Dividend Growth Investor

How Ronald Read managed to accumulate a dividend portfolio worth $8 million

Fri, 24 Jun 2022 20:55:54 +0200

Dividend investing is as sexy as watching paint dry on the wall. Defining an entry criteria that selects quality dividend stocks with rising dividends over time and then patiently reinvesting these dividends while sitting on your hands is not exciting. While active traders have a plethora of hedge fund managers on the covers of Forbes magazine there are not many well-publicized successful dividend investors. Even value investing has its own superstars – Ben Graham and Warren Buffett.

I did some research and uncovered several successful dividend investors, whose stories provide reassurance that the traits of successful dividend investing I outlined in a previous post are indeed accurate.

The reason why dividend investors are not highly publicized is because dividend investing is not sexy enough to be featured in the financial mainstream media. In addition to that, it is not profitable for Wall Street to sell you into the idea that ordinary investors can invest on their own. This is why you have advisors crying wolf over the fact that you are paying 15% tax on your dividend income, while charging clients 1%/year on assets under management, and investing that money in a mutual fund that costs an additional 1%/year. Mutual funds, annuities and other products generate billions in commissions for Wall Street, despite the fact that they might not be in the best interest of small investors.

The dividend investor to profile today is Ronald Read, who left an $8 million fortune behind when he passed away in 2015. What's fascinating about him is that he never earned a high income, because he worked as a gas station worker or a janitor.

I find this story to be very inspiring, because it showed how an ordinary person who never earned a high income was able to amass a dividend portfolio worth $8 million by the time of his death. The portfolio was generating close to $20,000 in monthly dividend income on average. This portfolio was a result of frugality, hard work, and ability to buy stocks to hold for decades, while patiently reinvesting dividends.

When Ronald Read died at the age of 92 in 2014, he left a dividend portfolio worth $8 million to charity and his children. That story shows that Ronald Read earned close to $20,000 in monthly dividend income from this diversified portfolio of 95 blue chip securities. They were spread across a variety of sectors, including railroads, utility companies, banks, health care, telecom and consumer products. He avoided technology stocks. It looked like Mr Read invested solely for dividend income, and his portfolio was well put together. Besides being a good stock picker, he displayed remarkable frugality and patience which gave him many years of compounded growth.

Ronald Read didn't have a finance degree, nor an MBA, but was an ordinary Joe who managed to save and invest for the long term. The story is appealing to me because it shows that investors who pick quality blue chip stocks to hold for decades, and reinvest those dividends patiently, can accumulate a sizeable portfolio over time. The important trait is patience. I follow the same slow and steady approach to long term dividend investing as Ronald Read.

Attached below is a list of Ronald Read's largest portfolio holdings:

Mr. Read left behind a five-inch-thick stack of stock certificates in a safe-deposit box. Owning the stock directly is old school, but it also reinforces the behavior to buy and hold equity stakes in solid blue chips.

Among his longtime holdings were blue-chip stalwarts such as Procter & Gamble, J.P. Morgan Chase, General Electric and Dow Chemical. When he died, he also had large stakes in J.M. Smucker, CVS Health and Johnson & Johnson. He was able to stick to his securities for many years. Not all of his securities worked out, but did pretty well in the end. For example, his portfolio included shares of Lehman Brothers Holdings, the financial firm that collapsed in 2008, for example.

One example of a long-term investment was buying 39 shares of Pacific Gas & Electric on Jan. 13, 1959 for $2,380. Adjusting for stock splits, these shares would have been worth $10,735 at te time of his death. He ended up owning 578 shares in all of PG&E, worth just over $26,500, some of which he may have purchased with the dividend payments made to shareholders.

He researched his ideas thoroughly, reading business publications such as Wall Street Journal, going to the library, and chatting about investments with close friends.

Ronald Read's success was dependent on several important factors:

1) Stay frugal and live within your means

2) Invest savings at a high rate of return for a long period of time

3) Invest in companies with durable competitive advantages with a long runway

4) Stay patiently invested for decades, without selling

5) Keep reinvesting those dividends along the way

This dividend investor managed to turn small investments into a cash machine that generated large amounts of dividends. He was able to accomplish this through identifying quality dividend growth companies at attractive valuations, patiently reinvesting distributions and mostly maintaining a diversified portfolio of stocks. These are the lessons that all investors could profit from.

Dividend Investors: Stay The Course

Thu, 16 Jun 2022 22:36:33 +0200

The past month has been difficult for many investors. It is during times like these that you see who really is a long-term investor, and who is just a pretender. When you are a long-term buy and hold investor, you stand the best chances to take maximum advantage of the power of compounding, and end up with the probability for the highest dividend income and capital gains. These are the times where having a disciplined approach to investing pays off. These are the times when the ability to allocate capital to use in quality dividend stocks would seem stupid in the short-term, but potentially really brilliant 10 – 20 years down the road. When stock prices fall, there is an urge in the investor to protect their nest eggs from further price impairment.

This is a dangerous situation to be in because:

1) Noone knows in advance today when this correction is going to run out of steam or what its ultimate severity will be. So when you act on short-term noise, you are actually shooting yourself and those who will depend on you in the foot.

2) Therefore, if you act based on short-term price fluctuations, you are speculating and have essentially thrown out your edge of being a long-term investor. It is extremely difficult to win in investing as a short-term speculator – you will be in an out of stocks and paying taxes and commissions through the nose. Your main edge in the stock market lies in the ability to hold on to your stocks through thick and thin for decades, and cashing in those growing dividend checks ( or reinvesting them in the accumulation phase)

3) If you are in the accumulation phase, you should be praying for lower prices, because you are buying shares to provide for you in 20 – 30 years. A 200 point decline on the S&P 500 decline will likely look just like a blip on the charts 20 – 30 years from now. If you don’t believe me, check the 1987 crash. A lower entry price results in more future dividend income for you.

4) If you are in the retirement phase, you already have a plan to live off your assets. You are likely spending those dividends, and hopefully those dividends are coming from a diversified portfolio of dividend growth stocks. You are likely getting social security and possibly a pension. As long as there is some margin of safety in financial independence, and the dividend portfolio mostly consists of quality blue chips, the investor should be just cashing in their dividend checks and enjoy the fruits of their lifetime of labor.

I know that seeing unrealized capital losses hurts. However, the important thing is to just stick to your plan and stay the course. This is why I have chosen to be a dividend growth investor. When the stock market is going up, everyone is a total return investor and chases hot growth stocks and talks about how much capital gains they have made.

However, when the stock market starts going down in price, those capital gains could quickly turn into losses. Imagine having to sell chunks of your portfolio for living expenses when the stock market is going lower. You will eat your principal quickly, and increase your chances of panicking and doing the wrong thing of selling everything out. When your dividends cover your living expenses however, it is much easier to ignore those stock price fluctuations. As long as those dividends are coming from a diversified portfolio of quality blue chip stocks that are dependable, the investor has nothing to worry about. In fact, receiving cash dividends when the stock prices are going down is very reassuring, and provides the investor with positive reinforcement to just stay the course.

There is a reason why stocks have done much better than bonds in the long-run – they are riskier. With stocks, there is always the chance that there will be violent fluctuations in the price. You can have steep downturns, which can have many weak hands scrambling for the exits. When stock prices go down, many investors assume that something is wrong, they panic and sell. They forget that your upside potential in terms of dividends and capital gains is virtually unlimited. Some companies you own will ultimately cut dividends and sell at levels that were lower than what you paid for. Other companies in your portfolio will do well enough in the long term that will more than compensate for the failures you have experienced.

The issue with stocks of course is that the amount and timing of future capital gains is largely unknown in advance. This is why people panic when prices start going down – they project the recent past onto the future indefinitely. They forget that stocks are not just some pieces of paper or blips on a computer screen, but real businesses that sell real goods and services to consumers who are willing to exchange the fruits of their labor for those goods and services. Over time, those businesses as group will likely learn ways to sell more, charge more, earn more and reward their shareholders. No matter the turbulence we will experience in the US and Global stock markets and economies in the short-run, I believe that things will be better for all of us ten years from now. And as investors, we invest for the long term, not for the next 5 years or 5 months.

With bonds, you get limited upside mostly in terms of the interest payment you receive, and then hopefully a guaranteed return on investment after a set period of time. So while a portfolio of bank CD’s will not be quoted every day, providing an illusion that the money is safe, it is difficult to live off the small yields we see today. Even if inflation returns to its normal course of 3%/year, those bank CD’s will likely be unable to keep up purchasing power.

Holding on to stocks pays in the long term better than holding bonds precisely due to their “riskier” nature. If you stay the course of regularly adding money to your accounts, you will be able to buy more shares of quality companies at a discount. After the dust settles, you will be ending up with more valuable pieces of real businesses than before. It intuitively makes sense that if one share of Altria (MO) will sell for $500 in 30 years, you will be better off buying the company at $40/share as opposed to $75/share. It also intuitively makes sense that if you reinvest your dividends when prices are low, you will end up with more shares and more dividend income over time.

Again, in order to benefit from all of this, you need to stay the course. This means saving money every month, putting money to work regularly, and not getting scared away. Perhaps if you are concerned about prices and you are in the accumulation phase, it may make sense to just start reinvesting dividends automatically. Or alternatively, it may make sense to automatically invest a portion of your paycheck through your 401 (k).

Relevant Articles:

- Successful Dividend Investing Requires Patience
- Fixed Income for dividend investors
- Dividend income is more stable than capital gains
- How to think like a long term dividend investor
- Long Term Dividend Growth Investing

Are Dividend Increases Beating Inflation in 2022?

Mon, 13 Jun 2022 18:01:57 +0200

In previous reviews, I have found that dividends in the US tend to grow above the rate of inflation over time. You may remember this chart from this post:

Source: How dividends protect income from inflation

With inflation rising, I decided to take a more granular look at US Equities, and see how they are faring. It looks that so far this year, dividend stocks are able to maintain purchasing power. Of course, the year is still young. If we get a recession, it is very likely that dividend growth could slow down. Alternatively, it can also accelerate as companies pass on cost increases to customers.

I went ahead and obtained a listing of all companies in the S&P 500, and then looked at their dividend actions so far in 2022. This review covers all companies that are members of S&P 500, and tracks all dividend actions between January 1 and June 9th.

There have been 193 dividend increases, 5 initial dividends and 5 dividend cuts so far in 2022. You can view a summary of dividend actions by sector in the table below:

Next, I drilled down on the list of dividend increases. I wanted to see how many dividend increases so far this year exceeded 8%. While inflation is 8.60%, I used 8% as the number, because the inflation number has been increasing in 2022. I didn't want to unjustly penalize companies that raised dividends earlier in the year. I would argue if we are arguing about 0.60% difference, we are nitpicking and splitting hairs.

