Dividend Increases for the Dividend Aristocrats in 2022

The Dividend Aristocrats Index is a list of S&P 500 companies that have managed to increase dividends for at least 25 years in a row. It is an elite group of quality companies which have managed to grow earnings, compound shareholder wealth and raise annual dividends for decades. It is a great list of companies for further research. Companies do not just raise dividends every year for over a quarter of a century by accident - this is a result of having strong competitive advantages in an industry, and the ability to grow the business, while also generating a ton of excess cashflows to shower shareholders with more cash each year.

I went ahead and reviewed the raises behind all the 64 dividend aristocrats. I have compiled them in the table below. You can see the full list of 2022 dividend increases for the dividend aristocrats below:

You can download the list from here.

The average dividend raise was 6.50%. Note that the table above compares the annualized dividend amounts. It shows the sector, company name, symbol and month in which the dividend was increases.

You can view the ten largest dividend increases for 2022 below:

You can also view the ten smallest dividend increases for 2022 below:

For comparison purposes, you can view the same data for 2021:

You can download 2021 list it from here.

These were the ten largest raises for the dividend aristocrats in 2021:

These were the ten smallest raises for the dividend aristocrats in 2021:

I had already posted the changes in dividend growth for the 2020 Dividend Aristocrats here.

Note that I am presenting this data for educational purposes. I believe that by observing this, I may be able to connect the dots and identify exploitable patterns going forward. I would be sharing those in future posts here or on my premium newsletter. 

Relevant Articles:

- Dividend Aristocrats for 2022

- 24 Dividend Aristocrats For The Next 24 Years

- Where are the 2007 Dividend Aristocrats today?

- 2020 Was a Record Year For Dividends

Where are the Twelve Original Dow Jones Companies from 1896?

The Dow Jones Industrials Average Index was launched in 1896 with 12 companies. It has tracked the performance of leading US companies for over 125 years.

In 1916 it increased to 20 stocks and in 1928 to 30 stocks.

Where are the original 12 companies today?

I went ahead and used the 2013 edition of "Stocks For the Long Run" and data from Global Financial Data through 2020 to trace the histories of each company. Enjoy!

American Cotton Oil became Best Food in 1923, Corn Products Refining in 1958, and finally CPC International in 1969—a major food company with operations in 58 countries. In 1997, CPC spun off its corn-refining business as Corn Products International and changed its name to Bestfoods. Bestfoods was acquired by Unilever in October 2000 for $20.3 billion. Unilever (UN), which is headquartered in the Netherlands, has a current market value of $115 billion. (as of 2013)

American Sugar became Amstar in 1970 and went private in 1984. In September 1991 the company changed its name to Domino Foods, Inc., to reflect its world-famous Domino line of sugar products.

American Tobacco changed its name to American Brands (AMB) in 1969 and to Fortune Brands (FO) in 1997, a global consumer products holding company with core businesses in liquor, office products, golf equipment, and home improvements. American Brands sold its American Tobacco subsidiary, including the Pall Mall and Lucky Strike brands, to one-time subsidiary B.A.T. Industries in 1994. In 2011 Fortune Brands changed its name to Beam Inc (BEAM), which operates as a distribution company in the spirits industry. The market value is $9 billion. (as of 2013)

Chicago Gas became Peoples Gas Light & Coke Co. in 1897 and then Peoples Energy Corp., a utility holding company, in 1980. Peoples Energy Corp. (PGL) was bought by WPS Resources and changed its name in 2006 to Integrys Energy Group (TEG). It has a market value of $4.1 billion. PGL was a member of the Dow Jones Utility Average until May 1997.

Distilling & Cattle Feeding went through a long and complicated history. It changed its name to American Spirits Manufacturing and then to Distiller’s Securities Corp. Two months after the passage of Prohibition, the company changed its charter and became U.S. Food Products Corp. and then changed its name again to National Distillers and Chemical. The company became Quantum Chemical Corp. in 1989, a leading producer of petrochemicals and propane. Nearing bankruptcy, it was purchased for $3.4 billion by Hanson PLC, an Anglo-American conglomerate. It was spun off as Millennium Chemicals (MCH) in October 1996. Lyondell Chemical (LYO) bought Millennium Chemicals in November 2004. In 2007 Lyondell was taken over by the Dutch firm that renamed itself Lyondell Basell Industries (LYB). The current market value of Lyondell Basell is $28 billion. (as of 2013)

 

General Electric (GE), founded in 1892, is the only original stock still in the Dow Industrials. GE is a huge manufacturing and broadcasting conglomerate that owns NBC and CNBC. Its market value of $218 billion is the third-highest capitalization stock in the United States. (as of 2013)

