The Non-Investment of the Week: Home Improvements
Another day, another doomsayer…
Earlier this week, we saw bearish investors dumping their money into the bottomless pit of leveraged ETFs, even as the market continued its three-year rally…
Now, Chris Martenson – one-time consultant in Business Development and Strategies at Pfizer (NYSE: PFE) – has some advice. (Apparently, now he’s a trend forecaster who has an alternative investment idea for you.)
“This is a time you have to consider other places for investments… One of the things we counsel people to do is consider investing in your own homestead.”
He told Yahoo’s (Nasdaq: YHOO) Daily Ticker that “plugging all the leaks” would cut on energy costs, landing you anywhere between a 10% and 18% yield on your investment.
How true… and riding your bike to work will save on fuel expense. These are “investments” only by a long shot, and hardly alternatives to putting your money into, say, dividend stocks.
Heck, even bonds are a better investment than what Martenson suggests!
Well, when you hear some past “forecasts” from this guy, his latest call isn’t too surprising. For instance, in a past Business Insider piece, Martenson predicted the “final and total catastrophe of… currency systems.”
I could be going out on a limb here, but it might not be such a great strategy to take investment advice from someone who portends the end of the monetary system.
To give him the benefit of the doubt, though, let’s take a look at how “investing” in home energy improvements stacks up against a hypothetical, run-of-the-mill dividend growth stock.
Let’s say you have $3,000 to invest. If we use Martenson’s (generous) 18% yield, it comes to $540 per year of savings on energy costs. After five-and-a-half years, you’d break even on your initial $3,000 investment, but $540 annually is all you could ever expect.
Compare that to investing the same $3,000 in a nice dividend growth stock. Let’s use a 10% yield (even lower than Martenson’s!), a growth rate of 25% and a share cost of $10. After five years of reinvesting into that same stock, your annual income will be $1,253 with your holdings valued at $6,384, and your yield on cost will stand at 41.6%.
One year later, and you’ll land $1,948 with the stock. Compared to $540 with the home improvement, that’s not even in the same ballpark.
You can also take a dividend stock like CorpBanca (NYSE: BCA). It’s less idealistic than the hypothetical stock above, but it shows that even in the real world, Martenson’s “alternative” to safe, smart equity investments doesn’t pan out.
CorpBanca’s a relatively new dividend payer, but it shows the early qualities of a growth stock. Its yield is currently 8.53%, and it has a three-year dividend growth average of 20.18%. The stock’s priced at $17.74, so with that $3,000 you’d be able to snag 169 shares. Not much, but a good start.
If you reinvested into CorpBanca (even with such a measly initial purchase), in the sixth year your income from the stock would hit $1,165. While those home improvements would still be handing you $540, year after year.
Bottom line: Sure, “invest” in home improvements. Even ride your bike to work! After all, a penny saved is a penny earned. But you can easily see that, despite their virtues, they aren’t viable alternatives to actual investments in healthy dividend growth stocks.