Anyway, out of the 193 dividend increases so far in 2022, it looks like 117 increases were higher than 8%. This is good to know.

A more interesting view is to look at the list of dividend aristocrats. There were 32 dividend increases so far in 2022.

It looks like 13 companies raised dividends by more than 8%. The rest of the companies raised dividends by less than 8%. The average dividend increase is 7.46% however.

There are 31 dividend aristocrats, which have not raised dividends so far in 2022. I have listed them below, and also included the months in which these companies have raised dividends in 2021. If history is any guide, these companies usually tend to announce their dividend increases around the same time each year.

On a side note, this data comes straight from S&P Global. They do not seem to have included Realty Income (O) in their dividend increases lists. It did raise dividends slightly in March from $0.2465 to $0.247, but I think it would raise dividends a few more times in 2022.

All the data is from S&P Global.

You can also view my posts on dividend increases by clicking on this tag.

Relevant Articles:

- How dividends protect income from inflation

- If you didn't get an 8.60% pay increase, you received a pay cut

- A Look Under the Hood For Inflation

- Build your own inflation proof source of income in retirement with dividend stocks

If you didn't get an 8.60% pay increase, you received a pay cut

Sat, 11 Jun 2022 19:40:12 +0200

Over the past year, inflation has been on the increase. A popular meme on the internet is the saying that if you didn't receive an 8.60% increase in your income, you essentially received a pay cut. This is very relevant for those who are still earning salary, and even more relevant for those who are living off dividends.

In general, dividend income tends to grow above the rate of inflation over time. That does not mean that it grows above the rate of inflation in every single year however. There could be a lag, but over time dividends do provide protection against inflation. This is true for a diversified portfolio of stocks of course. Some companies grow dividends above the rate of inflation, while others closely match it; a third group grows dividends at a slower rate.

This is where it is important to build a portfolio that includes the three groups of dividend growth stocks:

1) High dividend growth with a lower dividend yield

2) Companies that are in the sweet spot in terms of dividend yield and dividend growth

3) High yielding companies with a slower pace of dividend growth

The most important thing of course is to make sure that the economic engine of each company is constructed well, so that the company can keep growing revenues and earnings throughout the ups and downs of the economic cycle. A company that can successful pass cost increases to its customers is worth its weight in gold. Rising earnings per share can help in growing the dividend income, which in turn means that your dividend income can maintain purchasing power.

Over the past week, there were several companies that raised dividends to shareholders. I isolated the ones that have managed to grow dividends for at least a decade. You can observe how the highest yielding companies grew dividends at a very slow rate, albeit this is consistent with what they had done in the preceding 5 or 10 years. You can also observe that the companies that yield a little less are able to grow dividends at the rate of or faster than inflation.

While this is an isolated sample of just a weeks worth of dividend increases from the universe of dividend growth stocks, it is still good to illustrate the point I am making.

Caterpillar Inc. (CAT) manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines worldwide.

Caterpillar increased its quarterly dividend by 8.10% to $1.20/share. Caterpillar has paid higher annual dividends to shareholders for 28 consecutive years and is a member of the S&P 500 Dividend Aristocrat Index. Over the past decade, the company has managed to boost dividends at an annualized rate of 9%.

The stock sells for 18 times forward earnings and offers a dividend yield of 2.15%.

Target Corporation (TGT) operates as a general merchandise retailer in the United States.

The company increased its quarterly dividend by 20% to $1.08/share. This is the 51st consecutive year in which Target has increased its annual dividend. Over the past decade, this dividend king managed to grow annualized distributions by 11.10%/year.

This dividend king sells for 17.42 times forward earnings and yields 2.89%.

UnitedHealth Group Incorporated (UNH) operates as a diversified health care company in the United States. It operates through four segments: UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx.

The company increased quarterly dividends by 13.80% to $1.65/share. That's the 13th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to boost dividends at an annualized rate of 24.80%.

The stock sells for 22.35 times forward earnings and yields 1.36%.

Casey's General Stores, Inc., (CASY) operates convenience stores under the Casey's and Casey's General Store names.

The company increased its quarterly dividend by 8.60% to $0.38/share. This was the 23rd consecutive year of annual dividend increases for this dividend achiever. Over the past decade, the company has managed to boost dividends at an annualized rate of 9.20%.

The stock sells for 20.83 times forward earnings and yields 0.80%.

Universal Health Realty Income Trust (UHT) is a real estate investment trust that invests in healthcare and human service related facilities including acute care hospitals, rehabilitation hospitals, sub-acute care facilities, medical/office buildings, free-standing emergency departments and childcare centers.

The REIT increased quarterly dividends by 0.70% to $0.71/share. The new dividend is 1.42% higher than the dividend paid during the same time last year. That's the 37th consecutive annual dividend increase for this dividend champion. Over the past decade, the company has managed to boost dividends at an annualized rate of 1.40%.

The REIT sells for 14.50 times FFO and yields 5.34%.

Oil-Dri Corporation of America (ODC) develops, manufactures, and markets sorbent products in the United States and internationally. It operates in two segments, Retail and Wholesale Products Group; and Business to Business Products Group.

The company increased its quarterly dividends by 3.70% to $0.28/share. This declaration marks the nineteenth consecutive year Oil-Dri has increased dividends. That was the 20th consecutive year of annual dividend increases for this dividend achiever. Over the past decade, the company has managed to boost dividends at an annualized rate of 4.90%.

The stock yields 4.15%.

Citizens Financial Services, Inc. (CZFS) operates as the bank holding company for First Citizens Community Bank that provides various banking products and services for individual, business, governmental, and institutional customers.

The company raised its quarterly dividend by 3.20% to $0.475/share. This was the 25th year of consecutive annual dividend increases for this newly minted dividend champion. Over the past decade, the company has managed to grow dividends at an annualized rate of 6.50%/year. The five year annualized rate of dividend growth is a more modest 2.30% however.

The stock yields 2.88% and sells for 9.76 times forward earnings.

Relevant Articles:

- How dividends protect income from inflation

- A Look Under the Hood For Inflation

- Types of dividend growth stocks

Air Products and Chemicals, Inc. (APD) Dividend Stock Analysis

Thu, 09 Jun 2022 10:00:00 +0200

Air Products and Chemicals, Inc. (APD) provides atmospheric gases, process and specialty gases, performance materials, equipment, and services worldwide. This dividend aristocrat has paid distributions since 1954 and increased dividends on its common stock for 40 years in a row.

The company's last dividend increase was in February 2022 when the Board of Directors approved an 8.50% increase to 77 cents/share. The company's largest competitors include Linde (LIN) and Air Liquide (AIQUY).

Over the past decade this dividend growth stock has delivered an annualized total return of 13.50% to its shareholders.

The company has managed grow earnings from $4.66/share in 2012 to $9.12/share in 2021. Analysts expect Air Products and Chemicals to earn $10.29 per share in 2022 and $11.62 per share in 2023.

Air Products and Chemicals is expected to post growth in sales, due to strong demand for industrial gases in rapidly growing economies in Asia. Long term growth will be driven by acquisitions, expansion into rapidly growing markets in South America and Asia. Recent acquisitions and projects in Saudi Arabia could drive future earnings growth.

Air Products and Chemicals streamlines operations and tries to manage costs strategically. In the past, the company has been shedding unprofitable operations, and focusing on cost cutting initiatives, in order to boost the bottom line.

In order to grow, the company should focus on increasing volumes in the merchant segment, plus executing new projects on time and budged in the tonnage segment, while focusing on plan efficiency improvements. In addition, focusing on major customers in the electronics and performance materials segment, while also introducing new offerings that could increase margins and returns. Other important opportunities include focusing on the pricing and the right mix of productivity and cost reductions, in order to hit profitability and margin goals set for itself.

The company operates under long-term customer supply contracts, particularly in the gases on-site business. These contracts principally have initial contract terms of 15 to 20 years. There are also long-term customer supply contracts associated with the tonnage gases business within the Electronics and Performance Materials segment. These contracts principally have initial terms of 10 to 15 years. Additionally, they company has several customer supply contracts within the Equipment and Energy segment with contract terms that are primarily 5 to 10 years. Under those contracts, the Company has built a facility on land owned by the customer, and is essentially a de-facto monopoly in the specific geographic area for that customer.

The annual dividend payment has increased by 11.10% per year over the past decade.

The dividend payout ratio increased from 54% in 2012 to 75% in 2015, before gradually decreasing back to 64% in 2021. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

The number of shares outstanding has been growing at a snail pace. In general, you want to see shares outstanding flat or decreasing.

The stock is selling for 25.45 times forward earnings and yields 2.48%.

Relevant Articles:

- 35 Dividend Aristocrats For Further Research

- Nineteen Dividend Growth Stocks For Further Research

- Dividend Aristocrats List for 2022

- Where are the Original Dividend Champions today?

A. O. Smith Corporation (AOS) Dividend Stock Analysis

Mon, 06 Jun 2022 10:00:00 +0200

A. O. Smith Corporation (AOS) manufactures and markets residential and commercial gas and electric water heaters, boilers, and water treatment products in North America, China, Europe, and India. The company is a dividend aristocrat with a 28-year history of annual dividend increases.

The last dividend increase occurred in early October 2021, when the board of directors approved a 7.70% hike in the quarterly dividend to 26 cents/share.

Over the past decade, this dividend aristocrat has managed to grow distributions at an annual rate of 21.50%/year. I expect reasonably high dividend growth over time, which may even exceed earnings per share growth for the next decade.

Adjusted earnings per share have experienced a steep uphill climb over the past decade, rising from 54 cents/share in 2011 to $3.02/share in 2021. The company is expected to earn $3.55/share in 2022.

A.O. Smith is a manufacturer of residential and commercial water heaters, boilers and water treatment products. It operates in two segments - North America with about two-thirds of revenues and Rest of the world with about a third of revenues.

Growth in earnings per share can be generated from rising demand from new construction for boilers and water heaters, as well as from need for replacements. The need for replacements of water heaters and boilers. A rising market share in China, along with growth in the Chinese market can bolster sales. International operations in general are expected to generate higher growth over time. The company can generate growth through new product introductions and through expanding of existing product lines. For example, the need for energy efficient units can drive sales down the road.

Strategic acquisitions can further boost revenues and earnings. Recent acquisitions allows A.O. Smith to enter the water treatment products market in North America.

