The 12% LetterThe Dividend Diluvia: The Secret to Getting a1,000% Dividend Raise

November 2010

The Dividend Diluvia:The Secret to Getting a 1,000%

Dividend RaiseBy Dan Ferris

Income.

No matter your style of investing – no matter how much risk you can stomach – income is the ulti-mate goal for every investor.

You want to make money.

But most people, including many financial advisors and stockbrokers, simply don’t know the best wayto go about collecting it.

You’ll probably never get enough income by using ordinary stocks, bonds, CDs, and bank accounts.

If you want the opportunity to collect a serious income, you need to look at investment opportunitiesWall Street doesn’t recommend.

I’m talking about opportunities like the Dividend Diluvia.

You see, certain stocks do more to increase their shareholders’ income than any others. Because they pro-duce a “flood” of dividends for investors who buy at the right time, I call them “Dividend Diluvia” stocks.

This Dividend Diluvia opportunity doesn’t involve using any risky or complicated tactics. You won’thave to join any company reinvestment plans... touch options... short sell... use leverage... or learn anyother complicated investment technique.

As you’ll see, it could really be as easy as buying a few shares and watching your dividends grow sky high.

Keep reading... I’ll tell you everything you need to know - including what I consider the best DividendDiluvia stocks you should get into right now.

The Best Wealth-Compounding Stocks in America

Earlier this year, my colleagues and I embarked on the biggest research project in this newsletter’s six-year history. We hired a full-time researcher with a degree in actuarial statistics and trawled through all14,730 stocks trading on United States stock exchanges.

The goal was to find the best dividend growth stocks in America. Only eight made the cut...

These companies – the “Dividend Diluvia” – are some of the most extraordinary wealth-compounding

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vehicles I’ve ever seen.

They pay large dividends... They raise their dividends every year... They have little to no debt... They’reextremely resistant to broad market declines... And they operate recession-proof businesses with strongbrand names and other wide competitive moats.

With this description, you might think of huge, legendary businesses like Johnson & Johnson or Coca-Cola. But the largest stock in this group has a market cap of just $5 billion. That’s about 1/30th the size ofJohnson & Johnson. As I’ll show you, there are advantages to buying these smaller dividend superstars.

These stocks are the eight best businesses I know of for generating high long-term compound returnsfor investors. To get started on your compounding, you should buy one or more of these stocks and aim toforget about them for a decade.

These eight stocks are paying an average 3% dividend yield right now. As a group, they’re growing theirdividends by 15% a year. Those numbers might sound small. But if you invest following the DividendDiluvia plan, they can add up to a fortune. Let me show you how...

The Royal Road

There’s one investment strategy that’s mathematically certain to produce a fortune over time. I’m talk-ing about compounding...

Compounding is a simple investment strategy where you put your money in an investment that pays areturn. At the end of the year, you take your return and reinvest it with your original stake. Your dividendor interest earns a return, too, building a bigger dividend – or higher interest payments – the next year.

A snowball is the best analogy for compounding. As you roll the ball through the snow, the surface areagets bigger. The more surface area on the snowball, the more snow it picks up. The snowball gains massslowly at first... but pretty soon, you can’t move it.

Compounding is slow and boring at first. But gradually, the dividends grow and your reinvestmentsincrease. One day, you wake up to find your account producing thousands of dollars a year in dividends,and your wealth has turned into a giant snowball.

The power of compound returns is truly amazing. I’ve seen compounding referred to as “the most power-ful force in the universe”... “the royal road to riches”... “the greatest mathematical discovery in human history.”

Not only is compounding an incredible wealth-builder, it’s also simple to do. First, you need an invest-ment that generates a return every year for many years in a row. Then, you need time and perseverance tolet the dividends grow.

Compounding doesn’t require vigilance, activity, or effort to make it work. In fact, it works best whenyou forget about it altogether. This is why compounding is by far the best investment strategy for your chil-dren or grandchildren. They have time to let the dividends accumulate, and they won’t think about theiraccount every day.

