Thursday, June 3, 2021

How Ronald Read managed to accumulate a dividend portfolio worth $8 million

Dividend investing is as sexy as watching paint dry on the wall. Defining an entry criteria that selects quality dividend stocks with rising dividends over time and then patiently reinvesting these dividends while sitting on your hands is not exciting. While active traders have a plethora of hedge fund managers on the covers of Forbes magazine there are not many well-publicized successful dividend investors. Even value investing has its own superstars – Ben Graham and Warren Buffett.

I did some research and uncovered several successful dividend investors, whose stories provide reassurance that the traits of successful dividend investing I outlined in a previous post are indeed accurate.

The reason why dividend investors are not highly publicized is because dividend investing is not sexy enough to be featured in the financial mainstream media. In addition to that, it is not profitable for Wall Street to sell you into the idea that ordinary investors can invest on their own. This is why you have advisors crying wolf over the fact that you are paying 15% tax on your dividend income, while charging clients 1%/year on assets under management, and investing that money in a mutual fund that costs an additional 1%/year. Mutual funds, annuities and other products generate billions in commissions for Wall Street, despite the fact that they might not be in the best interest of small investors.

The dividend investor to profile today is Ronald Read, who left an $8 million fortune behind when he passed away in 2015. What's fascinating about him is that he never earned a high income, because he worked as a gas station worker or a janitor. 

I find this story to be very inspiring, because it showed how an ordinary person who never earned a high income was able to amass a dividend portfolio worth $8 million by the time of his death. The portfolio was generating close to $20,000 in monthly dividend income on average. This portfolio was a result of frugality, hard work, and ability to buy stocks to hold for decades, while patiently reinvesting dividends.

When Ronald Read died at the age of 92 in 2014, he left a dividend portfolio worth $8 million to charity and his children. That story shows that Ronald Read earned close to $20,000 in monthly dividend income from this diversified portfolio of 95 blue chip securities. They were spread across a variety of sectors, including railroads, utility companies, banks, health care, telecom and consumer products. He avoided technology stocks. It looked like Mr Read invested solely for dividend income, and his portfolio was well put together. Besides being a good stock picker, he displayed remarkable frugality and patience which gave him many years of compounded growth.



Ronald Read didn't have a finance degree, nor an MBA, but was an ordinary Joe who managed to save and invest for the long term. The story is appealing to me because it shows that investors who pick quality blue chip stocks to hold for decades, and reinvest those dividends patiently, can accumulate a sizeable portfolio over time. The important trait is patience. I follow the same slow and steady approach to long term dividend investing as Ronald Read.

Attached below is a list of Ronald Read's largest portfolio holdings:


Mr. Read left behind a five-inch-thick stack of stock certificates in a safe-deposit box. Owning the stock directly is old school, but it also reinforces the behavior to buy and hold equity stakes in solid blue chips. 

Among his longtime holdings were blue-chip stalwarts such as Procter & Gamble, J.P. Morgan Chase, General Electric and Dow Chemical. When he died, he also had large stakes in J.M. Smucker, CVS Health and Johnson & Johnson. He was able to stick to his securities for many years. Not all of his securities worked out, but did pretty well in the end. For example, his portfolio included shares of Lehman Brothers Holdings, the financial firm that collapsed in 2008, for example. 

One example of a long-term investment was buying 39 shares of Pacific Gas & Electric on Jan. 13, 1959 for $2,380. Adjusting for stock splits, these shares would have been worth $10,735 at te time of his death. He ended up owning 578 shares in all of PG&E, worth just over $26,500, some of which he may have purchased with the dividend payments made to shareholders.

He researched his ideas thoroughly, reading business publications such as Wall Street Journal, going to the library, and chatting about investments with close friends.

Ronald Read's success was dependent on several important factors:

1) Stay frugal and live within your means
2) Invest savings at a high rate of return for a long period of time
3) Invest in companies with durable competitive advantages with a long runway
4) Stay patiently invested for decades, without selling
5) Keep reinvesting those dividends along the way

This dividend investor managed to turn small investments into a cash machine that generated large amounts of dividends. He was able to accomplish this through identifying quality dividend growth companies at attractive valuations, patiently reinvesting distributions and mostly maintaining a diversified portfolio of stocks. These are the lessons that all investors could profit from.





14 comments:

  1. Thanks for sharing this story and example.

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  2. Its been a few years since i have seen his name out there, but i like this story and try to direct people into reading up on him. Probably in some ways a person with whom I could relate to. Another nice tribute to a man that lived his life the way he wanted to, and wasn't worried that his neighbors had nicer "things" which all will wind up in a junk pile one day... A person who had no problem being probably labeled, " that weird dude" over there...

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    1. I think that Mr Reed lived a perfectly normal and happy life. He lived at his own terms. He happened to invest that money prudently in dividend blue chips, and ended compounding money for a long time, and thus, ended with a large nest egg.

      I believe that a lot of the stories about his frugality are mere anecdotes to help the large portion of the population comprehend how someone on a low income can amass such a fortune

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  3. Love the story. He was only married for ten years. He controlled the spending for about 62 years of his adult life. Game changer!

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    Replies
    1. Yes, and his wife's passing may have been traumatic too.

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  4. Hi, DGI, if I'm not mistaken, you have never discussed voting during shareholder meetings. Do you regularly vote during meetings of your holdings? What are your thoughts on this?

    ReplyDelete
    Replies
    1. I generally do vote, though not all the time. It takes a minute per company really, as it's all online.

      I am a small investor however, so I don't think that my vote really counts. Even if I had 10,000 shares of say JNJ ( I don't), it would be a large amount for me, but a small fish in the grand scheme of things.

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  5. Thank you very much for this post and story. I remember my Mom telling me this story when I was a little kid

    Now I know his name: Ronald Read. As an investor starting out in my 20s he is an inspiration. Cheers to Ronald

    Also, just stunbled on your blog via this article. Like what Im seeing keep it up!!

    ReplyDelete
    Replies
    1. Welcome to the blog!

      You may enjoy the archives: http://www.dividendgrowthinvestor.com/2013/03/complete-list-of-articles-on-dividend.html

      Delete
  6. Thank you for another great article. I read every one of yours to find inspiration for my own strategies.

    Maybe not related to this particular topic but what do you think about A&T at the moment? Taking into account the recent decision to spin off Warner Media as separate company and reducing its debt (even when reducing its 7% dividend) in the process, would you consider it as a good dividend investment stock?

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    1. I have a small position in AT&T. I am holding for now, as the dividend will likely be kept until Mid 2022. I am taking dividends in cash for it.

      I may hold through the spin-off, which I think would unlock value. I just need to be aware that this spin-off transaction may cost money at my broker

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  7. I often times see people asking on Reddit if dividend investing is worth getting into if the person in question is young, like 18. Of course I always make the argument that that’s the best time to get started. But there are so many people who don’t see the worth or value, and I think the reason is because of what you mentioned in the article: it isn’t “sexy”. It isn’t “fun”.

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    1. I am a big fan of long-term investing, because I know it works. I am not a fan of active trading, but I pray that people who do that end up ok!

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