A slowdown in China can lead to declines in revenues. A decline in housing starts could also negatively affect companies like A.O. Smith.

The company has reduced the number of shares outstanding by a little bit over the past decade, taking them from 186 million in 2011 to 161 million in 2021.

The dividend payout ratio increased from 28% in 2011 to 35% in 2021. Based on the expected earnings, the forward dividend payout ratio comes out to 32%. The company’s dividend is very safe and will likely grow at a higher rate than earnings over the past decade due to low payout ratio.

Currently, the stock is attractively valued at 17.17 times forward earnings at yields 1.85%.

Relevant Articles:

- Five Dividend Growth Stocks In the News

- 44 Dividend Champions For Further Research

- Dividend Aristocrats List for 2022

- Dividend Aristocrats for 2018 Revealed

Stanley Black & Decker: A Dividend King in Focus

Thu, 02 Jun 2022 03:17:57 +0200

Stanley Black & Decker, Inc. (SWK) engages in the tools and storage, industrial, and security businesses worldwide.

The company raised its quarterly dividend by 12.90% to 79 cents/share in July 2021. This marked the 54th consecutive annual dividend increase for this dividend king.

Stanley Black & Decker's CEO, James M. Loree, commented, "I am pleased to continue our trend of consecutive annual dividend increases, which reflects the continued confidence we have in the cash generation potential of the company. A strong and growing dividend is a key element of our shareholder value proposition, and is consistent with our capital deployment philosophy to deliver approximately half of our excess capital to shareholders over the long term." (source)

Over the past decade, Stanley Black & Decker managed to grow dividends at an annualized rate of 6.20%.

Between 2011 and 2021, earnings per share grew from $3.97 to $9.62. The company is expected to generate $9.82/share in 2022.

The company has managed to grow through acquisitions, notably the merger between Stanley Works and Black & Decker in 2010. In 2017 it acquired the Craftsman brand from Sears. It actively manages its portfolio of products. Growing the businesses through M&A is central to the company’s strategy

The company is looking to increase efficiencies in the supply chain to reduce cost, and increase sales in emerging markets. About 59% of sales comes from the US, 4% in Canada, 24% Europe, 8% Asia.

Stanley Black & Decker is also focused on growing its e-commerce sales, which account for $2 billion out of its $14 billion in sales.

The company is organized in three segments.

Tools & Storage accounts for 71% of sales and 80% of operating profits. The company is a leader in tools and storage. It has a portfolio of brands that tradespeople and DIY folks rely on. We are speaking about hand tools, power tools like DeWalt, Craftsman, Black & Decker etc.

Industrial accounts for 16% of revenues and 12% of operating profits. It builds solutions like preferred engineered fastening solutions in automotive and industrial channels to inflastructure solutions like hydraulic tools and attachments.

Security accounts for 13% of revenues and 8% of operating profits. The company delivers peace of mind with advanced electronic safety, security and monitoring solutions, automatic doors, and sophisticated patient safety, asset tracking and productivity solutions.

I believe that a picture is worth 1,000 words. Which is why I am including this slide from their annual report, which summarizes their value creation model.

Source: Company's Annual Report

The company managed to reduce the number of shares outstanding between 2011 and 2016 from 170 million to 148 million. Shares outstanding are up since then due to acquisitions.

The payout ratio has largely remained between 30% and 45%, with the exception of two spikes in 2013 and 2018. Those were triggered by one-time accounting items affecting earnings per share in each of those two years.

Currently, the stock is selling for 12.06 times forward earnings and yields 2.65%.

Relevant Articles:

- Dividend Aristocrats for Further Research

- Dividend Aristocrats List for 2021

- Dividend Kings List for 2021

- Five Dividend Growth Stocks Rewarding Shareholders With Raises

Eleven Companies Rewarding Shareholders With Raises Last Week

Sun, 29 May 2022 04:13:22 +0200

I review the list of dividend increases each week as part of my monitoring process. This exercise pushes me to review existing holdings, and also to identify companies for further research.

I usually focus on the companies that have managed to increase dividends for at least a decade in those weekly reviews.

Over the past week

Ashland Global Holdings Inc. (ASH) provides additives and specialty ingredients worldwide. It operates through Life Sciences; Personal Care & Household; Specialty Additives; and Intermediates and Solvents segments.

The company increased quarterly dividends by 11.70% to $0.335/share. This marked the 13th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to boost dividends at an annualized rate of 13.50%.

The stock sells for 21.24 times forward earnings and yields 1.23%

Canadian Imperial Bank of Commerce (CM) provides various financial products and services to personal, business, public sector, and institutional clients in Canada, the United States, and internationally.

The company increased its quarterly dividend by 3.10% to CAD $0.83/share. This payment is 13.69% higher than the distribution paid in July 2021. This marks the 12th year of consecutive annual dividend increases for this international dividend achiever.

The stock sells for 9.26 times forward earnings and yields 4.77%.

CTO Realty Growth, Inc. (CTO) is a Florida-based publicly traded real estate company, which owns income properties comprised of approximately 2.4 million square feet in diversified markets in the United States and an approximately 23.5% interest in Alpine Income Property Trust, Inc.

The REIT increased quarterly dividends by 3.70% to $1.12/share. The dividend represents a 12.0% year-over-year increase as compared to the company’s second quarter 2021 cash dividend. This is the tenth consecutive year of annual dividend increases for this dividend achiever.

The REIT sells for 14.06 times forward FFO and yields 6.16%.

Flowers Foods, Inc. (FLO) produces and markets packaged bakery products in the United States.

The company increased its quarterly dividends by 4.80% to $0.22/share. This was the 20th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the company managed to boost dividends at an annualized rate of 7.90%.

The stock sells for 21.92 times forward earnings and yields 3.22%

Insperity, Inc. (NSP) provides human resources (HR) and business solutions to improve business performance for small and medium-sized businesses.

The company lifted its quarterly dividends by 15.60% to $0.52/share. This was the 12th consecutive annual dividend increases for this dividend achiever. Over the past decade, the company managed to boost dividends at an annualized rate of 19.30%.

The stock sells for 21.11 times forward earnings and yields 2.08%.

Lowe's Companies, Inc.(LOW) operates as a home improvement retailer in the United States and internationally.

The company increased its quarterly dividends by 31.30% to $1.05/share. This marked the 60th year of annual dividend increases for this dividend king. Over the past decade, the company managed to boost dividends at an annualized rate of 18.80%.

The stock sells for 14.74 times forward earnings and yields 2.10%.

LyondellBasell Industries N.V. (LYB) operates as a chemical company in the United States, Germany, Mexico, Italy, Poland, France, Japan, China, the Netherlands, and internationally. The company operates in six segments: Olefins and Polyolefins Americas; Olefins and Polyolefins Europe, Asia, International; Intermediates and Derivatives; Advanced Polymer Solutions; Refining; and Technology.

The company increased its quarterly dividend by 5.30% to $1.19/share. In addition, it also declared a special dividend of $5.20/share. Over the past 5 years, the company managed to boost dividends at an annualized rate of 5.90%. This dividend achiever has managed to boost distributions for 11 years in a row.

The stock sells for 7.15 times forward earnings and yields 4.07%.

Medtronic plc (MDT) develops, manufactures, distributes, and sells device-based medical therapies to hospitals, physicians, clinicians, and patients worldwide. It operates through four segments: Cardiovascular Portfolio, Neuroscience Portfolio, Medical Surgical Portfolio, and Diabetes Operating Unit.

The company increased quarterly dividends by 7.90% to $0.68/share. This marked the 45th consecutive year of an increase in the dividend payment for this dividend aristocrat. Over the past decade, the company managed to boost dividends at an annualized rate of 10%.

The stock sells for 17.78 times forward earnings and yields 2.75%.

Royal Bank of Canada (RY) operates as a diversified financial service company worldwide.

The company increased its quarterly dividend by 6.70% to CAD $1.28/share. This payment is 18.51% higher than the distribution from this time in 2021. This marks the 12th consecutive year of annual dividend increases for this international dividend achiever.

The stock is selling for 11.60 times forward earnings and yields 3.52%.

TowneBank (TOWN) provides retail and commercial banking services for individuals, commercial enterprises, and professionals. The company operates through three segments: Banking, Realty, and Insurance.

The company raised quarterly dividends by 15% to $0.23/share. This was the eleventh year of annual dividend increases for this dividend achiever. Over the past decade, the company managed to boost dividends at an annualized rate of 9.40%.

The stock is selling for 11.42 times forward earnings and yields 3.11%

Unum Group (UNM) provides financial protection benefit solutions.

The company raised quarterly dividends by 10% to $0.33/share. This was the 14th year of annual dividend increases for this dividend achiever. Over the past decade, the company managed to boost dividends at an annualized rate of 11.50%.

The stock is selling for 7.07 times forward times earnings and yields 3.28%.

Relevant Articles:

- Ten Dividend Growth Stocks Rewarding Shareholders With a Raise

- Seven Dividend Growth Stocks Rewarding Shareholders With Raises

- Nine Dividend Growth Stocks Rewarding Shareholders With a Raise

- Sixteen Dividend Growth Stocks Raising Dividends Last Week

How to turn $40 into $21 million

Fri, 27 May 2022 04:49:49 +0200

Coca-Cola (KO) is a dividend king, which has managed to increase dividends to shareholders for 57 years in a row. The company has paid dividends for 100 years. It is a widely-owned company, and a favorite for many dividend investors.

In 1919, Coca-Cola had its IPO. The stock sold at $40/share to investors and had a yield of 5%.
By 1920, the stock had declined by 50% on fears that sugar prices were going up. Investors saw unrealized losses and a gloomy near terms picture.

As we all know, Coca-Cola ultimately became a dominant blue chip company. But that wasn’t so evident in 1920.

As Ben Graham said: "In the short-run, the market is a voting machine - reflecting a voter-registration test that requires only money, not intelligence or emotional stability - but in the long-run, the market is a weighing machine."

Those $40 invested in 1919 turned into a little over $21 million a century later with dividend reinvestment. This investment would be paying almost $600,000 in annual dividend income.

This is the result of a long-term compounding at a high rate of return over long periods of time. It is basic math.

Getting those returns was not easy however. There were obstacles along the way, which would have easily convinced any investor that the best days for Coca-Cola were behind it.

Back in 1938 for example, Fortune Magazine warned investors that the best days for Coca-Cola are already behind it: "Several times every year a weighty and serious investor looks long and with profound respect at Coca-Cola's record, but comes regretfully to the conclusion that he is looking too late. The specters of saturation and competition rise before him."