Here’s one example: You put $2,000 into your IRA each year between the ages of 20 and 40, earning10% a year. By age 65, you’ll be a millionaire, with $1,365,227 in your account. The returns here never failto astonish me.

The Best Investments ForGenerating Compound Returns

To compound, you can use any investment that pays a return. Even a bank account will compoundyour money, as long as it pays interest. To make the most out of compounding, you want the highest rate ofreturn possible...

The rate of return makes a huge difference to the speed your wealth compounds. For example, $1,000invested in a stock that returns 8% (dividends plus capital gains) for 50 years turns into $46,900. But thesame $1,000 invested in a stock that returns 10% over 50 years turns into $117,400.

While you could use bank accounts or savings bonds to compound, I wouldn’t recommend them, espe-cially right now, with official interest rates set at zero.

Instead, I recommend you use the stock market for your compounding strategy. There’s simply no bet-ter place to find investments that generate high rates of return over long periods. As I’ll show you, with alittle help finding the right stocks, you’ll have no problem building a compounding portfolio that returnsover 10% a year and possibly much more.

So which stocks should you buy? This is where our Dividend Diluvia research comes in...

How We Found The Best Compounding Stocks

I’ve been doing my own investment research for about 20 years, but recently, I’ve become obsessed withdividend stock research.

I’ve analyzed all the best dividend paying investments in the stock market... from utilities to REITs. I’vealso looked at income investments outside the stock market, like tax lien certificates, bonds, private compa-nies, and covered call strategies.

Of all the income investments I’ve heard of in my life, without a doubt, the best vehicles for generatingcompound returns are stocks that raise their dividends relentlessly year after year. (See sidebar below.)

It takes a high-quality business to produce larger and larger dividends every year for many years at astretch... so the stocks with the longest records of raising dividends tend to be household names like Coca-Cola, Gillette, Johnson & Johnson, and Wal-Mart.

The paradox is, these stocks don’t usually have high dividend yields. Coke yields 3% for example.McDonald’s yields 3%, Johnson & Johnson yields 3.7%, and Wal-Mart yields 2%. These low yields dis-guise the immense “double compounding” power of a rising dividend combined with a strategy of reinvest-ing dividends each year. Blinded by pure dividend yield, most income investors overlook them.

These are by far the safest stocks in the world... and the fact that their growth is slowing is good for

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dividend payers. They’ll keep generatinglarge cash flows, but they won’t have tospend them to try to grow the businessmore. So they can pay out more of theircash in dividends. They’re great dividendpayers, and you’ll find some of them inportfolio on the back page of the month-ly issues of The 12% Letter. No doubtwe’ll cover more of them in the future.

But while these large, dominantfranchises are great, the most lucrativestocks are generally the smaller business-es that have room to grow as these giantsonce did many years ago.

Our research was in part an attemptto identify the next household namethat’ll grow from maybe a billion or twoin market capitalization... to $50 billionor $100 billion or more. In a moment,I’ll show you the stocks we found. Butfirst, let me explain how the DividendDiluvia stocks will make you a fortune...

Dividend Diluvia stocks are allrelentless dividend raisers.

Just like the blue chip stocks men-tioned above, Dividend Diluvia stocksraise their dividends every year, year afteryear, without question. Each stock on ourshort list has raised its dividend every yearfor at least the past five years. The divi-dend growth rates vary between 5% and30%... but they all raise their dividendsevery year.

Dividend Diluvia stocks are small-cap stocks.

Johnson & Johnson has a market capof $165 billion. Coke has a market cap of$128 billion. McDonald’s has a market capof $80 billion.

Our Dividend Diluvia are small capstocks. The average market cap of a

Dividend RaisersPerform Best

Ned Davis Research – a highly respected investmentresearch house – recently published statistics confirmingthat stocks that raise their dividends perform better thanany other type of stocks.

According to the research, between 1972 and 2008,companies that raised their dividends for at least five con-secutive years outperformed the market every year. Here arefindings from that report...

Between 1972 and 2008, companies that have raisedtheir dividends for at least five consecutive years generated8.6% average compound gains per year. That beats everyother category:

• All dividend-paying stocks generated 7.6% per year.

