Thursday, December 31, 2020

2020 Was a Record Year For Dividends

The year 2020 was definitely a turbulent one. It was marked by lockdowns worldwide due to the Covid-19 pandemic, high unemployment and economic turbulence. Yet, it also marks as another record year for US dividend payments, as measured by S&P 500. S&P 500 is a proxy for how US stocks do, since this index of 500 prominent US based companies accounts for 75% - 80% of total stock market capitalization. These are huge companies, with global operations, in 11 industries.

Dividend payments to investors in the S&P 500 rose to a new record in 2020, up 0.7% to $58.28 per share from the previous record set in 2019, according to research from S&P Global. This marked the eleventh consecutive annual dividend increase for annual dividends on the S&P 500 index.

This is due to strong performance in US companies, which expect business to improve over time. The growth in dividends was due to strong first quarter and a strong fourth quarter. While the dividend cuts received a lot of publicity, at the end of the day we ended up with record dividend incomes. 

This also means that the best dividend fund is probably still the S&P 500

In 2020, there were 423 companies on the S&P 500 that paid a dividend. It is fascinating to see that:

- 287 companies raised dividends

- 11 companies initiated dividends

- 27 companies cut dividends

- 42 companies suspended dividends

You can see the performance by sector broken out in the chart below:

It is fascinating to look at how the S&P Dividend Aristocrats did in 2020.

There were 61 dividend increases, and only two dividend cuts and one dividend suspension. The dividend suspension was from Ross Stores (ROST), which had just joined the index at the beginning of 2020.

The dividend cuts were from Amcor (AMCR) and Raytheon Technologies (RTX). Raytheon Technologies was formed when dividend aristocrat United Technologies (UTX) merged with Raytheon (RTN), and then spun off Otis Elevator (OTIS) and Carrier Global (CARR).

The S&P committee also points out to two dividend initiations for the dividend aristocrats index, notably Otis (OTIS) and Carrier Global (CARR).

There were five companies that failed to increase dividends in 2020. If they don't raise dividends anytime by 2021, they would be kicked out of the index. The companies include:

AT&T (T)

Caterpillar (CAT)

Exxon Mobil (XOM)

Leggett & Platt (LEG)

Sysco (SYY)

You can view all the dividend actions year to date below:

You can also view it by sector below:

As I discussed in a previous post, I disagree with the way they handled the transaction where United Technologies spun-off Carrier and Otis. That’s because, based on spin-off weights, it looks like Raytheon Technologies actually increased dividends. Based on pre-spin-offs weights, it looks like Carrier and Otis are not pulling in their weight. In other words, these two companies are paying less than what they would have paid if United Technologies had not done any breakups. Yet, the company that actually ended up raising dividends, and which actually created the long record of annual dividend increases ended up being booted off the S&P Dividend Aristocrats index. It makes no sense that the two spin-offs would be kept due to the record of the original company, but the original companies is booted off because the spin-off itself it is treated as a dividend cut. My head is spinning just thinking about it.

Overall, United Technologies shareholders received less dividends with all the spin-offs than before. Now if you want to treat the whole thing as a dividend cut, that would be logical. But do not treat the original company with the track record as a cut, but the spin-offs that just initiated dividends as dividend aristocrats.

Anyway, my issue is that the S&P committee is not treating spin-offs consistently. In 2007, Altria was kicked off the Dividend Aristocrats list after it spun-off Kraft foods. However, in 2013 they kept both Abbott and Abbvie after the original Abbott Labs split into two companies.

I also disagree with the Dividend Aristocrats committee in adding Amcor (AMCR). It looks like Amcor acquired Bemis in 2019. Bemis had a 36 year track record of annual dividend increases. It is unclear why the acquirer would be treated as a dividend aristocrat and inherit the dividend track record of the acquired company. Looking at Amcor's dividend history, it looks like they cut dividends in 2019, as the quarterly payment went from 12 cents/share to 11.50 cents/share.

Somehow in April, The S&P committee is showing that the annual dividend decreased from 47 cents/share to 46 cents/share. That makes no sense, because the quarterly payment was 11.50 cents/share, which means that the annual payment should have been 46 cents/share to begin with.