If you look at the stock price chart however, it looks like there were several long periods, which didn't offer much in terms of returns:

1938 – 1959
1972 – 1985
1998 – 2016

It is very likely that investors were questioning their choices, given the stagnant share price for extended periods of time. There was always some fear that the best days are behind Coca-Cola. Yet, after forming a long base, and exhausting impatient stockholders into selling, Coca-Cola reinvigorated itself and became a Wall Street darling one more time.

Patient dividend investors who were satisfied with the stability of the product demand, and the stability of their dividend checks kept holding onto the stock through thick and thin. When you are getting paid to own a stock, it is much easier to ignore where the stock price goes. It is also easier to ignore negative news about a company, which surely come after share prices have gone nowhere for a long period of time or after they have declined. Buying a stock for its dividend is the ultimate edge that gives dividend investors the patience to endure challenging conditions such as the long periods of time where prices went nowhere. Receiving a dividend is a reminder that you are a part owner of a real business, which provides an economic purpose to others. As a result, you receive your proportional share of the profits in the form of cold hard cash.

I have found quite a few stories about successful Coca-Cola shareholders, who held on for decades. Their descendants held on for decades as well. Those smart and patient enough to invest in Coca-Cola 100 years ago have managed to provide for their families for several generations.

As I mentioned above, a $40 investment turned into $21 million with dividend reinvestment. The portfolio would be generating over half a million dollars in annual dividend income, which is twelve times the median income for a worker in the United States today. This is all coming from a $40 investment that compounded for a century. These $40 from 1919 had the same purchasing power of roughly $600 today.

If you and your trust fund kids and grandkids had simply lived off the dividend income during the past century however, you would have still done well.

For example, one of SunTrust’s predecessor companies was paid $100,000 in Coca-Cola stock for its work on its IPO in 1919. The bank kept the stock, and cashed in those dividends for over 90 years, before finally selling in 2012 for a tidy sum of $2 billion. Had they waited for seven more years, they could have doubled their money to $4 billion, but who is counting?

I received a lot of pushback when I originally posted the results of that fateful $40 investment in Coca-Cola in 1919, turning into $21 million with dividends reinvested. The common response to “ if you had invested in Coca-Cola in 1919..” was that you would be dead by now.

That is a very shortsighted response, because it ignores the realities of financial planning. In general, if you and your spouse are in your 20s or 30s, you could realistically have a 60 – 70 year period to plan for. This includes the lifetimes for you and your spouse only, as it is quite possible that at least one of these partners will make it for a longer time than the other. If you have children in your 20s or 30s, it is quite possible that you are looking at a 70 – 80 or even 90 year period for planning. If you want to create a sort of generational wealth that covers a few generations after you, and you have sufficient means, you can always set up a trust fund that can serve your goals in a way that you want them accomplished. While I would not put everything in one stock for a trust fund, I would have principal be held and just dividends be distributed to beneficiaries. Long-term planning is beyond the scope of this article, but if this concerns you, you should speak with a licensed professional who can set things up for you ( for a reasonable fee).

The long-term returns of the original investment in Coca-Cola has been widely publicized of course.
Warren Buffet has invested heavily into Coca-Cola, and has been an investor for over 30 years now. Between 1988 and 1994, Berkshire Hathaway acquired 400 million shares of Coca-Cola for $1.3 billion. He has a split-adjusted cost of $3.25/share. Coca-Cola has an annual dividend of $1.76/share.

The company will distribute $704 million in annual dividends to Berkshire in 2022. That means every two years, Buffett gets his cost basis back, while retaining ownership of the stock. That’s a nice yield on cost of 50%. The dividend is also a tax advantaged way for Berkshire Hathaway to recognize profits, and is more tax advantaged than capital gains. That's why Warren Buffett prefers dividends over capital gains.

Warren Buffett spoke extensively about it in his 1993 letter to shareholders:

Earlier I mentioned the financial results that could have been achieved by investing $40 in The Coca-Cola Co. in 1919. In 1938, more than 50 years after the introduction of Coke, and long after the drink was firmly established as an American icon, Fortune did an excellent story on the company. In the second paragraph the writer reported: "Several times every year a weighty and serious investor looks long and with profound respect at Coca-Cola's record, but comes regretfully to the conclusion that he is looking too late. The specters of saturation and competition rise before him."

Yes, competition there was in 1938 and in 1993 as well. But it's worth noting that in 1938 The Coca-Cola Co. sold 207 million cases of soft drinks (if its gallonage then is converted into the 192-ounce cases used for measurement today) and in 1993 it sold about 10.7 billion cases, a 50-fold increase in physical volume from a company that in 1938 was already dominant in its very major industry. Nor was the party over in 1938 for an investor: Though the $40 invested in 1919 in one share had (with dividends reinvested) turned into $3,277 by the end of 1938, a fresh $40 then invested in Coca-Cola stock would have grown to $25,000 by yearend 1993.

I can't resist one more quote from that 1938 Fortune story: "It would be hard to name any company comparable in size to Coca- Cola and selling, as Coca-Cola does, an unchanged product that can point to a ten-year record anything like Coca-Cola's." In the 55 years that have since passed, Coke's product line has broadened somewhat, but it's remarkable how well that description still fits.
Charlie and I decided long ago that in an investment lifetime it's just too hard to make hundreds of smart decisions. That judgment became ever more compelling as Berkshire's capital mushroomed and the universe of investments that could significantly affect our results shrank dramatically. Therefore, we adopted a strategy that required our being smart - and not too smart at that - only a very few times. Indeed, we'll now settle for one good idea a year.

He also discussed it in a speech from the late 1990s. The video is titled “how to turn $40 into $5 million”. Source: Youtube

Even Coca-Cola itself posted a press release in 2012 that a $40 investment in 1919 would have turned into $9.80 million 93 years later. Those figures assume dividend reinvestment. Source: Coca-Cola Press Release

Today, the future for Coca-Cola looks bleak again. The company is at the crossroads, as sugary drinks consumption is declining, and people are supposedly becoming more health conscious. However, there is a bright spot for international expansion in developing markets. The share price is only marginally higher than the highs reached in 1998. At the time, the stock price was overvalued, while today it is still richly valued though not as high as 20 years ago.

Coca-Cola and many other great consumer franchises became extremely expensive in the late 1990s. At that time they could not be bought at prices that would produce a satisfactory return. Market prices for these stocks were materially higher than intrinsic value. The lost decade ending in 2009 has managed to correct that. As you can see, prices tend to overshoot on the upside, as in 1972 and 1998, and overshoot on the downside (as in 1999 – 2009).

It remains to be seen whether the best days of Coca-Cola are behind it, or whether it would stage another massive comeback. We won’t know for the next twenty years unfortunately. I do believe that a patient holder of Coca-Cola stock will probably do ok over the next 20 years for as long as the dividend is maintained and not cut. If the dividend is cut, I would be selling my shares one second after the announcement, because it would prove to me that my thesis and initial argument to buy and hold the stock was invalid.

Relevant Articles:

- Coca-Cola (KO) Dividend Stock Analysis
- How Warren Buffett earns $1,140 in dividend income per minute
- This Is Why Warren Buffett Prefers Dividends Over Capital Gains
- Investors Get Paid for Holding Dividend Stocks

The Largest Dividend Payers in the World

Wed, 25 May 2022 10:00:00 +0200

Janus Henderson is a money manager, which has shared some interesting data reports in the past. I recently read their 33rd Global Dividend Index, and found some interesting pieces of data to share.

The report shows a long-term study in global dividend trends. It shows dividend growth between various regions for example. It shows that the amount of total global dividends reached an all time high 2021, and was expected to further grow into 2022. This is amazing.

The most interesting piece was the list of World's Biggest Dividend Payers by year since 2015. Janus Henderson sorted the largest dividend payers by amount of total annual dividends distributed (in billions of US Dollars), and listed the top payers per year. In order for a company to get on that list, it should be paying several billion dollars per year in dividends.

It is fascinating to observe how the list of largest dividend payers worldwide has changed over the past 6 - 7 years.

Some of these companies get off the list because of dividend cuts. Cyclical companies account for a large portion of the movement, as they get flush with cash and send dividends during boom times, only to cut them during a recession. Royal Dutch Shell is one example, which was the number one dividend payer between 2016 and 2019, before cutting dividends in 2020 amidst Covid-19 turmoil.

Another example is AT&T, which has been on the list for all 2015 - 2021, but will be out in 2022 as it cut dividends.

Other companies get off the list because the amount of dividends they pay is not as high as other newcomers.

You can view the complete list of the 20 largest dividend payers below:

One of the most fascinating charts is the growth in dividends by Geography since 2009.

It shows that North America offers some resilient dividend payments to shareholders. That could be because it houses a lot of great dominant companies with recurring revenue streams that are shareholder friendly. This could also be because North American companies tend to have a culture of rarely cutting dividends, but keeping them. It is also possible that companies in North America are less cyclical than companies around the world ( based on industry/sector).

Ten Dividend Growth Stocks Rewarding Shareholders With a Raise

Sun, 22 May 2022 15:46:06 +0200

I review the list of dividend increases each week as part of my monitoring process. This helps me in reviewing companies I already have a position in. This process also helps in uncovering hidden gems, by identifying companies for further research.

In general, I look for companies that have managed to grow dividends for at least a decade. I also look for companies that have managed to grow earnings and dividends, in order to ensure that future dividend growth is on a stable footing. It is helpful to review trends in earnings, dividends, payout ratios over the past decade, in order to find out companies that can deliver in the future and have adequately covered distributions.

Last but not least, these companies are never a recommendation to buy; just a list of companies for further research. Not all companies are worthy of research, as some have uninspiring prospects. Others may have great businesses, which may be expensive however.

Valuation is part art, part science. You can read more here on how I try to value companies; this process involves trade-offs between dividend growth and dividend yield, along with stability of the business model over time and through the ups and downs of the typical economic cycle.

Over the past week, there were ten companies that raised dividends. These companies have managed to grow dividends for at least a decade. The companies include:

American Tower Corporation (AMT) is a leading independent owner, operator and developer of multitenant communications real estate with a portfolio of approximately 219,000 communications sites.

The REIT increased quarterly dividends by 2.10% to $1.43/share. American Tower has increased dividends every single quarter since 2012. As a result, the new distribution is actually 12.60% higher than the distribution paid during the same time last year.

This dividend achiever has increased dividends for 11 years in a row. Over the past decade, American Tower has hiked dividends at an annualized rate of 30.50%. The five year average is at 18%.

American Tower sells for 23.42 times forward FFO and yields 2.34%.