• Dividend payers with no change in dividendsreturned 6.0%.

• Dividend cutters or eliminators returned -0.3%.

• Non-dividend paying stocks returned 0.2%.

• S&P geometric equal-weighted total return indexreturned 5.9%.

• How do stocks with high dividend growth rates gen-erate the highest compound returns, even if they havelow current dividend yields?

If a stock pays an 8% dividend but never raises its divi-dend, you’ll make 8% a year total returns, assuming thestock price goes nowhere. If you reinvest your dividends, youwill double your money every nine years, again assuming thestock price goes nowhere. Not bad. But consider this:

When a stock pays a 2% dividend, but raises its divi-dend at 10% per year – all else being equal – you’ll makereturns of 12% a year. That’s because a 10% rising dividendwill translate into a 10% rising stock price, assuming thedividend yield remains constant.

Dividend Diluvia stock is less than $2billion... or slightly over 1/100th thesize of Johnson & Johnson. The largestDividend Diluvia stock has a market capof around $5 billion. The smallest has amarket cap of less than $600 million.

By buying small-cap dividend rais-ers, we get two important benefits...

First, small-cap stocks have morepotential for growth. Growth for thecompany should lead to dividendgrowth for us. Blue-chip stocks are thegiant oak trees that grow 7% a year.Small cap stocks are the immature oaktrees that grow 15% a year.

Not all small-cap stocks are growth stocks. But generally speaking, the smaller a stock, the more roomit has to grow and pay us bigger dividends.

Second, large pension funds, mutual funds, and insurance companies can’t buy small-cap stocks in anymeaningful size. They’re too small. So they ignore them. That makes these small-cap stocks cheaper for us.

Dividend Diluvia stocks have minimal debt levels.

Because our small-cap stocks don’t have the same multi-decade track records of raising dividends likeJohnson & Johnson or Phillip Morris, I’m excluding all but the absolute safest companies from ourDividend Diluvia.

I only picked companies with low debt levels. Half our Dividend Diluvia companies have no debtwhatsoever. The most indebted company has a debt-to-equity ratio of only 20%. That’s only $1 in debt forevery $5 in stockholders’ equity.

Debt is important for two reasons:

First, debt holders get their interest before we get our dividends. So if a company has a large debt load,interest payments will drain the profits, and we’re unlikely to get a large dividend.

Second, debt increases the leverage in a company. When the company grows, debt causes the bottomline to inflate much faster. The same is true on the downside. When the company shrinks, debt causes thebottom line to collapse. Heading into a recession, generally speaking, you only want to invest in companieswith low debt.

Dividend Diluvia stocks have recession-resistant business models.

We need to receive larger dividends, no matter what happens in the economy or in the marketplace.

Imagine trying to compete against Coke. You will never win. Coke’s brand name gives it a huge moat.

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Let’s say a stock pays a dividend of $1 per share, and itsstock trades at $50. That’s a 2% dividend yield. The nextyear, the dividend grows by 10% to $1.10 per share.Assuming the dividend yield remains at 2%, then the com-pany’s stock price must also rise by 10% to $55 per share.

In other words, you get the 2% dividend. But moreimportantly, the 10% dividend growth translated into a10% stock price gain, giving you a total return of 12%.

All else being equal, a company that yields 2% andgrows its dividend 10% a year will double your moneyevery six years. In the short term, this won’t always be thecase. But over the long term, studies have shown dividendgrowth and stock price growth have a strong correlation.

We only picked companies with long-term competitive advantages like Coke. (For example, we ignored allcompanies in the commodity business.)

We focused on companies with brand names, companies that dominate their niche industries, andcompanies that operate in unfashionable industries that they dominate. These moats make our DividendDiluvia recession-resistant.

Introducing theDividend Diluvia Stocks

These eight stocks are our Dividend Diluvia. They are all small-cap stocks. They raise their dividendsrelentlessly. They have no or very little debt. Their business models have wide moats. And they all per-formed well in the recent bear market...

That said, they’re not all suitable for buying at current levels. So we’re going to buy one right here,while it’s at a good price. And we’ll keep the rest on our watch list.

