Buying Dividend Aristocrats: Patiently Making More Money

Dividend Aristocrats is the trademarked name that Standard & Poors uses for its list of companies that have raised dividends annually for 25 years or more. Needless to say, being able to not only part with cash, but a growing amount of cash, every year for the past quarter-century is an incredible accomplishment and is often a hallmark of the best businesses that have also outperformed the S&P 500 Index.

As a bit of a research project, I reviewed the histories of over 20 companies that are considered Dividend Aristocrats to determine both their long-term total returns and the number of years in which these stocks underperformed the S&P 500.

As you can see, even the best of companies spend a fair amount of time underperforming the index. If you were a holder of Colgate-Palmolive, which is one of the twenty best stocks you could have purchased in the entire … Read the rest of this article!

A Toast To Nike Exceptionalism

Get this: 73% of people who currently use Tide laundry detergent report that it was the detergent of choice in their household growing up. This is an important part of a business model–when you own a business that seeks to maintain the same customers for life, it is important to understand the source that creates the habit. When it comes to laundry, you buy Tide because your mom bought Tide. Most importantly, it suggests that the purchasing habits formed during youth are critical to business success because it becomes part of the invisible script that sticks with a person throughout life.

Take a look at smoking rates once the old guard tobacco companies were legally barred from advertising to high schoolers in September 1970. The smoking rates were 48% among “adult students” in 1970, and 42% among the American population at large. Fast forward to the end of 2014, and … Read the rest of this article!

Yes, You Have Enough To Get Started Investing

It is common to hear people say that they do not have enough money to start investing. I hate hearing people say this because it is not true. One of my favorite investment stories involves the life of Grace Groener. She worked at an entity that merged into Abbott Labs, and in 1935, she purchased three shares of Abbott Labs for $65 each (this would be roughly $3,000 in today’s money). As a result, the investment grew into $3 million by the 1990s and she ended up dying with an estate valued at over $7 million.

Now, I am not trying to tell you that you only need to invest a couple hundred bucks to end up with millions a couple decades from now. But what I am saying is that, when you work for a paycheck, you are engaging in an act that has very fixed terms as it … Read the rest of this article!

An Easy Way To Go Broke

Since I began covering stocks in 2011, almost every company imaginable has gone through an unpopular period. People didn’t want to touch Johnson & Johnson for a while, as a string of manufacturing recalls punished the stock in the $60s. An inability to deliver sales growth concurrent with price increases kept Procter & Gamble stagnating for a few years. A decline in the price of energy companies sent ExxonMobil and Chevron stock down 30% or more. General Electric, possibly the greatest industrial giant in the world, saw its price hover in the teens before recently becoming more appropriate priced around $28. Poor short-term news at Wal-Mart has sent the stock currently down to the $60 range. AT&T, with a century of dividend payments and a platform that will grow profits from $13 billion to $20 billion over the next five years, is currently unfashionable. Coca-Cola, Exhibit A for blue-chip investing, … Read the rest of this article!

Wealth Creation Through Repeatability of Sales

When you look at Microsoft over the past ten years, the reason why it has managed to grow profits per share at a high double-digit rate is because it dramatically increased the repeatability of its sales. A decade ago, much of the profits were derived from the sale of Microsoft Office which was an event that required businesses to make a purchase every 2-3 years. Nowadays, Microsoft generates a substantial portion of its revenues through its cloud/data storage services where corporate America pays Microsoft a monthly fee for providing exceptional data services.

The dramatic increase in repeat business has been an important component in explaining why Microsoft has been able to deliver such strong returns to its shareholders over the past decade. Alas, Microsoft is now trading at a valuation of 30-40x earnings (depending upon whether you are forward or backward looking with your projections) and is not the best … Read the rest of this article!