On June 12, 2018, Johnson & Johnson shareholders will receive a quarterly dividend of $0.90 for each share that they own, for a total annual payout of $3.60 compared to the prior year’s level of $0.84 and $3.36, for a 7.14% dividend hike.

 I would imagine no shareholder reading this website can remember owning the stock for a year in which the dividend was not raised. After all, the dividend payment has increased every year since 1963. Now that Johnson & Johnson is a $341 billion company, the dividend growth that continues at a rate of more than double the prevailing inflation rate suggests that the New Brunswick healthcare giant has developed an unusual formula for making you wealthy if you get your name on the ownership of shares and never part with them.

Where’s the magic?

I see it in three places.

Johnson & Johnson relies upon a decentralized … Read the rest of this article!

At the age of 50, the average American has a net worth of $132,384. At the age of 50, the average American engineer has a net worth of $973,028. Aside from the partial explanatory difference that can be attributed to engineer’s earnings a higher salary than the typical American, the large reason why engineers do so well is because they take life cycle costs into consideration before making every decision and are darn efficient when it comes to deploying capital.

I had an acquaintance of mine reach out to me for consulting advice on the two-store bakery and cafe chain that he founded and hoped to expand into a million-dollar business. I will share with you the process by which I helped him achieve his goal.

First, we had the clearly articulated goal–make a business worth $1 million. In recent years, round numbers have become unfashionable because of their arbitrariness. … Read the rest of this article!

Rose Blumkin, the founder of the Nebraska Furniture Mart, once said: “If you have the lowest price, they will find you at the bottom of a river.” For operators that seek to compete on price, that insight is both a blessing and a curse. The low-cost operator can quickly accumulate customers when it is the cheapest guy in the neighborhood, but because there is no inherent loyalty, can also quickly lose customers when a lower-cost operator enters the scene.

Wal-Mart stock (WMT), which had traded at $63 before the 2008-2009 financial crisis, was still trading in that range five years thereafter when the stock was at $67 in 2013, before investors pushed it towards $110 (a valuation of 24x trailing earnings!) in January 2018.

For long-term Wal-Mart shareholders and those with an interest in the stock, it is worth pondering: What caused the fall and rise and partial fall again?… Read the rest of this article!

A newspaper article recently disclosed the purchase of a trophy office building that sold for approximately $10 million, on a fully occupied property in which the tenants currently pay a combined $300,000. The frictional costs no doubt involved five-figure attorney bills, high title insurance costs, broker fees, and the other costs that are typically associated with such transactions.

The rental income from this property offers an initial capitalization rate of only 3%.

There are only three ways that this could work out.

The first two involve fundamental improvements in value.

You can make money from this base if you are an area like San Francisco, Los Angeles, Southern California in general, or parts of New York where the property has a high percentage likelihood of increasing at almost 8% annualized or higher. This was a Midwestern property where commercial properties have a twenty-year track record of 2.9% annual growth.

You … Read the rest of this article!

When an accounting lie comes up at a publicly traded company, I often think of Benjamin Graham’s advice to never consider the stock as a suitable investment because the accuracy of the numbers presented is a necessary component of estimating fair value. Knowledge of revenues, profits, and other critical figures form the basis of how we determine whether an asset is overpriced, fairly priced, or cheap.

It is also true that Graham’s thesis developed at a time when the majority of American success stories required heavy capital allocations as a source of value, whereas now the excellent businesses rely much more on the networking effect on users and are correspondingly asset light, i.e. if a water utility company lied and falsely claimed too many customers and profits, the disaster is that all sorts of debt provisions could cause the balance sheet to crumble its way to bankruptcy. Now, if a … Read the rest of this article!