Let’s start with my No. 1 Dividend Diluvia company...

Dividend Diluvia Company No. 1Healthcare Services

If there’s one growth business left in America, it’sretirement homes for the elderly.

The U.S. population is aging. We’re living longerthan we used to, and we tend to need more care in ourlast several years of life. So retirement homes are everywhere. There’s a retirement home right across thepark in front of my house, about 300 feet away.

Healthcare Services (Nasdaq: HCSG) does all the dirty jobs behind the scenes at nursing homesacross the country. It’s in three businesses: housekeeping, laundry, and food services.

Housekeeping is Healthcare Services’ largest business. It accounts for just over half the company’s sales.The housekeeping operation cleans and disinfects rooms and sanitizes the common areas.

The laundry operation cleans residents’ clothing. It provides and launders sheets, pillowcases, blankets,towels, uniforms, and assorted linen items used by its client nursing homes. It also takes care of repairs andmaintenance of the laundry rooms, electrical systems, and plumbing.

The food services operation provides food and develops menus, including special dietary requirements.Healthcare Services employs registered dieticians who can provide nutritional consulting. It also providesconsulting services to help nursing homes save money on meals.

Back-office support for nursing homes is a recession-proof business, since people in nursing homesneed all these services no matter what’s going on in the world. Healthcare Services will grow its dividendregardless of the troubles in the greater economy.

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Healthcare Services yields just under4%. Its five-year average annual dividendgrowth is an astounding 31%.

Healthcare Services has increased its revenues and profits every year for the past 10 years. Net income isup 400% since 2000. With such steadily increasing profits, Healthcare Services can pay a large dividend.Right now, it yields 3.9%, but the dividend is growing at 31% per year.

It has doubled its dividend in the last three years... and it’s grown 1,193% since 2003. HealthcareServices has raised its dividend every quarter for the last 30 consecutive quarters.

Healthcare Services is safe, too. It has no debt and $87 million in cash. With no debt on its balancesheet, it can’t go bankrupt. Plus, there are no debt holders to siphon off interest before we get our dividend.

The company has a market cap of $927 million, so it’s a small company and under the radar of mostinstitutional investors.

In sum, Healthcare Services is in a recession proof business, it’s profitable, debt free, and it’s growing itsdividend quickly. BUY Healthcare Services up to $23. Use a 25% trailing stop.

Dividend Diluvia Company No. 2 Tootsie Roll Industries

High-margin, brand-protected consumer productsare the perfect businesses for producing long trackrecords of rising dividends. Tootsie Roll (NYSE: TR) isone of the strongest brand names in the candy business.

Tootsie Roll Industries sells a large range of candies and gums in North America. It’s been in businesssince 1896. Aside from its most famous candy, Tootsie Roll makes Charms, Junior Mints, Sugar Babies, andDubble Bubble.

Classic candies are inexpensive, and people keep eating them no matter what’s happening in the econo-my. I learned this lesson about the confections business when I was in it many years ago. While I was incollege, I manufactured small batches of homemade ice cream and served it up to customers in the Towsonarea, just north of Baltimore, Maryland. I was working for the late, great Lee Garfield, of Baltimore’s land-mark Lee’s Ice Cream Factory.

Lee was wise. He told me one day that people might not have the money for a new car or a vacation,but they’ll always have a buck or two for an ice-cream cone. It’s like a little mini-vacation they can givethemselves, no matter what’s going on in the world.

Tootsie Roll’s business is just like Lee’s Ice Cream Factory. They’re both relatively recession-proof busi-nesses. Tootsie Roll’s revenues are up 27% since 2003, and profits are up 36% since 2008. These greatfinancials mean that our dividend will likely keep increasing.

Tootsie Roll is one of the all-time great dividend-paying stocks. It has raised its dividend every singleyear for 46 years in a row. Over the last 10 years, it has raised its dividend at a rate of 6.45% per year.

Tootsie Roll Industries is in excellent financial condition, which makes it a safe investment. It holdsover $85 million in cash, but owes less than $8 million in debt. Tootsie Roll can’t go bankrupt with a $77million dollar net cash cushion. Its market cap is $1.4 billion.