Perhaps someone at S&P added the two payments in 2019 together ( 12 cents/share + 11.50 cents/share), then averaged them up to 11.75 cents/share, and annualized it to 47 cents/share. Then, when they saw the first payment of 11.50 cents/share in 2020, they annualized it, and declared that the dividend was cut.


This is Amcor's dividend history since 2019:



I would stop my ramblings now. I will update the dividend aristocrats list in 2020 in a few weeks, but I have always stated that the Dividend Champions list is more extensive. It is best reviewed together with the list of dividend champions. I still like a lot of the companies on the aristocrats list, and find many of them to be of higher quality. It is also easier to learn about 65 dividend aristocrat companies than 138 dividend champions.

Either way, it is fascinating to see that strong dividend payments continued in 2020, despite the global pandemic, economic turbulence and high unemployment. It makes me wonder how much higher we would have been if Covid-19 was contained.

Relevant Articles:

- Index Fund Investors are Closet Dividend Growth Investors

Dividend Aristocrats List for 2020

Dividend Champions List for 2021

Dividend Kings List for 2021

Dividend Aristocrats Keep Performing Well in 2020

What should I do about Raytheon and its spin-offs?

Tuesday, December 29, 2020

Dividend Champions List for 2021

 A dividend champion is a company which has a 25 year record of annual dividend increases. There are only 134 such companies in the US today. I believe that becoming a dividend champion is no accident, and it is a result of a strong business that has generated earnings growth for a long period of time. These are the types of businesses I like to study, and potentially consider at the right time for my dividend portfolio. I believe that the dividend champions list offers a more complete picture than the dividend aristocrats.

I first posted the annual list of dividend champions through December 31, 2018. I decided to update the list of dividend champions after the untimely passing of David Fish in May 2018

Last year, I shared with you the Dividend Champions list for 2020. You can download the 2020 Dividend Champions List from this link.

This year, I decided to make an annual update as well. I decided to keep it simpler this time, and kept the data per each company to a minimum. You can download the 2021 Dividend Champions List from this location.

As a starting point, there were 134 companies on the dividend champions list at the end of 2019.

There were five companies that ended up leaving the Dividend Champions list in 2020. These companies all managed to cut  or suspend dividends. The list includes:

- Helmerich & Payne (HP) (47 years)
- Meredith Corp (MDP) (26 years)
- Tanger Factory Outlet (SKT) (26 years)
- Urstadt Biddle Properties (UBA) (26 years)
- Ross Stores (ROST) (25 years)

The number in brackets is the number of year of consecutive annual dividend increases for each of these five companies.

There were nine companies added to the list in 2020. These companies achieved dividend champion status by raising dividends to shareholders for 25 years in a row. The companies include:

Artesian Resources                 (ARTNA)
First of Long Island Corp. (FLIC)
International Business Machines (IBM)
Lincoln Electric Holdings (LECO)
NextEra Energy Inc.         (NEE)
New Jersey Resources         (NJR)
Polaris Industries                 (PII)
RenaissanceRe Holdings (RNR)
Southside Bancshares         (SBSI)

One company changed its name and ticker from (WTR) to (WTRG)

Essential Utilities Inc.         (WTRG)

Another company, United Technologies (UTX), had two spin-offs in 2020 - Carrier (CARR) and Otis (OTIS). Next, it merged with Raytheon  to form Raytheon Technologies (RTX). Overall, shareholders in United Technologies experienced a dividend cut, but mostly due to the dividend policy in its spun-off subsidiaries. As a result, I am keeping Raytheon Technologies (RTX) as a dividend champion. The S&P Dividend Aristocrats are keeping Carrier and Otis as aristocrats, and assigning the dividend record of United Technologies to them. At the same time they are treating Raytheon Technologies as a dividend cut. This doesn't make much sense to me from a consistency perspective.

All of this brings the list of dividend champions to 138 companies by the end of 2020. You can download the list from here.




There are a few companies such as AT&T (T) or Exxon Mobil (XOM), which may lose their status in 2021 because they failed to raise dividends this year. If the dividend is kept unchanged, chances are the company will lose its dividend champion status.

Thank you for reading!

