Wednesday, December 1, 2021

Who owns US stocks?

I recently saw an interesting chart, that shows the evolution of ownership of US stocks over the past 55 years.

This study analyzed the ownership of US corporate equity and analyzed continuing trends. It found that foreigners now hold about 40 percent of total US equity, retirement accounts about 30 percent, and taxable accounts about 25 percent. Non-profits and US Government held about 5% - 6% of US Stock.


This chart shows that between 1965 and 2019, the percentage of US stocks held in taxable accounts has decreased significantly. It fell from almost 80% in 1965 to a little less than 25% in 2019. This has big repercussions for tax revenues, because it means that a much lower amount of US stocks are subject to taxes on capital gains and dividends than ever before. This means that raising taxes on capital gains or dividends will not impact shareholder decisions, as it would have 55 years ago.

In addition, this doesn’t show the percentage of taxable accounts, which would not be subject to taxes on qualified dividends and capital gains. For example, a married couple in the US, whose only source of income includes qualified dividends will not pay any taxes on the Federal level if they earn $105,000 in dividend income this year.

The amount owned in retirement accounts such as defined benefit pension plans, defined contribution 401 (k) plans and Individual Retirement Accounts (IRAs) has been steadily increasing in the past 55 years. The IRA was invented in 1974, and has definitely helped millions of Americans save for retirement, and defer a ton of taxes along the way. The defined contribution plans like 401 (k) have been around since 1978, and started gaining momentum in the 1980s. A large portion of US employees have accumulated trillions in assets in those retirement plans.

The taxation of 401 (k) distributions and IRA distributions varies. Typically, withdrawals are taxed at ordinary income tax rates. But it depends. That’s because since 1998, employees have the ability to invest through a Roth IRA or Roth 401 (k) plan, which allows for tax free growth and tax free withdrawals at retirement.

Defined benefit plans, which pay pensions to retired workers owned just 8% of US stock in 2019. That’s downs from 22% in 1985 and 16% in 2005. The benefit plans themselves do not pay taxes on dividends or capital gains. However, when they distribute pensions to retired workers, the employees pay tax on that income at ordinary income tax rates. If the employees are able to take the money in a lump sum instead, and roll it into an IRA however, they may defer payment for quite some time.

The amount of US stock owned by Foreigners has increased from 4% in 1986 to 40% in 2019. Foreigners own US corporate equity two ways: (i) foreign direct investment (“FDI”), which is voting stock of 10 percent or more or (ii) portfolio stock for less than 10 percent of voting stock.

For example, Siemens AG, a German multinational, might wholly own Siemens USA, a “direct” investment. Or the Norwegian sovereign wealth fund might own Apple stock as a portfolio investment.

Based on my understanding, foreign investors do not pay taxes on capital gains to the IRS, provided they are not a resident of the United States. They may own taxes on capital gains to their local jurisdiction. However, most foreign investors do have tax withholdings on dividend income that is sourced from a US company. Each individual country has a different treaty with the United States on taxation of dividends, For example, Canadian residents pay a 15% withholding tax on US dividends in their taxable accounts. However, if they held US stocks in retirement accounts, they would not owe taxes.

I am unsure how certain large foreign holders of US stocks, like the Norway Sovereign Wealth Fund or the Swiss National Bank are taxed on dividend income or capital gains. I would assume they are going to be taxed like a US pension fund or a US not for profit. 

The downside of the 40% ownership of US equity by foreigners is that we do not know what percentage is taxable on their side. We do know that while foreign investors in US stocks may not pay capital gains taxes to the US Government, they do have a very low threshold for paying an estate tax. If a foreign investor in US stocks has more than $60,000 at the time of their death, they are subject to a 40% tax.

The purpose of this discussion is to reiterate how everyone’s personal financial situation is very different. We may have rates of qualified dividends and capital gains set by congress at a certain level like 15% for example or 23.80%. However, that doesn’t mean that everyone pays that rate. In fact, it shows that only a small percentage of shareholders are going to be paying that much taxes on dividends or capital gains. That’s because only 25% of US stock is held in taxable accounts.

We often hear that it is better for shareholders if companies do share buybacks over dividends, because remaining shareholders do not pay taxes in this situation. The problem is that not everyone pays taxes on dividends. As we mentioned above, about 35% of stock is held in retirement accounts and non profits, which do not pay tax on dividends. Only 25% of stock is held by taxable accounts, and even for those we don’t know the percentage that have to pay taxes on dividends or capital gains. Everyone’s tax situation is different, which is why it is hard to determine the best decision that would work for everyone (hint: that doesn’t exist).