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Tootsie Roll Industries yields 1.2%. Itsfive-year average annual dividend growthrate is 5%.

Tootsie Roll Industries has increased its dividend every year since 2000. Since 2000, the dividend hasincreased 66%.

In sum, Tootsie Roll sells a branded, cheap product that’s recession resistant. It’s sitting on nearly $80million of net cash, has little debt, and steadily increases its dividend.

Dividend Diluvia Company No. 3Rollins

The business Rollins (NYSE: ROL) is in – pestcontrol – is just like the candy business. It’s not a veryexpensive product, and there’s always a demand for it,no matter what the economy is doing. In fact, there’salways an increasing demand for it. As the populationgrows, so will the industry.

Rollins’ best-known subsidiary, Orkin, has been around for 109 years, providing pest and termite con-trol to North America. It was started in 1901, when Otto Orkin, known as “The Rat Man,” began sellingrat poison door to door.

Today, Rollins has acquired several other pest-control subsidiaries and has over 2 million residential andcommercial customers. It operates around the world from more than 500 locations. Most of its customersare individual homeowners, but it also serves businesses, like hotels, restaurants, food manufacturers, andretail establishments. In fact, Orkin is the No. 1 commercial pest control company in North America, witha 20% market share.

Rollins also owns PCO Services, Canada’s largest commercial and residential pest-control company.

The pest-control market is worth around $7 billion in annual sales. Rollins has a big chunk of that,with annual sales around $1.1 billion per year. Practically any commercial or private property could be apotential customer of Rollins. This company has room to grow.

Rollins has a market cap of just over $2 billion. It sounds like a big number, but it’s still too small formost investors to notice.

Pest control might not be a sexy business, but it sure is a necessary business. Rollins will maintain cus-tomers regardless of a market crash. More than 80% of Rollins sales come from repeat customers. Theykeep coming back, no matter what’s happening in the economy. Revenues and gross profit have increasedevery year for the past 10 years. Net income has done the same and is up 740% since 2000.

Rollins’ dividend has grown dramatically since 1998. In that time, the dividend has increased 508%.Rollins has increased its dividend for eight years in a row, at more than 12% per year.

Rollins isn’t as cash-rich as some of our other companies. It currently holds $19 million in cash and$25 million in debt. However, this company is in a growth stage. The numbers over the past 10 years con-firm that Rollins isn’t done carving out market share. This kind of growth makes the company safe.

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Rollins yields 1.5%. Its five-year aver-age annual dividend growth rate is 12%.

Dividend Diluvia Company No. 4Landauer

Landauer (NYSE: LDR) is the leading radiationbadge company in the world. Radiation badges areworn by workers who are exposed to radiation duringthe normal course of their workday. Landauer makesradiation badges, distributes them to and collects themfrom customers, and analyzes and reports exposure findings. This information is mandatory for the people whooperate in industries like defense, medicine, scientific research, and nuclear power. It is an essential service, andthese institutions can’t operate without it.

Landauer provides its essential services to 1.6 million individuals in the United States, Australia, Brazil,Canada, China, France, Japan, Mexico, and the United Kingdom, among other countries.

In the U.S., Landauer is the leading company that provides “medical physics” services like radiation badges.Buying No. 1 companies is an excellent strategy, since it’s usually harder to compete with the No. 1 company.

Landauer’s other services include measuring the radiation from X-rays, gamma radiation, and other pene-trating iodizing radiations. Its clients include hospitals, universities, national laboratories, and nuclear facilities.

Landauer has a market cap of $543 million. It’s one of the smallest Dividend Diluvia companies, andmany investors ignore it.

Landauer’s business is recession proof. Revenue, gross profit, and net income have all increased everyyear since 2000. In fact, practically every positive number on its balance sheet has increased annually since2000. Earnings per share are up 71% since 2000.

Landauer has many repeat customers. And they all pay up-front, so it doesn’t need to borrow a lot ofmoney in order to grow sales.

Since its IPO in 1992, Landauer has never cut its dividend. Its dividend has been steadily increasing for18 years and is 259% larger than it was in 1992.

