DRIP investing, if not necessarily the ideal candidates.

I do think Sharebuilder is a pretty good idea for folks who have a few blue chips that they’d like to spend decades building up positions in. It depends quite a bit on how much money we’re talking about — if you’re investing $100 a month, Sharebuilder probably makes a lot more sense than it does if you’re investing $5,000 a month. A regular discount broker would charge a commission of anywhere from $5-$25 for each transaction and would probably reinvest dividends but wouldn’t buy partial shares for you otherwise (that’s a generalization, I don’t know them all). Your mutual funds likely charge you somewhere between .5% and 2% in annual fees, and a regular stock account would not incur any annual fees for the most part.

I have no idea whether 12% a year is a likely return for these companies — the S&P 500 typically returns an average of about 10% including dividends, so I would assume that a newsletter ought to at least aim to provide something better than that for their subscribers.

Stansberry is a huge publisher with dozens of newsletters, it seems — I wouldn’t call them scams, but I would say that not all of them are appropriate for all investors, and may or may not be worth the money. Over at the Gumshoe forum you’ll see some folks giving opinions about the newsletters they’ve subscribed to, good and bad, and you can ask the other participants what they think of any of them, too. Just visit This link for that section of the forums.

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David A
David A
7 years ago
Reply to  One Guy

I keep beating this dead horse. I am a thrilled Stansberry fan. You get what you pay for in research. Not every news letter is for eberyone. I for one, have trashed ALL news letters and rely ONLY on Stansberry investment and of course Gumshoe. Why? I have made a
respectable amount of money from the research (Stansberry). Stansberry has the integrity to GRADE themselves each year, and inform everybody how they did within the
context of their research. Were they up, down, way up, way down, or did they bomb
on the research advice? Who else does that? NOBODY in the industry! NOBODY! That
speaks volumes to me. Its like the guy that goes to Vegas. He sure as heck wants you to
know how much money he made, but he will not tell you about the money he lost. Stansberry does. And this is HUGE for me! With this said, I have saved hundreds of
dollars (perhaps even thousands) from GUMSHOE in exposing a lot of the teasers
that come across. You just have to take what works for you and let what does not
go. But I laugh at all the IDIOTS, that insist that Stansberry is a scam. Those are the
very people that have no business even being in the market. And they want to offer
the rest of us advice? Yeah right!

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Maya Sophia Uzwyshyn
Maya Sophia Uzwyshyn
13 years ago

Wow,thanks for all the great information, one guy. I really appreciate it and I will check out that link!

Anonymous
Anonymous
13 years ago

DRIP plans have changed a lot over the last 30 years. I think they were originally created to engender customer loyalty, but many companies now consider them a nusience. If you are investing $50 at a time and they change you a $3.00 fee plus $.03 per share plus a 4% fee on reinvested dividends like Wells Fargo does, then you should be looking at other DRIP plans. Some companies like 3M charge no fees and pay all commission costs and sometimes offer discounts on selected products.

Bottom line, check the fees and when they go up get out by requesting cash a stock certificate that you then send to your discount broker (Wells fargo charges $15 for a sale.)

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Anonymous
Anonymous
13 years ago

This is in response to Maya asking about Stansberry Research. I’ve been with them for over 4 years through their True Wealth newsletter and also reading their daily email called “Digest” which I find very useful. I think they are one of the best investment newsletters around. They are very responsible and you learn a lot, even if you just subsribe to their digest for free.

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Anonymous
Anonymous
13 years ago

For you in Canada – CANROYS are great. For we do have some and have good payouts as DRIPS. Thanks – Paul

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shoosh
shoosh
13 years ago

Try this site out. http://www.stockbny.com you can go on at the top for a list of companies and it breaks them down whether they do direct reinvestment plans etc. I use them to buy GE. It is through the Bank of New York Stock transfer. Good information on there.

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