Relevant Articles:

Dividend Champions, Contenders & Challengers: The most complete list of US dividend growth stocks available
October 2018 Dividend Champions List
December 2018 Dividend Champions List
RIP David Fish

Monday, December 28, 2020

Keeping Investing Fees Low Matters

Warren Buffett is one of the most successful investors in the world. He is the chairman and controlling shareholder of Berkshire Hathaway, which he acquired in 1965.

The nice thing about Buffett is that he always treated his investors fairly. As a Chairman and CEO of Berkshire Hathaway he has earned an annual salary of $100,000/year. This is nothing, in comparison to high cost mutual fund managers or high cost hedge fund managers. You could have benefitted from the investment success of Warren Buffett for mere peanuts. The reason perhaps is because he had skin in the game, and the majority of his net worth is tied into the success of Berkshire Hathaway. This aligns Buffett’s interest with the interests of ordinary shareholders.

As investors, we can only focus on tools within our control to give us the best edge in success. These factors include our savings rate, selecting the right investing strategy, sticking to this strategy, maintaining a long-term investment horizon, learning constantly and keeping investment costs low.

The more fees you pay each year, the less money you have to compound for you. Unless you are paying for an exceptional investment manager, it is simply not worth it. 

For example, in the hedge fund industry we have the standard formula of 2 and 20. 

This means that if you invest with a hedge fund manager, they will charge you a 2% annual fee and take 20% of any investment gains your portfolio generates. This is highway robbery.

In the words of Terry Smith, Two and Twenty does not work, and is unsupportable.

I am not so much shocked as flabbergasted by the number of people who do not realize the impact of these performance-fee structures. I am not talking here about the fact that such a performance-fee structure clearly led many fund managers to gear up their funds as much as the credit bubble allowed and place bets which many attendees at Las Vegas would regard as outrageous, knowing that they had little or no downside and 20% of the upside.

I have had discussions with numerous professionals in sophisticated jobs in the investment industry who are either unaware of or disbelieve the mathematics of what I am about to demonstrate.

Let’s illustrate with a simple example from Terry Smith’s book “Investing for Growth”

If you had invested $1,000 in Berkshire Hathaway in 1965, your investment would be worth $4.3 million by 2009. Buffett’s company compounded your capital at 20.46%/year. 

If Warren Buffett had set up Berkshire Hathaway as a hedge fund however, he would have charged you 2% per year and gathered 20% of any annual gains. If you had the same performance numbers, your $1,000 would have only grown to $396,000 by 2009. Only $396,000 would belong to you, the investor. This means that of the $4.3 million that you would have earned without fees, $3.9 million would belong to the hedge fund manager. This of course is the result if your hedge fund manager had a performance that is as great as Warren Buffett’s. Most hedge funds do not generate good returns for investors. They only generate good returns for the hedge fund managers, because of their outrageously high fees.

Very few people understand the impact of investment fees on their returns. These fees compound over time, and rob you of a huge chunk of your investment potential. You as the investor are coming up with all the capital, and bearing all the risk. Yet, the hedge fund manager is getting most of the upside.

This is the reason why Warren Buffett made his famous bet with a hedge fund manager in 2007, stating that it won’t beat S&P 500. The reason why the hedge funds did not beat S&P 500 is due to the high impact of fees.

Buffett did run an investment partnership between 1956 and 1969 however, which was essentially a hedge fund. However, it only charged fees if Buffett earned a return that was higher than 6%. In effect, Buffett earned 25% of returns above an annual return of 6%. He definitely understands how fees helps investment managers earn a lot of money, because his partnership like hedge fund managed to turn $100 in 1956 to $20,000,000 by 1970. I discussed this in this article on Buffett Partnership. The whole partnership had approximately $100 million in assets by the time it was dissolved in 1970.

Buffett's net worth would likely be at least a couple hundred billion dollars today if he had structured Berkshire as a hedge fund, and taken a lions share of profits in the form of performance fees.

That being said, Buffett's fees were more fair than the fees imposed by your typical hedge fund today. That's because Buffett generated amazing performance, and he only charged a fee if he earned more than 6%/year. It is still fascinating however to see how fees compound and can eat a large portion of investment returns.

The other fascinating fact is that even if Buffett charged a 2% and 20% to run Berkshire, he would have still done better than S&P 500. A $1,000 investment in S&P 500 in 1965 would have turned to $54,900 by 2009, versus $396,000 for the investor in a Berkshire that was ran as a hedge fund.

