Someone Out There Bought Royal Dutch Shell At $37

I have made no secret of the fact that I am a big fan of the U.K.-Netherlands energy giant Royal Dutch Shell (RDS.B). The company was the subject of my first blog post ever at The Conservative Income Investor, and I came to like it even more after reading parts of the four-volume set “The History of Royal Dutch Shell.” Since 1911, the returns have been over 14% annualized, with about two thirds of the total returns come from collecting dividends and reinvesting them.

During the 1957 through 2006 period, Royal Dutch Shell delivered 12.5% annual returns (suggesting that the law of large numbers only had the effect of diminishing Royal Dutch Shell’s long-term returns by a percentage point and a half as it transitioned from large-cap to mega-cap status).

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A Terrible Argument By The American Express Board of Directors In 1976

In 1959, William Donaldson, Dan Lufkin, and Richard Jenrette started an investment bank that they named after themselves–Donaldson, Lufkin, and Jenrette, Inc. (usually called “DLJ”). It immediately went public, and employed thousands of people in its budding trading, underwriting, and research divisions. The odds seemed fair that it would emerge to occupy a dominant place on Wall Street, and it drew the attention of the American Express Board of Directors as a fast-growing firm worthy of acquiring.

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Those Small But Fast-Growing Dividends

When I first started writing finance articles, I noticed that my author peers would often include income investing rules like “I only consider a security if it is yielding at least 3%.” That is a rule that has some rationality if you are near retirement or have some plans to collect the cash produced by your investments and do something with it in the near term. But still, I had some type of intuition that this rule was suboptimal, as I noticed that many of the firms with the highest earnings and dividend growth rates tended to have market prices that would only give you an initial yield of 1% or 2%.

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Fifteen Years Of Consolidated Edison Dividends

In February 2000, Consolidated Edison (ED) traded at $26 per share. If I told you that per share revenues would only grow by 2.5% over the next fifteen years, and over 70 million new shares of stock would be created through executive options and additional stock issuances to avoid piling on more debt to the balance sheet, would you be interested in buying the stock? At the time, the stock was making $2.74 per share and trading at a valuation of 12x earnings.

I would guess that the stock price might expand its P/E ratio a bit, and the utility dividend would be nice, but I’d ultimately pass on the opportunity on the theory that 2.5% revenue growth over the long term just doesn’t seem like the path to building sizable wealth.

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When Corporations Pretend To Not Care About Money

In 1919, the Michigan Supreme Court explicitly bound Henry Ford to the notion of shareholder wealth maximization primacy when it held that Henry Ford couldn’t decline to pay the Dodge Brothers special dividends in the pursuit of employing more Detroit auto-laborers.

Henry Ford showed up in court and started talking about the embarrassment of profits that he had made from Ford’s explosion and discussed how it had become time for him to do his part to help “men…build up their lives and their homes.” In testimony, Ford did absolutely nothing to link the desire to employ more people into a belief that greater profits awaited shareholders down the line. For that reason, Ford was ordered to pay a dividend to the Dodge Brothers, as the Court reasoned that the corporate form was not the proper vehicle for advancing ends unrelated to shareholders.

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