Laclede Gas (LG) changed its name to Laclede Group, Inc., and it is a retail distributor of natural gas in the St. Louis area. The market value is $900 million. (as of 2013)

National Lead (NL) changed its name to NL Industries in 1971, and it manufactures products relating to security and to precision ball bearings, as well as titanium dioxide and specialty chemicals. The market value is $520 million. (as of 2013)

North American became Union Electric Co. (UEP) in 1956, providing electricity in Missouri and Illinois. In January 1998, UEP merged with Cipsco (Central Illinois Public Service Co.) to form Ameren (AEE) Corp. The market value is $72 billion. (as of 2013)

Tennessee Coal and Iron was bought out by U.S. Steel in 1907, and it became USX-U.S. Steel Group (X) in May 1991. In January 2002, the company changed its name back to U.S. Steel Corp. U.S. Steel has a market value of $3 billion. (as of 2013)

U.S. Leather, one of the largest makers of shoes in the early part of this century, liquidated in January 1952, paying its shareholders $1.50 plus stock in an oil and gas company that was to become worthless.

U.S. Rubber became Uniroyal in 1961, and it was taken private in August 1985. In 1990 Uniroyal was purchased by the French company Michelin Group, which has a market value of $15 billion. (as of 2013)

Conclusion:

This is fascinating to me for several reasons.

First, it is fascinating to trace how a group of select individual corporations have done over a long period of time. There may be some lessons to be applied in the construction of our own portfolios. It is fascinating to see how many companies have survived in one form or another today, and have made money to investors. That also does not include dividends, which would have further turbocharged results.

Second, I have always wanted to test how an investor in US equities in 1896 would have done, if they had followed the coffee can approach to portfolio construction.

Imagine a situation where passive investor had selected an equal weighted portfolio of each of those 12 companies in 1896, and donated them to a charitable institution. They asked the foundation to never sell any stock and to never re-balance. That charity would have been set for 125 years. It would have been able to "live off dividends" in a way, and provide value to those in need for a long period of time, while also enjoying growth in assets under management. 

Third, it is fascinating to trace further how much change there has been in the past decade, since that was posted in 2013. Some folks have extrapolated that change into stating that everything is subject to creative destruction. I believe that companies are more stable and adaptable than the popular narratives today. 

A company may die in a certain period of time, but in the meantime, it may spin-off assets that would thrive and/or it would pay dividends along the way. A company may also get acquired before it meets its maker, which prolongs the shareholding of stockholders. 

A company may also add or remove subsidiaries, merge with and spin-off companies. It may benefit from creative disruption and technological changes, or it may have the type of business that serves a basic human need that may last a while.

Relevant Articles:

- The Coffee Can Portfolio

- Time in the market is your greatest ally in investing

- The Perfect Dividend Portfolio

Stocks that leave the Dow tend to outperform after their exit from the average

Note: Article was originally posted in August 2020

The Dow Jones Industrials average is the oldest continuously updated stock index in the US. It was launched in 1896 by Charles Dow, who included 12 companies. The number of companies was later increased to 20 and finally in 1928 the number was increased to 30 companies.

It tracks the performance of 30 blue chip companies, which are representative of the US economy. Its holdings are selected by a five-member index committee at Standard & Poor’s/Dow Jones. This committee is basically comprised of the best stock pickers in the world, since they have managed to do better than most mutual fund managers and individual investors. They have done better than Buffett over the past 10 – 15 years as well.

The index made news in August 2020, when it was announced that it would drop three members of the index, following the stock split in Apple’s shares. Since the index is weighted by the share prices of its components, Apple’s stock split reduced it technology exposure.

As a result, the index committee is replacing Exxon Mobil (XOM), Pfizer (PFE) and Raytheon (RTX) with Salesforce.com (CRM), Honeywell International (HON) and Amgen (AMGN).

A lot of investors believe that indices such as Dow Jones do better over time, because of new members. In reality, the opposite has been the case.

I recently read a study that shows how the companies that have been deleted from the Dow Jones Industrials Index between 1929 and 2006 have actually done much better than the companies that were added to the index. The study is titled " The Real Dogs of the Dow"

This study reminded me of the study of the original 500 members of the S&P 500 from 1957. This study had found that if someone had only invested in the original 500 members of the S&P 500 from 1957, they would have done better than the index themselves. That's because the companies that were added did worse than the companies that were removed from the index. You may read more about this study and my analysis here.

This study also reminded me of the Corporate Leaders Trust, a mutual fund that was started in 1935 with a portfolio of blue chip stocks that stayed constant in time. This mutual fund did better than S&P 500 since the 1970s. You can read my review of the Corporate Leaders Trust here.

