What Are Quality Dividend Stocks, And Why Should You Own Them?

If you are familiar with some of my writings, you have probably encountered my use of the phrase “high-quality dividend stock” to describe the kind of company worth buying and tucking away in your portfolio for decades to come.

Even though I like the phrase a lot, it is one of those descriptive terms that has fallen victim to overkill and probably cause eyes to glaze over when the word is used on a repetitive basis. That’s why I wanted to scribble down a quick post to state the obvious—what exactly I mean when I talk about high-quality assets, and why I think they make great investments for you on your life’s financial journey.

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Originally posted 2013-08-20 23:53:13.

Davita Stock’s March to $100

Although it does not receive much coverage, healthcare company Davita has quietly become one of Berkshire Hathaway’s fifteen largest holdings. Davita is a $12 billion company, and Berkshire owns 19.2% of the stock, which carries a present value of $2.3 billion. Since becoming publicly traded in 1995, Davita has compounded at a rate of 13.2% annualized, turning every dollar invested in the stock into just shy of $17 over this time frame.

What I like about the business is the simplicity and necessity of its business model. It provides dialysis services and aids in other treatments for kidney failure at an average rate of $350 per treatment, approximately 7% or $24.50 of which flows through to shareholders as net profits after all expenses including taxes are paid.

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Clorox Stock’s Wildly Low Cash Position

Given the amount of lay investors, pension funds, insurance/institutional funds, endowments, and charity-related funds that are invested into the stocks that we regard as the blue-chip members of the S&P 500, it would make sense that these companies be conservatively financed so that there is always cash on fund to fund an emergency. Coca-Cola has $19 billion in available. Johnson & Johnson has $19 billion in cash. Procter & Gamble has $11 billion in cash. This is what you would expect from the backbones of American business.

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When Uber Enters The S&P 500 Index

As companies like Apple and Alphabet went from companies too small for an index fund to its top components, such that 6% of all S&P 500 index investing dollars go into these two companies alone, it has been an underappreciated benefit that these two companies have been immensely profitable, sitting on hundreds of billions of dollars in cash and earning tens of billions of dollars per year in cash profits, respectively. Even though the companies are “new” by historical standards regarding where they were twenty years ago, they have not introduced a systemic risk because the profits were there.

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