Landauer is a company still in a growth stage. It has $8 million in cash on its balance sheet and $13million in debt. Normally, we wouldn’t like this, but the company’s income has been growing so steadily forthe past decade that it’s still very safe.

In the bear market of 2007-2009, the S&P 500 fell 57%, but Landauer actually gained 1.6% – anincredible achievement.

Landauer is a company on the rise, it increases its dividend often, and is nearly impervious to market volatility.

Dividend Diluvia Company No. 5Brown & Brown

Insurance is an essential part of modern living, and it can be a wonderful business for investors, too.For this reason, there are more insurance companies in the Dividend Diluvia than any other type.

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Landauer yields around 4%. Its five-yearaverage annual dividend growth rate is 5%.

Insurance is one of the all-time great businesses forinvestors because the company takes in payments intoday’s dollars and pays out future claims in less valu-able future dollars. With the Federal Reserve printingover $1.3 trillion over the next eight months, inflationis something you need to worry about today.

Brown & Brown (NYSE: BRO) has been in the insurance business since 1956, and it’s carved out aniche for itself. Through its affiliates, Brown & Brown operates as a diversified insurance agency, wholesalebrokerage, and an insurance program and service agency. It sells property and casualty insurance, includingproperty damage, windstorm, legal liabilities, workers compensation, and auto coverage. The companyserves individuals as well as commercial and professional liability.

If you own a car, you must buy insurance. It’s required by law. Many professionals and businesses, too,are required by law to maintain certain types of insurance coverage. This gives Brown & Brown a recession-proof business. Many of its customers have a legal obligation to purchase its products. Revenue has grownevery year since 2000 and is up 361% in that time. Net income is also up 363% since 2000.

Brown & Brown’s market cap is around $2.8 billion. It’s one of the larger Dividend Diluvia stocks, butstill too small for most institutional investors to care about.

The company has been increasing its dividend for the past 18 years, with no dividend cuts. Since 1992,the dividend has increased 836%. The dividend has nearly doubled since 2005.

Brown & Brown is in very stable financial shape. It holds $301 million in cash and only $256 millionin debt. This may seem like a lot of debt, but its cash alone could pay it all off.

In sum, Brown & Brown operates a smart business that is always in demand, it holds considerablemore cash than debt, and it’s a fantastic dividend grower.

Dividend Diluvia Company No. 6Harleysville Group

Harleysville Group (Nasdaq: HGIC) sells propertyand casualty insurance in the eastern and MidwesternUnited States. Since 1979, Harleysville has sold itsproducts through independent agents. It underwritespersonal and commercial insurance, including automo-bile, homeowners, and workers compensation.

Harleysville Group has a market cap of $862 million. This keeps it under the radar of most institution-al investors.

Insurance has become a way of life of U.S. citizens. Whether we like it or not, we have to protect our-selves from the risk of loss. Harleysville’s insurance protects individuals from the loss of their property. Thisis why Harleysville Group runs a recession-proof business. Since 2008, net income has increased 105%.

Harleysville has increased its dividend every year since 1990. The dividend has increased 550% in the

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Brown & Brown yields 1.5%. Its five-year average annual dividend growth rateis 14%.

Harleysville yields 5%. Its five-yearaverage annual dividend growth rate is14%.

past 20 years. Harleysville has raised its dividend every year for the last 23 years. I expect the dividend tocontinue to rise.

The company currently holds $63 million in cash and $118 million in debt. This may seem negative,but Harleysville Group has such great financial growth that it’s still a very safe company. Insurance is acash-rich business, and Harleysville is good at what it does.

Harleysville runs a safe, secure, and profitable business. It raises its dividend every year and showsstrong growth.

Dividend Diluvia Company No. 7RLI Corporation

RLI (NYSE: RLI) sells auto, commercial property,machinery coverage, and cargo insurance. It has a mar-ket cap of $1.14 billion. This is too small for manylarge investors to bother with.

RLI is well-known as an excellent insurance under-writer. Being an excellent insurance underwriter is difficult. It’s like being a great investor. It requires a greatdeal of discipline. You have to be willing to do something different than the rest of the world is doing.