Chubb Limited (CB) provides insurance and reinsurance products worldwide.

The company raised quarterly dividends by 3.70% to $0.83/share. This marked the twenty-ninth consecutive annual increase in the company's dividend.

The raise is consistent with the five year average of 3%/year. Over the past decade however, this dividend aristocrat had managed to boost annual dividends by 8.80%/year.

The stock is selling for 13.45 times forward earnings and yields 1.63%

HNI Corporation (HNI) manufactures and sells workplace furnishings and residential building products primarily in the United States. The company operates through two segments, Workplace Furnishings and Residential Building Products.

HNI increased quarterly dividends by 3.20% to $0.32/share. This marks the 12th year of consecutive annual dividend increases for this dividend achiever.

The company has managed to grow dividends at an annualized rate of 3%/year over the past decade.

The stock is selling at 13.60 times forward earnings and yields 3.49%.

Leggett & Platt (LEG) designs, manufactures, and markets engineered components and products worldwide. It operates through three segments: Bedding Products; Specialized Products; and Furniture, Flooring & Textile Products.

Leggett & Platt increased quarterly dividends by 4.80% to $0.44/share. Leggett & Platt (LEG) has increased its annual dividend for 51 consecutive years and possesses one of the highest yields among the Dividend Kings.

Over the past decade, the company has managed to grow dividends at an annualized rate of 4.20%.

The stock is selling for 13.25 times forward earnings and yields 4.76%.

Lennox International Inc. (LII) designs, manufactures, and markets a range of products for the heating, ventilation, air conditioning, and refrigeration markets in the United States, Canada, and internationally. It operates through three segments: Residential Heating & Cooling, Commercial Heating & Cooling, and Refrigeration.

The company raised quarterly dividends by 15.20% to $1.06/share. This is the 13th year of consecutive annual dividend increases for this dividend achiever. The company has managed to grow dividends at an annualized rate of 17.20%/year over the past decade.

The stock sells for 14.71 times forward earnings and yields 2.04%.

Mid America Apartment Communities (MAA) is a real estate investment trust, or REIT, focused on delivering full-cycle and superior investment performance for shareholders through the ownership, management, acquisition, development and redevelopment of quality apartment communities in the Southeast, Southwest, and Mid-Atlantic regions of the United States.

The company increased quarterly dividends by 14.90% to $1.25/share. This is the 12th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the company has managed to grow dividends at an annualized rate of 5%.

The REIT sells for 21.61 times forward FFO and yields 2.85%.

Monro, Inc. (MNRO) provides automotive undercar repair, and tire sales and services in the United States.

The company raised quarterly dividends by 7.70% to $0.28/share. This is the 17th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the company has managed to grow dividends at an annualized rate of 11.20%.

The stock is selling for 24.31 times forward earnings and yields 2.89%.

NACCO Industries, Inc. (NC) engages in the natural resources business. The company operates through three segments: Coal Mining, North American Mining, and Minerals Management.

The company raised quarterly dividends by 5.10% to $0.2075/share. This is the 37th consecutive annual dividend increase for this dividend champion. Over the past decade, the company has managed to grow dividends at an annualized rate of 13.90%/year.

The stock sells for 7.31 times earnings and yields 1.60%.

Northrop Grumman Corporation (NOC) operates as an aerospace and defense company worldwide.

The company raised quarterly dividends by 10.20% to $1.73/share.

“Northrop Grumman remains focused on deploying our capital in value-creating ways for our customers and investors,” said Kathy Warden, chair, chief executive officer and president. “We are investing in our business to support our growth and we continue to provide a competitive return of capital to shareholders. This includes today’s 10 percent increase to our dividend, which represents the 19th consecutive annual increase.”

This dividend achiever has managed to boost dividends at an annualized rate of 12.30% over the past decade

The stock sells for 17.89 times forward earnings and yields 1.56%.

First Financial Corporation (THFF) provides various financial services.

The company increased semi-annual dividends by 1.90% to $0.54/share. This is the corporation's 34th consecutive year of increased regular dividends. This dividend champion has managed to grow dividends at an annualized rate of 1.30%/year over the past decade.

The stock sells for 8.82 times forward earnings and yields 2.48%.

Warren Buffett Portfolio Holdings as of 03/31/2022

Sat, 21 May 2022 23:39:46 +0200

Berkshire Hathaway is the holding company of super-investor Warren Buffett. He transformed a struggling textile mill into a conglomerate with a significant portfolio of equites and significant interests in railroads, insurance, utilities, industrials etc.

Because of the size of his equity portfolio investments, Berkshire Hathaway has to report its US equity holdings every quarter to the SEC. Some foreign investments are also reported to the corresponding Foreign securities regulator.

You can find the updated portfolio holdings for Berkshire Hathaway (BRK.A)(BRK.B) as of March 31, 2022.

Company Name	Ticker	Value (Millions)	% of BRK Portfolio	Shares Held	% of Shares Outstanding Held	Holdings Date
Apple Inc	AAPL	$155,564.10	45.68%	890,923,410	5.50%	3/31/2022
Bank of America Corp	BAC	$41,636.30	12.23%	1,010,100,606	12.54%	3/31/2022
American Express Co	AXP	$28,351.20	8.32%	151,610,700	20.13%	3/31/2022
Chevron Corp	CVX	$25,919.00	7.61%	159,178,117	8.10%	3/31/2022
Coca-Cola Co	KO	$24,800.00	7.28%	400,000,000	9.23%	3/31/2022
Kraft Heinz Co	KHC	$12,826.80	3.77%	325,634,818	26.61%	3/31/2022
Occidental Petroleum Corp	OXY	$9,173.80	2.69%	143,162,392	15.28%	5/12/2022
Moody's Corp	MCO	$8,323.80	2.44%	24,669,778	13.37%	3/31/2022
US Bancorp	USB	$6,719.10	1.97%	126,417,887	8.51%	3/31/2022
Activision Blizzard Inc	ATVI	$5,152.30	1.51%	64,315,222	8.23%	3/31/2022
DaVita Inc	DVA	$4,082.80	1.20%	36,095,570	38.16%	3/31/2022
Bank of New York Mellon Corp	BK	$3,591.10	1.05%	72,357,453	8.96%	3/31/2022
Kroger Co	KR	$3,326.60	0.98%	57,985,263	8.04%	3/31/2022
Citigroup Inc	C	$2,945.30	0.86%	55,155,797	2.84%	3/31/2022
Verisign Inc	VRSN	$2,851.00	0.84%	12,815,613	11.70%	3/31/2022
General Motors Co	GM	$2,713.90	0.80%	62,045,847	4.25%	3/31/2022
Paramount Global	PARA	$2,606.90	0.77%	68,947,760	11.33%	3/31/2022
Charter Communications Inc	CHTR	$2,088.80	0.61%	3,828,941	2.00%	3/31/2022
Itochu Corp	8001	$2,045.00	0.60%	79,509,400	5.02%	8/24/2020
Liberty Media Corp	LSXMK	$1,975.90	0.58%	43,208,291	19.60%	3/31/2022
Visa Inc	V	$1,840.10	0.54%	8,297,460	0.50%	3/31/2022
Mitsubishi Corp	8058	$1,776.90	0.52%	74,887,500	5.04%	8/24/2020
Amazon.com Inc	AMZN	$1,738.50	0.51%	533,300	0.10%	3/31/2022
Mitsui & Co Ltd	8031	$1,562.70	0.46%	86,453,900	5.26%	8/24/2020
Aon PLC	AON	$1,431.50	0.42%	4,396,000	2.07%	3/31/2022
Mastercard Inc	MA	$1,424.70	0.42%	3,986,648	0.41%	3/31/2022
Snowflake Inc.	SNOW	$1,403.50	0.41%	6,125,376	1.95%	3/31/2022
Celanese Corp	CE	$1,126.00	0.33%	7,880,998	7.28%	3/31/2022
Liberty Media Corp	LSXMA	$923.70	0.27%	20,207,680	20.44%	3/31/2022
Mckesson Corp	MCK	$894.50	0.26%	2,921,975	2.01%	3/31/2022
Nu Holdings Ltd	NU	$827.00	0.24%	107,118,784	3.07%	3/31/2022
Sumitomo Corp	8053	$819.30	0.24%	63,121,100	5.04%	8/24/2020
RH	RH	$707.60	0.21%	2,170,000	10.00%	3/31/2022
T-Mobile US Inc	TMUS	$672.80	0.20%	5,242,000	0.42%	3/31/2022
Globe Life Inc	GL	$639.20	0.19%	6,353,727	6.44%	3/31/2022
Liberty Media Corp	FWONK	$539.30	0.16%	7,722,451	3.75%	3/31/2022
Marubeni Corp	8002	$530.80	0.16%	87,877,700	5.05%	8/24/2020
STORE Capital Corp	STOR	$431.30	0.13%	14,754,811	5.26%	3/31/2022
Ally Financial Inc	ALLY	$390.00	0.11%	8,969,420	2.78%	3/31/2022
Floor & Decor Holdings Inc	FND	$387.20	0.11%	4,780,000	4.52%	3/31/2022
StoneCo Ltd	STNE	$125.10	0.04%	10,695,448	3.82%	3/31/2022
Verizon Communications Inc	VZ	$70.30	0.02%	1,380,111	0.03%	3/31/2022
Marsh & McLennan Companies Inc	MMC	$69.00	0.02%	404,911	0.08%	3/31/2022
Royalty Pharma PLC	RPRX	$58.30	0.02%	1,496,372	0.34%	3/31/2022
Johnson & Johnson	JNJ	$58.00	0.02%	327,100	0.01%	3/31/2022
Procter & Gamble Co	PG	$48.20	0.01%	315,400	0.01%	3/31/2022
Mondelez International Inc	MDLZ	$36.30	0.01%	578,000	0.04%	3/31/2022
Liberty Latin America Ltd	LILA	$25.50	0.01%	2,630,792	5.86%	3/31/2022
Vanguard 500 Index Fund	VOO	$17.90	0.01%	43,000	0.01%	3/31/2022
SPDR S&P 500 ETF Trust	SPY	$17.80	0.01%	39,400	0.00%	3/31/2022
United Parcel Service Inc	UPS	$12.70	-	59,400	0.01%	3/31/2022
Liberty Latin America Ltd	LILAK	$12.30	-	1,284,020	0.72%	3/31/2022

The chart was compiled using information from Tikr.com.

You can see that Apple (AAPL) accounts for over 45% of the equity portfolio as of March 31, 2022. This position has generated close to $100 billion in profits for Buffett's Berkshire Hathaway.

