Barnes & Noble Should Cut Its Dividend

A reason why I cover businesses that have upped their dividend payouts annually for years and years is because it touches upon the nerve of permanent wealth creation–timeless demand for the core product. When I point out that Colgate-Palmolive has raised its dividend every quarter since the day on which President Kennedy, C.S. Lewis, and Aldous Huxley simultaneously died, I am not only sharing the insight that it is attainable to own something that sends you more and more cash each year.

I am also pointing out that the growing dividend payout ratio is telling you something about the products being sold. Toothpaste in general, and Colgate toothpaste in particular, is so enmeshed in the human experience that Colgate’s Board of Directors have been able to part with about a third of profits every year while not only maintaining its competitive position but improving upon it. An impressive dividend growth record is a signal that: “Our economic engine isn’t a vulture that licks the investor’s capital to the bone. There’s plenty here to go around and prosper.” Decades of dividend growth signal that the reinvestment needs of the business are low to manageable.

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Generational Cash Dividends from Johnson & Johnson Stock

While the valuations of a lot of S&P 500 businesses have run up in the aftermath of the election, the stalwart healthcare firm Johnson & Johnson (JNJ) has continued to trade within a zone of reasonableness at a price of $115 per share. It is by no means “on sale” at this price, but it does offer an opportunity to own one of the highest quality businesses in the world at a fair price.

The reason I get so excited about my coverage of Johnson & Johnson stock, compared to another business that also has blue-chip investment status such as Campbell Soup, is that it is more than just “earnings quality.” Yes, the $12.9 billion profits held up during the 2008-2009 recession, and yes, the dividend is well supported by current earnings and has a history of increasing every year.

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