The conclusion of this article is that keeping fees low matters. This is where being a do-it-yourself investor is an advantage, because you do not have a high fee mutual fund or hedge fund manager taking money from you each year.

Relevant Articles:

How Warren Buffett built his fortune

Buffett Partnership Letters

Use these tools within your control to get rich

Tuesday, December 22, 2020

Dividend Kings List for 2021

A dividend king is a company that has managed to increase dividends to shareholders for at least 50 years in a row.

There are only 30 such companies in the US, and perhaps a couple more in the rest of the world. It is not a small achievement to have been able to reward long-term shareholders with a dividend raise for over half a century.

Over the past 50 years, some calamities experienced include:

- Seven Recessions since 1967
- The Vietnam War
- The oil crisis in the 1970s
- Stagflationary 1970s
- Double digit interest rates in the 1980s
- Fall of the Soviet Union in 1991
- 9/11 in 2001
- The Dot-com bubble bursting in 2000
- The housing bubble bursting in 2007 - 2008
- ZIRP and NIRP since 2009

- The Covid-19 Pandemic


Throughout this calamity each of those businesses managed to grow earnings, and raise the dividend to their long-term shareholders. If you are looking for a long-term shareholder base, the best way to build it is by paying those owners more every single year. This is a simple, but novel idea for corporations to embrace.

We had two new additions to the list in 2020. There were no companies that left the list. These actions brought the number of companies to 30, from 28 at the end of 2019. This is a record since we started tracking the list of dividend kings in 2010.

When I first came up with the idea for the list of dividend kings in 2010, there were only eleven companies on it. While our 2020 list includes 30 companies, 

Last year, I had to remove Target, since its streak of annual dividend increases was only 49 years. I am pretty confident that the retailer will hit 50 years in a row by next year. Other websites show Target as a dividend king, when its press releases and the dividend history on its website show a 49 year track record of annual dividend increases.

The new addition for the current year include:

Black Hills Corp (BKH)
MSA Safety (MSA)

These were consistent with my predictions from last year. It is a testament to the predictable nature of their businesses, not in my forecasting abilities.

I expected to add National Fuel Gas (NFG) for this year's list. However, upon further research, I realized that it has only raised dividends for 49 years in a row. That's because the company failed to raise dividends in 1970.

I did some research on historical changes of the Dividend Kings list, which you may find interesting. I reviewed the evolution of the dividend kings prior to 2007 in the article, which has not been done by anyone else. 

Since 2010, there have been only two companies that have left the list. One, Vectren (VVC) was acquired. The second, Diebold (DBD), kept dividends unchanged, but ultimately ended up cutting them.

The companies in the 2020 dividend kings list include: 

Note: The prices and yields are as of November 30, 2020

Company Name

Symbol

Sector

Years Dividend Increases

10 Year Annualized Dividend Growth

Dividend Yield

Share Price

ABM Industries Inc.

ABM

Industrials

53

3%

1.92%

      38.50

American States Water

AWR

Utilities

66

9%

1.82%

      73.82

Black Hills Corp.

BKH

Utilities

50

4%

3.72%

      60.83

Commerce Bancshares

CBSH

Financials

52

6%

1.64%

      65.96

Cincinnati Financial

CINF

Financials

60

4%

3.14%

      76.35

Colgate-Palmolive Co.

CL

Consumer Staples

57

7%

2.06%

      85.64

California Water Service

CWT

Utilities

53

3%

1.72%

      49.48

Dover Corp.

DOV

Industrials

65

9%

1.62%

    122.03

Emerson Electric

EMR

Industrials

64

4%

2.63%

      76.82

Farmers & Merchants Bancorp

FMCB

Financials

58

3%

2.06%

    726.96

Federal Realty Inv. Trust

FRT

Real Estate

53

5%

4.86%

      87.22

H.B. Fuller Company

FUL

Materials

51

9%

1.24%

      52.33

Genuine Parts Co.

GPC

Consumer Discretionary

64

7%

3.21%

      98.37

Hormel Foods Corp.