Saturday, November 27, 2021

Four Companies Rewarding Their Thankful Shareholders With a Raise

There were several companies over the past week which announced their intent to raise dividends to shareholders. It is always great to see companies that are able to extend their long streaks of annual dividend increases. I find dividend increases to be a good indicator of how company executives feel about the near-term business environment. It also shows their confidence in the company’s growth prospects. 

Factors that boards of directors consider when setting the dividend include future earnings expectations, payout ratio and dividend yield relative to those at peer companies, as well as returns available on other income-oriented investments.

This is why I find it very helpful to review dividend increases every week for established dividend growth companies. To be included in this list, a company should have managed to reward shareholders with a dividend hike for at least ten years in a row.

I review these press releases as part of my monitoring process. For the purposes of this article, I narrowed the list of dividend increases down to a more manageable level.

I focused on companies that can afford to grow dividends for at least a decade. I figured that a company which has managed to boost dividends during a recession and an expansion, or even longer, is better suited for further research by a long-term dividend growth investor like me.

In my previews, I look at the most recent dividend increase, and compare it to the ten year average. While there are some year-over-year fluctuations in dividend growth, it is helpful to see if dividend growth is decelerating.

In addition, it is helpful to review trends in earnings and dividends, alongside dividend payout ratios. This is another indicator of dividend safety.

Last, but not least, I also try to review the valuation behind every company. I prefer to buy future dividend income at attractive valuations; overpaying for future dividend income is not a good business decision.

Over the shortened Thanksgiving week, we had six companies hiking distributions to their thankful shareholders. I have had these companies consistently raising dividends during Thanksgiving week for the past several years that I have been writing these review. The one notable difference is that this year, Becton Dickinson (BDX) raised dividends earlier this month, while McCormick (MKC) is on track to raise the dividend later than usual.

The companies include:

Hormel Foods Corporation (HRL) produces and markets various meat and food products to retail, foodservice, deli, and commercial customers in the United States and internationally. The company operates through four segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, and International & Other.

The company increased its quarterly dividend by 6.10% to $0.26/share. This was the 56th consecutive increase to the annual dividend for this dividend king. The company has managed to grow dividends at an annualized rate of 14.41% over the past decade. Future dividend growth would likely be much slower in the decade ahead, given the lack of earnings growth since 2016.

Between 2011 and 2020, the company managed to grow earnings from 87 cents/share to $1.66/share. 
The company is expected to earn $1.70/share in 2021. The issue I am having is that the company has not managed to grow earnings at all since generating $1.64/share in 2016.

The stock is selling for 27.37 times forward earnings and yields 2.40%.

South Jersey Industries, Inc (SJI) provides energy-related products and services.

The company raised the quarterly dividend by 2.50% to $0.31/share.  This marked the 23rd consecutive year of annual dividend increases for this dividend achiever

The company has managed to eke out a small rise in earnings, from $1.49/share in 2011 to $1.62/share in 2020.  The company is expected to earn $1.62/share in 2021.

The stock I selling for 34.90 times forward earnings and yields 5.04%.

The York Water Company (YORW) impounds, purifies, and distributes drinking water. It owns and operates two wastewater collection systems; five wastewater collection and treatment systems; and two reservoirs.

York Water increased the quarterly dividend by 4% to $0.1949/share. This is the 25th year of consecutive annual dividend increases for this newly minted dividend champion.

York Water has managed to grow earnings at a slow but steady clip, from 71 cents/share in 2011 to $1.27/share in 2020. The company is expected to earn $1.28/share in 2021.

The stock is selling at 38.08 times forward earnings and yields 1.61%.

Hingham Institution for Savings (HIFS) provides various financial products and services to individuals and businesses in the United States.

The company increased its quarterly dividend to $0.55/share. This is a 3.77% increase over the previous quarterly dividend and a 17% raise versus the dividend paid during the same time last year. The bank has increased dividends for 26 years in a row.

The bank would also be paying a special dividend of 75 cents/share. It has paid a special dividend in the fourth quarter for 27 consecutive years.

Hingham Institution for Savings grew earnings from $5.67/share in 2011 to $23.25/share in 2020.

The stock is selling at 12.69 times earnings and yields 0.56%.