RLI is a niche player in the insurance industry. It focuses on selling the types of insurance not generallysold by the regulated insurance industry. For example, it sells surety bonds on abandoned oil wells and oil-rigs. Because it does some of its business outside the regulated insurance industry, it can charge more for itsinsurance and isn’t subject to the same stifling level of regulation. Last year, about 41% of its sales camefrom this market.

The other 59% of RLI’s sales come from specialty markets that, for various reasons, still reside withinthe regulated insurance markets. Instead of just selling regular car insurance, RLI focuses more on local,intermediate, and long-haul truckers, public transportation risks, transportation equipment dealers, andspecialty commercial automobile risks.

Revenues have increased eight of the last 10 years and are up 108% since 2000. Earnings per share areup 198% since 2000.

RLI has increased its dividend every year for the past 33 years. Since it began paying a dividend, it hasincreased 1,033%. And since 2003, the dividend has tripled. I expect the dividend to continue to growwith the company.

It holds $114 million in cash and only $100 million in debt. This means it could pay off all of its debtwith the cash it holds. Bankruptcy is not a possibility for this company. In fact, RLI is one of the most safeand secure companies in the insurance industry. Insurance ratings agency A.M. Best rates all three of RLI’sinsurance subsidiaries A+ (superior). Less than 10% of all property and casualty insurance companies in thecountry can say that.

RLI increases its dividend like clockwork, holds more cash than debt, and serves a niche market fewcompanies care to compete in.

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RLI yields 2%. Its five-year averageannual dividend growth rate is 13%.

Dividend Diluvia Company No. 8BancFirst

BancFirst (Nasdaq: BANF) is a community bankbased in Oklahoma City, Oklahoma. It has 85 branch-es, all in rural communities across Oklahoma.

It has a market cap of $650 million. That’s toosmall for most institutional investors.

Serving rural communities is a great business. The populations are so small, it’s difficult for competitorsto justify an attempt to steal your customers. Plus, once you’ve formed a relationship with a depositor, he’slikely to stay with you for the rest of his life.

BancFirst has a fortress balance sheet. It holds $3.8 billion in deposits, but it has only extended $2.7billion in loans. It holds the remainder in cash, securities, and other cash-like investments. With all thiscash on its balance sheet, BancFirst is massively overcapitalized, making it very safe. It holds more than $1billion in cash these days. That’s more than the entire market cap of the whole company. Its share price wasaround $40 recently, but it has more than $66 per share in cash, and very little debt.

BancFirst’s revenues are up 79% since 2000. Earnings per share are up 29% since 2000.

The company has increased its dividend every year for the past 16 years. Since 2003, its dividend hasrisen 113%.

BancFirst holds over $1 billion in cash and $28 million in debt. Bankruptcy is not a possibility for thiscompany. In fact, it’s easily one of the safest and strongest financial institutions in the country.

BancFirst increases its dividend every year, has much more cash than debt, and continues to provideinvestors with a safe haven during uncertain times.

How To Begin Your Compounding Strategy

Whenever a Dividend Diluvia stock gets cheap enough, and its dividend yield gets high enough, we’llrecommend it in the pages of The 12% Letter.

Whenever you buy a Dividend Diluvia stock, always remember to tell your broker to reinvest the divi-dends. That’s how you get your money to make money – by reinvesting dividends.

Two stocks in this list – RLI and Harleysville Group – offer direct investment plans, which can helpyou save money on transaction costs. To get information about these dividend reinvestment plans, just goto the company’s website:

RLI Corp: www.rlicorp.com Harleysville Group: www.harleysvillegroup.com

We’ll continue developing the Dividend Diluvia idea over the months and years ahead. There are cer-tainly some Dividend Diluvia stocks we haven’t found yet. We’ll add those to the list as we find them andrecommend them whenever the stocks are cheap enough and the dividend yields are high enough.

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BancFirst yields 2.3%. Its five-year aver-age annual dividend growth rate is 10.8%.

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Published by Stansberry & Associates Investment Research.

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