Buffett has managed to accumulate the position between 2016 and 2018 at a total cost of approximately $36 billion. He did sell about $11 billion worth of Apple stock in 2020. In addition, Apple sends $820 million in dividends each year to Berkshire Hathaway.

He did make large investments in Apple, Bank of America, Coca-Cola, American Express and Kraft Heinz. His portfolio is concentrated mostly as a result of letting winners run, and not selling prematurely.

You can view the dividend contribution from each of his portfolio holdings from the table below. Berkshire Hathaway is generating almost $5.30 billion in annual dividend income from his portfolio.

Company Name	Ticker	Reported Value of Shares Held	# Shares Held	Dividend Income
Chevron Corp	CVX	$25,919.00	159,178,117	$ 904,131,704.56
Bank of America Corp	BAC	$41,636.30	1,010,100,606	$ 848,484,509.04
Apple Inc	AAPL	$155,564.10	890,923,410	$ 819,649,537.20
Coca-Cola Co	KO	$24,800.00	400,000,000	$ 704,000,000.00
Kraft Heinz Co	KHC	$12,826.80	325,634,818	$ 521,015,708.80
American Express Co	AXP	$28,351.20	151,610,700	$ 315,350,256.00
US Bancorp	USB	$6,719.10	126,417,887	$ 232,608,912.08
Citigroup Inc	C	$2,945.30	55,155,797	$ 112,517,825.88
Bank of New York Mellon	BK	$3,591.10	72,357,453	$ 98,406,136.08
Mitsubishi Corp	8058	$1,776.90	74,887,500	$ 87,078,488.37
Mitsui & Co Ltd	8031	$1,562.70	86,453,900	$ 80,422,232.56
Itochu Corp	8001	$2,045.00	79,509,400	$ 80,125,751.94
Occidental Petroleum Corp	OXY	$9,173.80	143,162,392	$ 74,444,443.84
Moody's Corp	MCO	$8,323.80	24,669,778	$ 69,075,378.40
Paramount Global	PARA	$2,606.90	68,947,760	$ 66,189,849.60
Kroger Co	KR	$3,326.60	57,985,263	$ 48,707,620.92
Sumitomo Corp	8053	$819.30	63,121,100	$ 44,037,976.74
Marubeni Corp	8002	$530.80	87,877,700	$ 40,873,348.84
Activision Blizzard Inc	ATVI	$5,152.30	64,315,222	$ 30,228,154.34
STORE Capital Corp	STOR	$431.30	14,754,811	$ 22,722,408.94
Celanese Corp	CE	$1,126.00	7,880,998	$ 21,436,314.56
Visa Inc	V	$1,840.10	8,297,460	$ 12,446,190.00
Ally Financial Inc	ALLY	$390.00	8,969,420	$ 10,763,304.00
Aon PLC	AON	$1,431.50	4,396,000	$ 9,847,040.00
Mastercard Inc	MA	$1,424.70	3,986,648	$ 7,813,830.08
Mckesson Corp	MCK	$894.50	2,921,975	$ 5,493,313.00
Globe Life Inc	GL	$639.20	6,353,727	$ 5,273,593.41
Verizon Communications Inc	VZ	$70.30	1,380,111	$ 3,533,084.16
Johnson & Johnson	JNJ	$58.00	327,100	$ 1,478,492.00
Procter & Gamble Co	PG	$48.20	315,400	$ 1,152,219.28
Royalty Pharma PLC	RPRX	$58.30	1,496,372	$ 1,047,460.40
Marsh & McLennan Companies Inc	MMC	$69.00	404,911	$ 866,509.54
Mondelez International Inc	MDLZ	$36.30	578,000	$ 809,200.00
United Parcel Service Inc	UPS	$12.70	59,400	$ 361,152.00
Vanguard 500 Index Fund	VOO	$17.90	43,000	$ 236,070.00
SPDR S&P 500 ETF Trust	SPY	$17.80	39,400	$ 228,914.00

For the quarter ended on March 31, 2022, Warren Buffett and his lieutenants Todd and Ted added to the following existing positions:

Buffett seems to be a big fan of Oil and Gas companies as of recently, with his large investments in Occidental Petroleum and Chevron. He also seems to be investing in financials such as Ally and Citigroup, as well as Markel. This was an interesting investment, after his acquisition of Alleghany (Y).

They reduced ownership in the following companies:

Looks like he sold out of a lot of companies that Dividend Growth Investors own. For example Verizon, Bristol-Myers Squibb and Abbvie, as well as STORE Capital. Perhaps he wants to sell the more stable and dependable companies, that won't fall as much during a recession, and instead invest in companies that are cheaper and down more.

Seven Dividend Growth Stocks Rewarding Shareholders With Raises

Mon, 16 May 2022 10:00:00 +0200

As part of my review process, I monitor the list of dividend increases every week. I use several different resources to come up with a list of dividend increases for the week. I then narrow the list down to include only these companies that have a minimum streak of annual dividend increases. In this case, I focus on companies that raised dividends for at least a decade.

There were seven dividend growth stocks that raised dividends last week. One of them, MSA Safety is a newly minted dividend king.

The companies that increased dividends over the past week include:

Company	Ticker	New Dividend	Old Dividend	Increase	Years Dividend Increases	P/E	Dividend Yield	10 year Annualized Dividend Growth
Algonquin Power & Utilities	AQN	$ 0.1808	$ 0.1706	5.98%	12	18.86	5.13%	9.59%
Union Pacific	UNP	$ 1.30	$ 1.18	10.17%	16	19.67	2.25%	16.09%
Alerus Financial	ALRS	$ 0.18	$ 0.16	12.50%	24	10.69	2.84%	7.77%
Phillips 66	PSX	$ 0.97	$ 0.92	5.43%	10	9.81	4.10%	8.12%
Cardinal Health	CAH	$ 0.4957	$ 0.4908	1.00%	26	10.67	3.57%	9.07%
First Merchants	FRME	$ 0.32	$ 0.29	10.34%	11	10.47	3.25%	39.67%
Microchip Technology	MCHP	$ 0.2760	$ 0.2530	9.09%	22	12.32	1.65%	2.09%

This is not an automatic list to buy of course. I would review each company, and determine if it makes sense from a fundamentals point of view. This would include reviewing trends in earnings, dividends, payout ratios, revenues, and gaining an understand of the company's business model.

The job is not done just by reviewing fundamentals however. The investor also needs to come up with a conclusion whether the stock is fairly valued at the moment. If it is not, then the investor may come up with a price at which the security may be attractive.

The other thing to consider is that valuation is relative. When evaluating companies, we compare them to other companies with promising fundamental and valuation characteristics. Then, we strive to pick the company or companies with the best values in the investors opportunity set.

While this sounds like a lot of work on the surface, with practice, it becomes almost a second nature.

Relevant Articles:

- Eight Dividend Growth Stocks Raising Distributions

- Sixteen Dividend Growth Stocks Raising Dividends Last Week

- Nine Dividend Growth Stocks Rewarding Shareholders With a Raise

- Five Companies Delivering Dependable Dividend Raises

The Dividend Crossover Point

Thu, 12 May 2022 20:30:21 +0200

The goal of every dividend investor is to one day accumulate a portfolio of income producing stocks, which would throw off a large amount of dividends every month. The magic point is where the dividend income exceeds the expenses of the dividend investor. At the dividend crossover point your dividend income meets or exceeds your expenses. For many dividend investors, this is the point synonymous with financial independence. After all, after years of sacrifice, wise investment and sticking to a plan, investors would finally be able to do be free from a nine to five job. The goal of reaching the dividend crossover point is achievable, but it takes capital, time, skill or luck in order to get to the magic point.

In order to reach that magical point, a lot of work needs to be done. Investors need to design a retirement strategy, and then stick to it through thick and thin, while also improving along the way. Some of the biggest dangers to successful dividend investing are not market volatility, dividend cuts or recessions, but investor psychology.

The process of accumulating a viable dividend stream will take anywhere from several years for those who are starting out with a large amount in their 401 (k) or IRA’s to a few decades for these young investors who are just starting out in their professional careers. Along the way, many investors will lose track of the goal due to sheer boredom or due to lack of patience. Successful dividend investing is sometimes as exciting as watching paint dry. Unfortunately, investors who enter dividend investing for the sheer excitement do not stick to it. On the other hand, investors who attempt to find shortcuts to speed up the process of capital accumulation by using options and futures, risky growth stocks or massive leverage will likely be disappointed along the way.

The key ingredients to accumulating a sufficient dividend income stream include time, dividend reinvestment and regular contributions to your portfolio. The power of regular contributions is important, because this ensures that investors consciously keep working towards their goal of dividend independence by investing in dividend stocks every month. While markets fluctuate greatly, I have always found at least 15 – 20 attractively valued income stocks at all times. Dividend reinvestment in dividend growth stocks is essential for turbo-charging your passive income. And last but not least, investors need the time to let their income compound to their desired amount.

Dividend investing takes time, before the amount of distributions reaches decent levels. Imagine that someone managed to save $1000/month for one year. Each month, they put $1000 total in two companies ($500 dollars per company per month). At the end of the first year, they would have about 24 companies, and the portfolio cost will be $12,000. If the average yield were 4%, this portfolio will generate $480 in annual dividends, which accounts for roughly $40/month. On the positive side, the dividends from this portfolio will generate enough to purchase one additional stock position per year. In addition, $40/month could pay for utilities, phone or internet bills for the investor pretty much for life. On the negative side, assuming that the investor needs $1000/month to cover their basic expenses, he or she would calculate that they would need to sacrifice almost for one decade, before their income reaches a decent amount. Once they are there however, and their portfolios consist of wide-moat dividend champions with sustainable distributions, investors will be able to live off dividends.

You can see that building that dividend machine can be a long term process. The levers within the control of the investor include their savings rate, ability to develop a strategy and stick to it, in order to allow the power of long-term investment compounding to do its magic.

In my investing, I have found very important to follow a few simple rules in order to create a sustainable dividend producing machine, which would produce dependable income for decades.

First, investors should focus on companies which have a long history of paying and raising dividends. I typically look for companies which have increased dividends for at least ten years in a row.

Second, investors should make sure that these companies are trading at attractive valuations. I have found that paying a P/E of over 20 could lead to poor results.

Third, investors should make sure that the company’s dividend is sustainable out of earnings or cash flows. I typically look for a dividend payout ratio of less than 60% for ordinary stocks. For REITs or Master Limited Partnership I look for FFO Payout and DCF Payout Ratios.