Relevant Articles:

Twelve Companies Rewarding Shareholders With Regular Dividend Increases

Five Dividend Growth Stocks Delivering Raises To Shareholders

Six Dividend Growth Stocks Rewarding Shareholders With Raises

Fourteen Cash Machines Hiking Dividends Last Week

Saturday, November 20, 2021

Fourteen Cash Machines Hiking Dividends Last Week

I review the list of dividend increases every week, as part of my review process. I focus my attention on companies that raised dividends in the current week, and have at least a ten-year track record of annual dividend increases.

Only a company with a strong cash flow generating business can afford to grow dividends for a long period of time. Therefore, a business growing dividends for at least a decade is worth looking at for further research.

There were nine companies that fit the criteria. You can view the five companies in the table below:




  Old Dividend Payment


Years Annual Dividend  Raises

Ten Year Annualized  Dividend    Growth

Forward P/E

Dividend Yield






































City Holding





































Motorola Solutions



















Realty Income









Royal Gold









United Bankshares









Unity Bancorp










This is a list of companies for further review. Most seem attractive as businesses, but that doesn’t mean that they should be invested in at any price, regardless of valuation.

Relevant Articles:

Ten Dividend Growth Stocks Rewarding Owners With A Raise

Twelve Companies Rewarding Shareholders With Regular Dividend Increases

Five Dividend Growth Stocks Delivering Raises To Shareholders

Six Dividend Growth Stocks Rewarding Shareholders With Raises

Five Dividend Growth Stocks In the News

Wednesday, November 17, 2021

Dividend Initiators: A Fertile Ground For Research

As part of my Dividend Growth Investing strategy, I have always looked to invest in companies that have managed to grow dividends for at least a certain number of years. The logic is that only a company with a certain type of business can afford to grow dividends over a full business cycle.

Historically, a business cycle lasted five years or so. I always looked for companies that can potentially grow dividends for years, if not decades down the road. I am the type of investor who wants to assemble a portfolio of quality dividend growth stocks that grow earnings, dividends and intrinsic values over time, and then sit back and let the power of compounding do the heavy lifting for me. I do not like to trade in and out of stocks, and I do want to focus on companies in industries with slow rate of change that can afford to grow for years, without having to tinker. I am a long-term investor, who plans to hold forever. That is, until the dividends are cut, or the company is acquired.

The argument against waiting for 10 or 25 years of consecutive annual dividend increases is that I may be potentially leaving a lot of money on the line.

That being said, over the past 15 years or so, I have observed a lot of good companies with lower dividend streaks reward shareholders fantastically well. A lot of these companies are the types that I knew, and I understood. 

A few notable dividend initiators include:

Apple (AAPL), which declared a dividend on July 24, 2012, but first announced it in March 2012.. The stock has done ok since then.

Starbucks (SBUX), which declared its first dividend in March 2010. 

Tractor Supply (TSCO), which declared its first dividend in March 2010. Check my analysis of Tractor Supply here.

Visa (V), which initiated a dividend in August 2008.

Microsoft (MSFT), which initiated a dividend in early 2003, right after the dot-com bubble collapsed

Of course, this is not a method that would be right 100% of the time. If you bought Gilead Sciences (GILD) when it initiated a dividend, you would have lost money.

I believe that a good screening process could involve looking for new dividend initiators, and then monitoring financials. When the dividend is increased for the first time, it may be time to review financials and valuation, before determining if the business makes sense.

That being said, when investing in companies that have only raised dividends for an year or so, I would expect a higher turnover rate. In other words, companies that just recently start paying dividends may end up cutting them if they turn out to be more cyclical than previously believed. They may also be more likely to not care as much about growing dividends in the future. It would be hard to know in advance how serious management is about building a streak of annual increases in advance. On the other hand, some of these companies may end up being taken over too.

I do believe however that these dividend initiators may offer a very good opportunity to make above average total returns and very high yields on cost. These are businesses that have grown for a long time, and finally realize that they are making more than what they can reinvest. This shows that management is prudent and self-aware. In quite a lot of these cases, management is still deploying a lot of capital for future growth projects, and the growth trajectory is far from over. Just as I mentioned above however, be aware that most of these businesses may not be able to grow dividends for a long time, versus what I would expect from a dividend achiever or an aristocrat. For some of them however, they could realistically grow that dividend for decades. These rare companies would likely generate a lot of profits and probably compensate for many mistakes along the way from the ones that fizzle out.

Relevant Articles:

- Seven Dividend Stocks in the News

- Should dividend investors care about Apple’s Dividend?

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