Even though income investing is the dominant theme of this site—it’s on the masthead, after all—there are times when it can be wise to look beyond dividend stocks, particularly if the company whose purchase is contemplated: (1) is achieving high internal rates of return, (2) is trading at a reasonable valuation, and/or (3) gives you something special that you can’t otherwise get through dividend stocks alone.
In the case of Berkshire Hathaway, the story has always been that Warren Buffett is the capital allocator, and that proved to be the reason why you’d see dividend investors have a stock portfolio of all the usual suspects, oh, and Berkshire Hathaway in an account somewhere.… Read the rest of this article!
Let us, for instance, look at what happens when you reach the conclusion that Procter & Gamble would be an excellent stock to carry with you throughout life, and you only get a chance to make a $5,000 investment in 1970, and to combat the temptation to needlessly accumulate wealth, you decide to collect the dividends along the way.
How does that story play out? Well, the initial $5,000 in 1970 would be immediately paying out $155 in immediate income. By 1980, things were starting to move along, as your $5k investment doubled into $10.1k that was now paying out $325 in dividends. That’s a steady advancement, but not to the point of … Read the rest of this article!
It’s weird living in a world where the stock demands 30x earnings for a share of Brown Forman to give you a 1.3% dividend yield while shares of McDonald’s trade at 17x profits and give you a starting dividend yield of nearly 3.5%. For comparison purposes, 2009 was the only year in McDonald’s history when the stock averaged yielding above 3.5% for the entirety of the year.
What’s the cause? From 2011 through 2013, the input costs for food ingredients at McDonald’s rose, and the company largely absorbed the cost to accept lower profit margins on its food items but hoped to make it up through higher volume and the continued opening of … Read the rest of this article!
There is a very important reason why this site focuses on individual companies instead of, say, gold or treasury bonds. The reason is simple: actual businesses come with a growth component that does not exist when you buy gold or treasury bonds. An ounce of silver, gold, or palladium in 2114 will still be…an ounce of gold, silver, or palladium. A 5% payment on a U.S. bond, or a Wells Fargo corporate bond, will still be returning 5% of your cash outlay next year, the year after that, and until the specified duration of the terms comes to an end.
But I was curious: If you were seeking the same total returns with … Read the rest of this article!
Among almost any academic investor that you could possibly meet, the notion of caring about yield-on-cost is quickly dismissed as fool’s play; the hallmark of an unsophisticated investor.
What is yield-on-cost, and why is it so quickly dismissed?
There are two types of yield on cost: dividend yield-on-cost, and earnings yield on cost. It’s a comparison between what a company’s business performance is doing for you right now and the amount of cash you had to set aside to make that investment happen.
I’ll use the most famous investment in North America–Warren Buffett’s purchase of 400,000,000 shares of Coca-Cola—as an example.
From 1988 through the early 1990s, Warren Buffett spent $1.3 billion gobbling … Read the rest of this article!