Fourth, investors should perform a qualitative analysis of the dividend paying company they consider for purchasing. This analysis should include understanding how the business makes money, growth prospects, competitive landscape, whether the business has any moat, whether the company has any strong brands, which consumers are loyal to and result in pricing power.

Fifth, investors should try to build a diversified dividend portfolio consisting of at least 50 -60 individual stocks coming from at least ten sectors. Having exposure to internationally based companies is a plus, despite the fact that most dividend growth stocks derive a major part of their profits from outside the US.

Conclusion

Today we discussed the concept of the dividend crossover point, which is the point where dividend income exceeds expenses. We also discussed the tools within the investor’s control to get there.

Finally, I shared a brief overview of the types of simple investing rules I follow to evaluate dividend paying stocks. All of the principles listed in this article are the cornerstones of the Dividend Growth Portfolio Newsletter that I launched a few years ago. I believe that by showing how I am building a real world portfolio from scratch, I can educate investors on the inner works of dividend investing.

At the same time, dividend income makes it easy to see how we are doing against our ultimate goal of $1,000 in monthly dividend income. Right now, the dividend growth portfolio is earning $110 in expected average monthly dividend income after three years of saving and investing.

I expect that by following the principles outlined in this post, we should be able to hit the dividend crossover point of $1,000 in monthly dividend income within ten to fifteen years. The outcomes vary, because the conditions over the next decade or so will likely vary as well. If more securities are available at higher starting yields or if dividend growth is faster than anticipated we will achieve our goals quicker. If on the other hand starting yields are lower and dividend growth is lower, we will achieve our goals in a slower fashion

Relevant Articles:

- Use these tools within your control to get rich
- Getting Started – The Hardest Part About Dividend Investing
- What are your investment goals?
- Financial Independence Is Easier to Model with Dividends

Nine Dividend Growth Stocks Rewarding Shareholders With a Raise

Mon, 09 May 2022 10:00:00 +0200

I review the list of dividend increases every week, as part of my monitoring process. I usually focus my attention on the companies with a ten year streak of annual dividend increases, and then review each company using my criteria. I am always on the lookout for new ideas, and to determine if my existing holdings are working. I also want to be ready to act quickly, when the right time arrives.

This exercise helps me to evaluate companies I already own, and see how they are doing. This is a helpful piece of the puzzle, that would be helpful when/if I decide to add to these companies at the right price.

This exercise also helps me identify companies for further research. A large part of the time is spent reviewing companies, screening for companies, and trying to learn more about companies, their business, etc.

It is not glamorous at all, but dull and boring.

But it does pay dividends.

Over the past week, there were several companies raising dividends. The companies include:

This of course is just a list, not a recommendation. On a side note, PepsiCo actually first announced that they will be increasing that dividend in February with their financial results. However, they finalized the dividend data with the release from last week.

When I review companies, I look at ten year trends in:

1) Earnings per share

2) Dividend payout ratio

3) Dividends per share

4) Valuation

Since I have some experience evaluating dividend companies, I also modify my criteria based on the environment we are in and the availability of quality companies. If I see a company with a strong business model and certain characteristics that I like, I may require a dividend streak that is lower than a decade. I have also found success in looking beyond screening criteria by purchasing stocks a little above the borders contained in a screen.

It is important to be flexible, without being too lenient.

You may like this analysis of PepsiCo (PEP) as an example of how I review companies.

Relevant Articles:

- 15 Companies Showering Shareholders With More Cash

- Five Companies Delivering Dependable Dividend Raises

- Eight Dividend Growth Stocks Raising Distributions

- Four Notable Dividend Increases Expected for April 2022

- Four Dividend Growth Stocks Rewarding Shareholders With Raises

Companies mentioned in this article: IEX, MAN, MSA, MTRN, PEP, POOL, RLI, UGI, WTS

Sixteen Dividend Growth Stocks Raising Dividends Last Week

Mon, 02 May 2022 10:00:00 +0200

It is not glamorous at all, but dull and boring.

But it does pay dividends.

Over the past week, there were several companies raising dividends. The companies include:

This of course is just a list, not a recommendation.

I also wanted to mention that Raytheon Technologies (RTX) also raised dividends by 7.80% to $0.55/share. This is the core of the old United Technologies, which merged with Raytheon in 2020, and then split into three companies - Raytheon Technologies, OTIS and Carrier.

Because of the way Otis and Carrier proceeded about their dividend policies, immediately after the spin-off, shareholders ended up with less annual income than before the split. Therefore, shareholders effectively received a dividend cut. But I still view Raytheon as a company that didn't cut dividends. It was a rare combination where I didn't sell after a cut, and was rewarded for it. Perhaps because of the confusion, I held on. But the dividend aristocrats, dividend achievers indices have taken the company and spun-off parts off their portfolios.

When I review companies, I look at ten year trends in:

1) Earnings per share

2) Dividend payout ratio

3) Dividends per share

4) Valuation

It is important to be flexible, without being too lenient.

You may like this analysis of Sysco (SYY) as an example of how I review companies.

Relevant Articles:

- Five Companies Delivering Dependable Dividend Raises

- Eight Dividend Growth Stocks Raising Distributions

- Four Notable Dividend Increases Expected for April 2022

- Four Dividend Growth Stocks Rewarding Shareholders With Raises

Companies included in this article: AAPL, AGCO, AMP, AVY, AWK, FDS, GWW, HWBK, IBM, K, LBAI, MET, PH, RRX, SYY, UNTY

Tom Russo and the Capacity to Suffer and the Capacity to Reinvest

Sat, 30 Apr 2022 23:25:41 +0200

I like to study successful investors, as part of my effort to continuously improve on my process. Tom Russo is one such investor. I believe I can learn from him.

Between 1990 and 2021, his fund, Semper Vic Partners delivered a total return of 12% to its investors. This was better than the 11.10% return of Dow Jones Industrials average and 10.50% return on S&P 500. Russo invests in a few select industries like industry food, tobacco, media and beverages in which companies have historically proven their ability to generate high and sustainable returns on capital.

His strategy seems to focus on the type of solid blue chip companies that deliver slow but steady performance. These businesses tend to generate a ton of free cashflows and tend to distribute a ton of cashflows to shareholders in the forms of dividends and buybacks, while still growing over time. In addition, these businesses have a product or service that is relatively recession resistant. Such businesses tend to think about the long-term, but sadly are rarely available at discounted valuations. Russo says investors should look to buy businesses with some margin of safety that comes when these businesses are available at a sufficient discount from their actual value.

The businesses he focuses on are companies with leading brands, such as Nestle or Brown Forman, which operate globally. They have powerful brands that are globally known, which give them the ability to enter new markets and grow market shares in different countries. A strong brand commands price elasticity and drives recurring revenue and high return on capital, and reduces the risk of the business model. Price elastic demand is crucial because loyal consumers will be willing pay a higher price should inflation drive up ingredient cost and the company needs to maintain its margin through higher prices.

This has been the case in emerging markets over the past 30 years. Riding the wave of increased prosperity and emerging growth has been beneficial for global brands. When they enter, the market may not be developed, which means that these brands should have the capacity to suffer throughout the initial phase of market development and the development of the country they just launched operations in. However, as the country grows its economy, its consumers grow their disposable income, the market demand increases, which is good for business. These businesses also have the capacity to reinvest a portion of their income, at a high hurdle rate of return, in order to build the base for future dividend growth. He basically looks for companies with two characteristics – the capacity to suffer and the capacity to reinvest.

Tom Russo also looks at family controlled businesses, because he has found that these types of companies tend to think long-term, and avoid the short-term pressures of Wall Street. These are businesses that do not care about beating a quarterly estimate by Wall Street. Instead, they think about years, if not decades, down the road. This is particularly powerful when you are dealing with some of the staples, which have more predictable demand for their goods. These companies are willing to reinvest for the future, even if it means some short-term pain.

If you look at the companies in his portfolio, you can see that these companies have strong global brands, they have benefitted from international expansion, and the rise in international consumerism. These companies include Nestle, Mastercard, Unilever, Philip Morris, Brown-Forman, Google.

The Initial Grind Is The Hardest

Sat, 30 Apr 2022 23:25:03 +0200

I started my website over fourteen years ago in early 2008. During that time I shared my process of looking for and analyzing companies. I discussed my strategy in detail, delved into topics such as building and monitoring a portfolio. I have discussed resources I use, books I have read, and investors who have inspired me.

Back in 2018, I decided to put all of this information to practical use in real time, and launch a premium newsletter where I show investors how I am building a dividend portfolio from scratch. After investing in this portfolio for 44 months as of April 2022, I have learned a few lessons that are applicable to almost anyone investing in dividend growth stocks.

The goal of this dividend portfolio is to generate $1,000 in monthly dividend income after investing $1,000/month for a certain period of time. I try to allocate the money each month in ten attractively valued companies. It is exciting to launch a new portfolio from scratch, and watch it grow by applying my principles in real time. But investing is a long-term process. This project will go on for at least a decade. As such it is more of a marathon than a sprint.

I have invested $53,300 so far in 83 companies through April 30th, 2022. The portfolio is projected to generate $1730.27 in annual dividend income. This comes out to $144.19 in monthly dividend income, and takes us to around 15% of our long-term dividend goal. The forward dividend income has steadily increased since launching of the newsletter in July 2018. I expect this trend to continue, driven by new investments, dividend reinvestment and dividend growth.

Currently, the impact of new capital contributions drives most of the gains in forward dividend income. The rate of dividend growth is not as significant, given the small relative capital and dividend base. After a few years of investing however, the impact of dividend growth will be much more powerful than the impact of new contributions. This is why when investing, I need to play a long-term game, and focus on companies that can grow earnings and dividends 5 - 10 - 20 years down the road. In an uncertain world, I need to focus on companies with business models that can endure most calamities. Yet, I also need to be diversified, in order to protect against tail risks.

The portfolio has had 207 dividend increases since the launch of the newsletter. We had only three dividend suspensions and two dividend cuts. When we do have a dividend cut, I sell the security with a cut one second after the announcement, and buy something else with the proceeds. I may reconsider a dividend cutter after I have sold it, once it starts growing dividends again. I have had two dividend freezes, which is when companies keep dividends unchanged. I will continue holding, but not sell.

The amounts of dividend income quoted today are low. However, this is just the beginning. Plus, I believe that what I am presenting to you is a strategy/system for achieving long-term financial goals and objectives. This is the type of investment program I have followed in my personal portfolio for over a decade.

By following a consistent program of making regular new investments, reinvesting dividends selectively and patiently holding on to those shares, we have created a virtuous cycle which increases chances of financial success. Best of all, investing is a scalable activity. The same amount of effort is needed to invest $1,000 or $10,000 or $100,000.