This is due to the principle of reversion to the mean. The reversion to the mean hypothesis states that companies taken out of the Dow may not be in as bad of a situation as expected. It also suggests that the companies that replace them may not be as great as their current record suggests.

As a result the stock of the deleted company may be too cheap, while the stock of the added companies may turn out to be too expensive. As a result, companies that were deleted from the Dow may deliver better results than companies that were added to the Dow.

This is somewhat counter-intuitive. But it makes sense. The companies that are likely to be deleted are the ones that have suffered for a while, and they are down on their fortunes. As a result, investor expectations are low, which means that these shares are low too, as they are priced for the end of the world. The nice thing about such companies is that if the world doesn’t end, and they do just a little bit better, they can reward their shareholders handsomely. That’s because you will likely experience an expansion in the P/E, at the same time earnings and dividends are rising too.

On the other hand, the companies that are recently added to the index tend to have done very well. They are promising companies of the future. As a result, they sell at premium valuations. However, if these companies fail to live up to their lofty expectations, their returns may suffer, because investors may be willing to pay a lower P/E multiple. If profits do not grow as expected as well, it is likely that investors would also suffer from that as well.

As I mentioned above, I found a study that analyzed the substitutions in the Dow Industrials Index between 1928 and 2005.  The results were in line with what my expectations would be based on my research on the Corporate Leaders Trust and the Performance of the Original Members of S&P 500.

Over this period, there were 50 additions and deletions. In 32 of 50 cases, the deleted stock did better than the added stock.

Figure 1 shows that, with the exception of the 1990s, the Deletion portfolio consistently outperformed the Addition portfolio over the 76-year period.

Figure 2 shows the ratio of the average deletion wealth to the average addition wealth each day over a ten-year horizon. The deleted stocks outpace the added stocks for approximately five years after the substitution date. Then their relative performance stabilizes

Table 4 summarizes the average levels of wealth for the Deletion and Addition stocks at 250- day intervals (approximately 1 year) over the five-year period following the substitution dates.

For example, the deleted stocks showed, on average, a 19.30% increase in value 250 trading days after the publication date, while the added stocks showed an average increase of only 3.37%. The differences in average wealth grow increasingly pronounced as the horizon lengthens.

The study had a fascinating conclusion.

A portfolio consisting of stocks removed from the Dow Jones Industrial Average has outperformed a portfolio containing the stocks that replaced them. This finding contradicts the efficient market hypothesis since changes in the composition of the Dow are widely reported and well known. Our explanation for this anomaly is the market’s insufficient appreciation of the statistical principle of regression to the mean, an error that has been previously identified in a variety of contexts and is no doubt present in a great many other contexts.

This is fascinating research, which spans a period of close to 80 years. The main point behind this research is reversion to the mean. Basically, a trend can only go so far, until it is reversed. It goes in both directions of course.

I went ahead and obtained a listing of all the additions and deletions for Dow Jones since 2004. I then compared the five-year performance for an investor who bought the deletions of the Dow and for an investor who bought the additions to the Dow. For companies that were bought out, I basically stopped the clock at the acquisition date.

I did not calculate anything past 2019, since the information is still new.

I present to you the data below. Again, please understand that I am one person who did this data analysis using free resources, such as dividendchannel.com. My data may be incomplete, or missing fields. I am not pulling it from an academic database, like all the other researchers.

Out of 14 substitutions, the deletions did better on only 4 occasions. The additions did better on 10 occasions. The total wealth for putting $10,000 in each deletion was $180,609 versus $227,540 for putting $10,000 in each of the additions.

The most interesting factor for me however was that since the research was published in 2005, I have found that the opposite has been the case.

In other words, the companies that were deleted did not do as well as the companies that were added to the list. Perhaps this is due to the way that things move faster these days in the globalized economy. The pace of change is faster, and the level of obsolescence is increasing as well. This just goes to show that success in investing is not going to be based on some simple formula that we can copy and paste and generate instant riches.

Another interesting piece of information relates to International Business Machines (IBM). The company was replaced by AT&T on March 14, 1939. I do not believe researchers were even able to find a reason behind the decision.

IBM did not get back into the index until June 29, 1979. At that point, the stock had increased in value by 562 times, which is incredible. AT&T stock had barely tripled over that 40-year period. You may read this excellent article on Dow Jones 22,000 point mistake.

Source: Global Financial Data

I am mentioning this part in order to show that a large portion of the 1939 – 1979 outperformance of deleted companies over the added companies could be attributed to this decision.

By the time IBM was added to the index, it stopped growing. Chrysler was removed because it was very close to going under in 1979. It would have gone bankrupt, had it not been for Lee Iacocca, and a $1.2 billion bailout by the US Government. The stock went as low as $2/share in 1979, before rebounding all the way up to $50/share before the 1987 stock market crash.

