For the past thirty years, ExxonMobil has grown its dividend by 6.38% annualized. Amazingly, due to its almost perpetually low valuation, the Exxon investor that reinvested every single dividend paid out over the past thirty years would have achieved annual income growth of 9.81% annualized. During every year during this thirty-year period, the income generated from one’s holdings in XOM stock increased.
One of the under-discussed aspects of investing is the style in which you go about making money. There are some people out there doing basic jobs not much above an entry level position and earning $50,000 per year. In some violent precincts, there are police officers earning the same salary who have to deal with the stress of responding to reports of late-night criminal activity in which no promises can be made that they will not be hurt or killed. And yet, very similar acts with wildly different risk and stress levels result in bi-weekly payments directly deposited to one’s checking account in the amount of $2,000.
An advantage of income investing, which is rarely discussed, is that it is consistent with a low-stress way of investing. I often see people who are responding to the latest Facebook or Netflix headlines, and I can’t figure out for the life of me why they are choosing to hinge their sanity on an upcoming quarterly news report. Maybe it is because so many areas of life are binary win/lose that some feel a need to make business the same way.
Of course, there is another way. Since 1989, Exxon Mobil has underperformed the S&P 500 in 24 of the 30 years and outperformed it in six. Due to heavy outperformance in those six, however, Exxon stock has actually performed half-a-percentage point annualized better than S&P 500 without dividends reinvested and almost three percentage points higher annualized with dividends reinvested.
If you are worried about beating the market, you are going to drive yourself nuts underperforming the stock market every three out of four years. But if you define yourself in terms of owning great businesses, and focusing on the income growth from those investments, it’s a much more enjoyable experience. If you were earning $1,000 in annual income from your Exxon stock in 1989, you would be earning over $18,000 annually (paid out as four $4,500 quarterly dividend checks) today.
When you are perpetually given dividend growth that exceeds the rate of inflation (which is truly the case as Exxon’s lowest dividend hike during this time period was 3.8% in 2015), you don’t have to be chasing the “investment rabbit” of your performance relative to the S&P 500. You can be satisfied that you own an asset that is sitting on half-a-trillion dollars in proven oil reserves and sharing part of the proceeds with the shareholders each other.
It is one of the benefits that comes with being a head-of-household investor. When you don’t have billions to invest and angry clients wanting to beat the market every quarter, you are not bound by the political pressures that bog down typical money managers.
You can instead devote your time to investments that make sense and you don’t have to develop ulcers worrying that some guy elsewhere is making money at a faster clip than you. As long as you are decently intelligent regarding your identification of the world’s leading companies, you can put your family on the path to getting richer each year so long as you don’t get emotional during the moments when the world is going against you.