The initial grind is always the hardest part of investing. When you buy $1,000 worth of shares, and you generate $30- $40 in annual dividend income, it is easy to get discouraged.

For those rare individuals like you and me however, that first $30 - $40 in annual dividend income is pretty exhilarating. You get your a-ha moment when you see that passive dividend income as your stepping stone towards your eventual financial independence. Once you make the investment, you realize that money is working hard for you, so that you don’t have you. You see each dollar invested as a dollar that will grow dividend income for you, without any additional effort. Similar to building a house brick by brick, you see the process of building a dividend portfolio through the lens of each individual purchase.

You realize that with every single investment you make, you are buying your financial freedom.

After several years of investing, the amounts of dividend income start getting noticeable.

After several years of patiently buying quality blue chip companies, reinvesting the dividends and holding those shares for the long term, the dividend income starts getting some real traction. This is the point where the powerful force of compounding starts to overtake the monthly amounts that are added to the portfolio.

To summarize, the system for building wealth and passive income is really simple:

Buy quality dividend growth stocks every month
Hold those shares for as long as the dividends are not cut
Reinvest dividends selectively
Maintain a diversified portfolio
Be a patient buy and hold investor

Investors with a long-term outlook, who won't despise the days of small beginnings, and who patiently accumulate assets stand a chance to reach their financial goals and objectives.

You can sign up for a seven day free trial for the Dividend Growth Investor Newsletter by clicking on this link. If you have read this site for the past decade or more, you will likely enjoy the newsletter as well.

Relevant Articles:

- Use these tools within your control to get rich
- What drives future investment returns?
- Estimating future Dividend Growth
- The value of dividend growth in retirement planning

Utility Companies Between 1929 and 1992

Tue, 26 Apr 2022 10:00:00 +0200

I enjoy collecting old pieces of information, which aid me in my research. A few years ago, I started collecting old editions of Moody's Stock Manuals when they were available for sale at low prices at Amazon or Ebay.

I was browsing through the 1993 Moody's Manual of Dividend Achievers, and found the following chart of the Moody's Utility Stock Index between 1929 and 1993.

I really like this chart, because it shows the price for the index, as well as the trends in earnings per share, and dividends per share. It would have been even better if it included total returns, of course, but I would get what I can.

I find this chart to hold a ton of interesting information, that few are aware of today. A picture is truly worth 1,000 words.

You can see that the price index of utilities in the US basically went nowhere between 1929 and 1993. That's because it only looks at stock prices.

You can see that the whole return for this index was derived from dividends, over a long period of 64 years.

Why is that?

First of all, utilities were considered "growth stocks" in the 1920s and 1930s. The electricity consumption was rising for example, and was expected to grow because more customers were going to be connected to the grid. There was a big boom, couple with a lot of investment in anticipation of the future growth. Then, there was also some fraud and manipulation, which is just normal human nature when too much easy money is floating around. A lot of companies were overleveraged as well. As you can see, utility stocks were expensive in 1929.

Then the US experienced the crash of 1929, followed by the collapse of many banks, mass unemployment, and an economic depression. This is referred to in the history books as "The Great Depression".

You can see that utility earnings declined between 1929 and 1934, which dragged share prices and dividends down along with them.

There were a few regulatory events happening at the time, which broke down some utilities. The 1930s were a time of largely flat earnings, dividends and share prices.

Since the 1940s however, utilities started earning more and raising dividends to shareholders. The late 1930s and up until 1940s, utilities were selling at low valuations and offering high yields to investors. Interest rates were artificially low at the time too, similarly to what we saw in 2019 - 2021.

They were depressed however, and probably there was little investor interest. After all, memories from the 1929 - 1933 crash were still there. The utility stock index had declined from 120 to 20, which definitely lost investors money. We should also remember that in the 1920s and early 1930s, it was possible to buy stocks on margin by putting only 10% down. Therefore, if a stock went down by 10%, you were wiped out.

This just shows you that it is important to buy at a good price, without overpaying. It is also important to take speculative bubbles with a big grain of salt. While folks in 1929 were right to expect mass growth in utilities revenues and consumption over the next century, they were not properly compensated for it. That's because they paid high prices for future growth, and invested in overleveraged conglomerates that may have lacked in internal controls and didn't care much for investors money. They also invested in speculative companies that failed.

While utility companies are considered to be safe today, that's mostly due to the past 80 years. The utility companies from the 1920s and even 1930s were viewed as more growthy companies. Each industry goes through a cycle like this, where it is the new kid on the block that excited investors, who euphorically bid up stocks to the sky. After all, this is a new industry that would revolutionize something. After the bubble pops, investors do not want to touch it with a ten foot pole. That's usually when it is the best time to invest. In the meantime, the industry matures, and starts attracting more seasoned investors.

However, in the 1940s, utilities were very cheap and investors were properly compensated for the risks they took. Despite the fact that interest rates rose from 1940s to 1960s, utility stocks went up in price, their earnings rose and dividends rose. That's because there was an adequate margin of safety in the 1940s and utilities had cleaned up their act from the excesses of the "Roaring 20s".

Utilities kept earnings more and growing dividends through the late 1980s. However, utility stock prices peaked in the middle of the 1960s and then started trending downwards through 1974. There was a big bear market in 1972 - 1974, which explains just part of the story. After bouncing from the 1974s lows, utilities trended sideways through the late 1970s, despite earning more. That's because interest rates were really rising in the 1970s, due to high inflation.

However, the other factor to consider is that inflation started going up in the 1960s and really increased in the 1970s. As a result, interest rates started growing as well, until reaching close to 20% in the early 1980s.

Interest rates act like a gravitational pull for equities. As a result of rising interest rates, share prices declined, because investors demanded higher dividend yields and lower P/E ratios as a compensation. It also means that taking on loans to finance new projects is more expensive too. Furthermore, rising interest rates means that cost of capital is higher, and it also means that new projects are more expensive to finance. Therefore less projects may get done, and less future earnings can be generated from that.

Rising inflation also means that it costs more to maintain and upgrade and run a company. Luckily, utility companies can pass on costs to consumers, albeit at a delay. This is where it really depends whether your state is more business friendly or more consumer friendly.

Of course, this index shows how a group of utility companies performed during that long period of time. There was turnover in the group of companies that comprised the index. Plus, some companies did better than others. For example, Con Edison (ED) ended up cutting dividends in 1974, because it used oil to generate electricity. When oil prices spiked, the company was in real trouble and had to be effectively bailed out.

There were some utilities that had other issues. The Three Mile Incident was a major disaster in the US, which altered the public opinion on Nuclear Energy. The company that owned it, ended up suspending dividends in the late 1970s.

I am posting this, in order to provide some more context behind this long-term chart of Utility prices, earnings and dividends from 1929 - 1993.

You can see that after interest rates peaked in early 1980s and started going down, utility company share prices started rising and eventually surpassed the highs from the 1960s and even reached all-time-highs by the 1990s.

It does look that utility earnings stopped growing in the latter part of the 1980s and dividends didn't grow by much in the latter part of the 1980s. I believe that they grew from there, albeit slightly.

You can view a chart of US interest rates between 1790 and 2010 here for reference:

Source:

You can also view the annual inflation rate in the US sine 1900 in the chart below:

Source:

Why am I posting this information?

Mostly because I view it as an interesting historical lesson, which contains traces of information that could be beneficial for investors. For example, I believe that bubbles created in new industries are something that you would see over a 30 - 40 year history as an investor. So it may pay to educate as much as possible on the topic. I am of course, just scratching the surface on the topic.

The other reason is because it is possible that the current environment does turn into something that resembles the situation from the 1970s. This is where higher inflation and higher interest rates push share prices lower, even if companies earn more and grow dividends. This means that paying too high of an entry multiple for shares may not be a good idea if interest rates are about to rise dramatically. That's because multiples would likely shrink. (e.g. from a P/E of 30 to a P/E of 10)

In addition, it is important to focus on companies where earnings grow, because that could ensure that dividends can grow and compensate for the eroding power of inflation.

Long term returns are a function of:

1) Initial dividend yield

2) Growth in earnings per share

3) Change in valuations

If you overpay massively at the start, and growth is slow, while valuation shrinks, you may be in for trouble. This is the time where you need to review each company you own, and determine if it can deliver a return on investment in various scenarios.

For example, Con Edison (ED) is selling for 21.50 times forward earnings today. It yields 3.27%. The stock is at an all time high. This dividend aristocrat has managed to grow dividends for 48 years in a row. However, it has a ten year dividend growth of 2.60%.

Earnings per share have gone from $3.86/share in 2012 to $3.85/share in 2021. This is the type of investment that may not be able to grow dividends fast enough in an inflationary environment, so their dividends would lose purchasing power. In addition, the stock may decline if the P/E ratio declines and the dividend yield increases. This is the type of quick review I would do.

Relevant Articles:

- How Dividend Growth Investors can prosper even if interest rates increase

- How dividends protect income from inflation

- Interest Rates Affect Stock Valuations

- A Look Under the Hood For Inflation

- High Dividend Utility Stocks – Are they a trap for income investors?

Eight Dividend Growth Stocks Raising Distributions

Sun, 24 Apr 2022 18:08:56 +0200

It is not glamorous at all, but dull and boring.

But it does pay dividends.

Over the past week, there were several companies raising dividends. The companies include:

This of course is just a list, not a recommendation.

I also wanted to mention Lindt & Sprüngli, which raised its annual dividend by 9.09% to 1,200 Swiss Francs/share. This is the 27th year in a row that the company has increased the annual dividend. It is traded on the Swiss stock market, although the stock is also traded as an ADR on the OTC market in the US. The stock is expensive based on absolute share price and based on valuation however.

When I review companies, I look at ten year trends in:

1) Earnings per share

2) Dividend payout ratio

3) Dividends per share

4) Valuation

It is important to be flexible, without being too lenient.

You may like this analysis of Johnson & Johnson (JNJ) as an example of how I review companies.

I would expect further dividend increases next week from Apple (AAPL), Ameriprise Financial (AMP) and W.W. Grainger (GWW).

Relevant Articles:

- Dividend Stock Analysis of Johnson & Johnson (JNJ)

- Johnson & Johnson (JNJ) Raises Dividends by 6.60%

- Four Notable Dividend Increases Expected for April 2022

- Five Companies Delivering Dependable Dividend Raises

Companies discussed in this post: BHB, DGICA, DGICB, JNJ, LAD, NDAQ, SO, STBA, TRV