The Promised Land of Dividend Investing

Sometime in the past twelve months, Realty Income did it. Since becoming a publicly traded company three and a half decades ago, every dollar that you invested into Realty Income back then would be paying you $1.00 in annual dividend income this year. In the next five years, the dividends alone should give you more than 5x your initial investment. That is what can happen when you buy an ownership stake in a business that relentlessly churns out cash, and then you allow it to keep doing its thing while you grow older.

For those of you who are curious about yield-on-cost, here is what the data looks like for thirty-year investments in the following companies, without any dividend reinvestment:

If you bought Coca-Cola in 1983, your $1000 would have grown into $74,000. You’d have $2,125 in annual dividends coming your way. Basically, you’d be looking at a dividend yield-on-cost of 212% each year, giving you twice your initial investment in annual dividends.

In the case of Johnson & Johnson, a $1,000 investment in 1983 would be worth a little over $63,000 today. You’d be collecting $1,787 in dividends, meaning you’d be getting 1.7x your initial investment returned to you in the form of yearly dividends.

For Conoco Phillips, every $1,000 would be worth $54,900 today, and would be paying $2,075 in annual dividends. Basically, you would be getting twice your initial investment returned to you in cash each year. Put another way, you’d be getting a quarter of your initial investment back every 90 days.

Even Disney, with its puny annual dividend, would have a respectable yield on cost by now. A $1,000 investment in 1983 would be worth $66,355 today. You’d be getting about $715 in annual dividends, for a 71.5% current yield on cost. That’s especially impressive considering that Disney spends 4x as much money buying back stock as it does paying dividends, and the current yield is flirting with the 1.00% mark.

And the numbers are unbelievable if you have ever been a long-term tobacco investor in your life. You’d probably own your town by now. A $1,000 investment in the old Philip Morris would be worth $287,000 now, spread out over Altria, Philip Morris International, Kraft, and Mondelez. It’s game over—you’re Daddy Warbucks. A $4,000 (old) Philip Morris investment would have made you a millionaire by now. If you bought a sizable block of the stock back then—say, $100,000 worth—you’d be sitting on a $28.7 million fortune. You’d be able to use the words “summer” and “winter” as verbs. If you folded all that money back up into Altria stock, you’d be making over $4,000 in cold, hard cash every morning that you wake up. Long-term tobacco investing is one of the most mind-blowing areas of investing history to study.

The take-home lessons here should be twofold:

(1)    You only need one investment to substantially change your life. Even if the rest of your investments throughout your life were complete screw-ups, a $10,000 investment in Johnson & Johnson back in 1983 would be paying you over $17,000 in current dividend income. That’s a baby pension right there. People buying Tylenol, Listerine, and whatnot would basically be paying your mortgage for as long as necessary.

(2)    A lot of times, people ignore investments that only yield 2-3% right now because they are not attractive enough to catch attention of people who appreciate nice income. If that company is growing profits by north of 8% annually, it may be worth a look anyway. Crazy things start to happen to the yield-on-cost when you combine growth over 8% with a time horizon of fifteen years minimum.


Originally posted 2013-11-15 08:47:16.

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7 thoughts on “The Promised Land of Dividend Investing

  1. Hey Tim, great overview of the concept and I love seeing that data. Cool stuff.

    I'm glad that you nailed the "engine" behind this dividend miracle: business growth. Many people (but especially cash flow oriented, dividend investors) forget that everything comes from business growth, and the related profit growth. Profits fuel the growing stream of income.

    In any case, great reading for a Friday morning. Thank you.

  2. Christopher Wells says:

    Tim, great article. Southern Company was my one great investment. Bought $50,000 worth in 2003 after receiving an inheritance. After DRIPing, and no other additions, it has grown to over $112,000. Sold $5,000 to help my daughter with a down payment on 1st home last spring. It's in a taxable account, and am using earnings to fund my Roth as I slowly diversify. It's a money machine. Chris

  3. Tim — a great complement to this article, and the others like it you've written, would be to have a look at what some of these companies looked like to retail investors at the time. For example, in 1983, What was the price of JNJ? What was it yielding? How long had it already been raising the dividend? What did earnings look like? What was the dividend growth rate? What were some representative headlines saying about its prospects? Was it a big stable, boring blue chip then, or would it have required more sleuthing to find and buy? Would we have known to buy it then? Or is it mostly in hindsight that all of this becomes clear? Thanks!

    1. Sackie says:

      According to various resources I quickly came up with these numbers (hopefully they are correct).

      In 1983:

      What was the price of JNJ? – Fluctuated between ~41 – 46 $ per share

      What was it yielding? – Between 1,4 to 1,65%

      How long had it already been raising the dividend? – 12 years

      What did earnings look like? – No clue.

      What was the dividend growth rate? – Dividend CAGR 17,9% between the years 72-83.

      Can't really say much about the headlines or the rest of the questions but I would definately consider it to be plausible for a stock like JNJ to be found by screening, 12 years of dividend growth at impressive rates and I think that would suggest pretty nice earnings growth as well. Definately not a big boring blue chip at that point but still something that I think most DGIs would've had their eye on.

      But I just quickly dug this info up so if any part of it was incorrect then this reply has little merit.

  4. says:

    I can never get into Disney despite my emotional draw (wife is a cast member). There are too many others that are better like BP, WMT, CVX, VNR, and MCD. My biggest position is in VNR which paying about 9% in a tax deferred MLP on a monthly basis. I am using it to pay of a 4% interest only HELOC. It's a money machine.

  5. Lorene Wagner says:

    Rather curious. Got some new ideas. But investigating this matter I came across some sensational website where I could find complete information on this question in one place. offers not only one personal opinion but the chance to compare various authors, experts and companies and provides arguments so that you could choose the one close to you.

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