HRL

Consumer Staples

54

16%

2.08%

      47.18

Johnson & Johnson

JNJ

Health Care

58

7%

2.79%

    144.68

Coca-Cola Company

KO

Consumer Staples

58

7%

3.18%

      51.60

Lancaster Colony Corp.

LANC

Consumer Staples

58

9%

1.77%

    169.33

Lowe's Companies

LOW

Consumer Discretionary

58

19%

1.54%

    155.82

3M Company

MMM

Industrials

62

11%

3.40%

    172.73

Altria Group Inc.

MO

Consumer Staples

51

10%

8.64%

      39.83

MSA Safety Inc.

MSA

Industrials

49

6%

1.15%

    149.44

Nordson Corp.

NDSN

Industrials

57

15%

0.77%

    203.81

Northwest Natural Gas

NWN

Utilities

65

2%

4.01%

      47.92

Procter & Gamble Co.

PG

Consumer Staples

64

6%

2.28%

    138.87

Parker-Hannifin Corp.

PH

Industrials

63

13%

1.32%

    267.26

Stepan Company

SCL

Materials

53

9%

1.05%

    116.16

SJW Corp.

SJW

Utilities

53

6%

1.95%

      65.60

Stanley Black & Decker

SWK

Industrials

53

8%

1.52%

    184.31

Tootsie Roll Industries

TR

Consumer Staples

52

4%

1.16%

     30.97



There are eight companies which are set to potentially join the elite list of dividend kings by the end of 2020. These companies have a 49 year record of annual dividend increases:

National Fuel Gas (NFG)
Illinois Tool Works (ITW)
Target (TGT)
Universal Corp (UVV)
Becton Dickinson (BDX)
W.W. Grainger (GWW)
PPG Industries (PPG)
Tennant (TNC)

A few companies like Target and Illinois Tool Works will be ready to join in 2021. Same goes for Universal Corp.

This track record is a testament to the stability of the underlying businesses that generated the earnings growth necessary to grow the dividend for half a century (and longer). This track record is an indication of a business that is relatively immune to outside shocks. This resilience throughout the period manifests itself into the long stretch of dividend increases, spanning over half a century.

While these companies are not investment recommendations, I post them as examples for further study by serious dividend investors. Studying the businesses, their industries, could give you clues as to the type of business that can flourish over a half of a century.

The chart below shows the historical performance of the Dividend Kings list since 2007. I will update the data by the end of 2020.

If you had invested an equal amount in the dividend kings list starting at the end of 2007, and made updates along the way, along with re-balancing annually to an equal weighted position, you would have done well. The dividend kings list did better than S&P 500 over time, although it did not best it every single year.






As I mentioned above, I have been compiling the list of dividend kings since 2010. To view the historical changes in the list, please follow the links below:

Dividend Kings List For 2019








Thank you for reading!

PS Note that Parker-Hannifin's track record is based upon dividend payments for its Fiscal Year rather than the Calendar Year. The fiscal year runs from July 1 to June 30.

Therefore, the FY 2015 dividend was $2.37/share ( one dividend payment of 48 cents/share plus three dividend payments of 63 cents/share).
The FY 2016 dividend was $2.52/share ( four dividend payments of 63 cents/share)
The FY 2017 dividend was $2.58/share ( two dividend payments of 66 cents/share plus two dividend payments of 63 cents/share)

Because of the use of Fiscal Years, rather than Calendar Years, I excluded Parker - Hannifin from the first list of dividend kings that I compiled in 2010.

Update: 06/17/2018

In early 2018 I listed Target as a dividend king incorrectly with a 50 year history of annual dividend increases. Upon reviewing the dividend history for Target on the company’s investor relations website, I agree that it has only managed to boost distributions for 49 years in a row ( which is not a small achievement either). Therefore, I am downgrading it back to dividend champion status. Hopefully in three years it can become a dividend king. The lesson for this paragraph is to trust, but always verify the numbers you see. In addition, you should always do your own research and only invest in what makes sense for you. Blindly following others is frequently a mistake

Note 01/14/2021 - I had originally listed Sysco as dividend king. Upon further review of their dividend history, I realized they only have 44 years of consecutive annual dividend increases under their belt. They would be eligible for inclusion in 2026. They kept dividends unchanged in 1975 and 1976.

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