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Weekend Edition

Moving to the "Singapore of the Caribbean" could be one of the best financial decisions of your life
Saturday, May 3, 2014

 Dan Ferris recommended computing giant IBM in the August 2012 issue of Extreme Value. IBM is the largest information-technology (IT) services company in the world. And it's the second-largest software company in the world.
IBM is typical of the kinds of stocks Dan calls "World Dominators." These are companies with consistently thick profit margins, high returns on capital, and huge free cash flow. And they treat shareholders well.
IBM has all those attributes. And it's one of the greatest companies in history at rewarding its shareholders.
From the August 2012 Extreme Value:
There are two financial clues that tell us a corporation is rewarding shareholders. The first is share repurchases. When a company buys back its own shares, it signals that the management thinks its stock is cheap. It also gives existing shareholders a larger piece of the "pie." The fewer slices of pie, the bigger your slice.
Frankly, IBM is one of the all-time greatest share repurchasers of the last decade or so. Its share count was 1.76 billion in 2000. As of its latest quarterly report – filed just a few days ago – the share count is just 1.14 billion. That means shareholders have seen their piece of the pie increase by more than 35% over the last 12 years.
In fact, since 2000, IBM has spent a total of $111 billion on share repurchases. That's a little more than double the $51 billion of capital expenditures it made during that time. A business that pays more to its owners than it needs to reinvest in the business is exactly what you want. Through 2015, IBM expects to spend another approximately $50 billion on share repurchases. Let's think about that for a minute...
Right now, IBM's market cap is $220 billion. At current prices, you could buy back more than one-fifth of the company's shares with $50 billion. Hypothetically, we could see at least a 22% gain in the share price by 2015 on share repurchases alone. But that's not the only way we'll make money through buying shares today...
 But share repurchases are only one way a company can reward shareholders. The other is with dividends. IBM is also a relentless dividend-grower...
The final financial clue is dividend growth. IBM has raised its dividend every year for the last 16 years. Over the past 10 years, its dividend has grown at an average rate of 18.1% per year. (IBM has paid a dividend every year for 96 years in a row.)
The current yield on the stock is less than 2%, which will turn most dividend-focused investors off. But that's because most investors simply don't understand that buying a business with all the financial clues that can grow its dividend at high, inflation-beating rates for decades is far more important than getting a high current yield.
Plenty of scared investors are hiding out in Treasury bonds. They're way too obsessed with safety right now. That's why the 10-year Treasury note interest rate recently hit an all-time low of 1.39%. After 2% inflation, that's a negative return. These scared investors are agreeing to have the value of their capital destroyed each year in return for safety.
Yet if you accept IBM's 1.9% yield today, you're likely to see your income raised by a fat, double-digit number (probably in the mid-teens) within the next year. You'll destroy inflation rather than having inflation destroy you.

 When Dan wrote that issue, IBM was paying an $0.85-per-share quarterly dividend. It paid a $0.95-per-share dividend in May 2013 – a 12% increase.
And Tuesday, IBM announced it would raise its dividend another 16% to $1.10 a share. Following the increase, IBM will yield 2.25%.
This is the 19th consecutive year the tech giant has raised its quarterly dividend... And the 11th straight year of double-digit percentage increases.
Shares of IBM rallied 1% on the news.
 Simply buying and holding these world-dominating businesses is one of the best ways to safely increase your wealth over time... But it's boring. And most people don't have the patience to sit and let these companies work their magic.
There's no better way to beat inflation than by holding shares of companies that increase their dividends at a double-digit annual pace. And because these companies relentlessly repurchase their shares, your stake in their earnings grows over time.
If you bought IBM when Dan recommended it in August 2012, your quarterly dividend payment has already grown nearly 30%. If you were collecting $1,000 a month in dividends, you're now collecting almost $1,300.
These growing dividends add up...
 Consider this bit from Warren Buffett's 2010 letter to Berkshire Hathaway shareholders...
Coca-Cola paid us $88 million in 1995, the year after we finished purchasing the stock. Every year since, Coke has increased its dividend.
In 2011, we will almost certainly receive $376 million from Coke, up $24 million from last year. Within 10 years, I would expect that $376 million to double. By the end of that period, I wouldn't be surprised to see our share of Coke's annual earnings exceed 100% of what we paid for the investment. Time is the friend of the wonderful business. 

It's worth noting that Buffett is also IBM's largest shareholder, with a nearly $13 billion position.
 One of the richest men in the world thinks Puerto Rico could become the "Singapore of the Caribbean."
Singapore, the business-friendly Asian city-state, has attracted huge, global businesses with its tax-friendly regime. And hedge-fund billionaire John Paulson says Puerto Rico could be the next such hub.
Paulson, speaking at the Puerto Rico Investment Summit in San Juan last week, said the U.S. territory's economy is turning around... And he's "interested in future development opportunities."
Paulson's firm, Paulson & Co., already owns a stake in the St. Regis Bahia Beach Resort (among other real estate holdings) on the island's northern coast. He's the largest investor in Puerto Rico's biggest bank, Banco Popular. And according to insiders, he also owns Puerto Rico municipal bonds.
Still, Paulson & Co. is looking to invest another $1 billion in Puerto Rican projects over the next two years.
 Why is Paulson so bullish?
He considered relocating to Puerto Rico last year to take advantage of the new tax laws.
Puerto Ricans are exempt from U.S. federal income taxes, even though they are U.S. citizens. But they pay Puerto Rican taxes, which have been similar to U.S. taxes.
But last year, Puerto Rico started promoting the tax laws Act 20 and Act 22. The laws are complex, but the takeaway is that you can save a fortune on taxes by relocating to Puerto Rico.
Under these laws, new residents of Puerto Rico are exempt from Puerto Rican taxes on capital gains, dividends, and interest income. And there's a top 4% tax rate on earnings from businesses that perform services like consulting and asset management in Puerto Rico for clients outside of the island.
 And the financial firms are flocking...
"Get on a plane now, and business class is filled with representatives from Blackstone, Goldman, DE Shaw, and every private-equity firm I know," Nicholas Prouty, president of financial firm Putnam Bridge Funding, told the financial-news website MarketWatch.
 Puerto Rico expects 360 companies will apply to move their offices to the island this year. That's up from 155 in 2013.
 We recently secured an expert on Puerto Rico's tax benefits to speak at our Stansberry Society's first-ever "Natural Resources Experience" in Dallas on May 31. This gentleman recently relocated his family to Puerto Rico to take advantage of the huge tax savings... And he'll explain the process, in detail, to everyone in Dallas.
If you own your own business or are considering starting a new business, relocating to Puerto Rico could be one of the best financial decisions of your life. It's a huge opportunity today... And the trade still isn't overcrowded... yet.
Friend of Stansberry & Associates and resource-investing legend Rick Rule has also agreed to join us at the event. Rick is the founder and CEO of Sprott Global Resource Investments. He says he has identified a rebound in resource markets that he hasn't seen since 2008. The last time this market was this depressed, he generated 16-fold and 21-fold returns. Rick will share this idea with conference attendees.
Finally, in Dallas you will also have a chance to interact with and ask questions to our headline speaker, legendary American oil tycoon T. Boone Pickens.
You can see the full details of the event and get your ticket by clicking here...
Sean Goldsmith

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