This information comes from the book " Beating the Dow".

In conclusion, based on this study, someone who bought the companies that were deleted from Dow Jones Industrials Average between 1928 and 2005 would have done better than Dow Jones Industrials Index. That's because the companies that were deleted ended up delivering a better performance than the companies that were added over this 77 year period. 

However, strategies and edges on Wall Street are not carved in stone. Things do change, either permanently or stay irrational for far longer than a follower of the strategy may remain solvent. 

For example, if you look at performance of US Stocks versus International, US Small versus Large Cap, and Value versus Growth, you can see that they are generally cyclical. Those cycles can last many decades however. These long cycles may fool market participants that they are seeing a trend. Check the charts on this article " Dividends Are The Investors' Friend"

It is also possible that the excellent results of this reversion to the mean strategy may have been due to a fluke in the 1939 removal of IBM, which turned out to be a very successful corporation. It was further compounded by the removal of Chrysler, which turned out to rebound. What happened in 1979 with Chrysler may have caused an investor to buy General Motors in 2009, believing that they would experience the same type of turnaround. However, if you bought General Motors in 2009, you lost your entire nest egg. Again, history does not repeat, it just rhymes. This is why you have to learn from history, but you also have to realize that the same thing happening twice over a span of 30 years may have a totally different outcome. 

Update: August 09, 2022

It looks like the three additions have not done as well as Dow Jones Industrials Average since August 24, 2020 (the date changes took place). 

It also looks like the three deletions did much better than Dow Jones Industrials Average since August 24, 2020:

Relevant Articles:

• The ultimate passive investment strategy
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• Time in the market is your greatest ally in investing
• Dividends Are The Investors' Friend

Twelve Companies Rewarding Shareholders With a Raise

I am a long-term dividend growth investor. I buy companies with a long streak of annual dividend increases, at the right valuation, and I hold them for as long as they do not cut dividends. I am a very patient buy and hold investor. My goal has always been to achieve a certain level of target dividend income. I invest with the end goal in mind, which is to generate that income to pay bills in retirement, and have it grow above the rate of inflation.

I have discussed before the process I follow to come up with investment ideas. One of the ways I come up with ideas is during my monitoring process. Every week, I compile the list of dividend increases, and focus on those companies with at least a ten year history of annual dividend increases. I want to focus on companies that have managed to raise their dividends through the ups and downs of an economic cycle. This gives me a better feel that these dividends are coming from a sustainable business model, not a company that simply got lucky. I want dividends I can count on, whether we have a recession or a boom.

My monitoring process around dividend increases helps me to see how existing portfolio holdings are doing. It also helps me identify new ideas for further research.

In general, I look at the dividend increase, and compare it to the rate of dividend growth during the past five or ten years. It is helpful to see how sticky the dividend growth rate really is.

Next, I look at trends in earnings per share, in order to determine if the dividend is on solid ground. Without growth in earnings per share, there is a natural limit to future dividend increases. This step is best done when I review trends in the payout ratio as well.

I also look at valuation, but I will have to tell you that valuation is more art than science. You have to look at trends in earnings and dividends, along with the valuation metrics such as P/E ratio and dividend yield. You also have to determine if those trends could last.

During the past week, there were several companies that met the criteria as discussed above. The companies include:

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.

The next step is to check each business, in order to determine if it is worth further review. I would look at ten year trends in earnings per share, dividends per share, payout ratios, shares outstanding. I would try to understand what the business does, and make an assessment if the good times would continue, so that I can expect higher earnings, dividends and intrinsic values over time. I would look at the valuation relative to earnings and dividend growth, in order to determine if the business is fairly valued, if it looks promising too. 

Companies listed include: AMGN, BEN, ENSG, FFMR, MAA, NWFL, O, PNR, TTC, WASH, WDFC, WEC

Relevant Articles:

- 22 Companies Spreading Holiday Cheers To Shareholders

- Six companies delivering value to their shareholders

- Four Companies Rewarding Thankful Shareholders With Raises

- Twelve Cash Machines Hiking Dividends Last Week

Predicting Consistently High Dividend Growth

One of my favorite investing activities is testing various ideas and then crunching numbers. I spend quite a lot of time thinking about investing from various angles.

I recently tested whether high rates of historical annual dividend growth had any predictive value.

I did that by obtaining a list of Dividend Growth Stocks with a historically high rate of annualized dividend growth as of December 2012.

The list below includes:

1) Companies that had raised annual dividends for at least 5 years in a row as of December 2012

2) Companies that had managed to grow annualized dividends by at least 10%/year, over the previous 1, 3 ,5 and 10 years

This resulted in a list of the following 83 companies below:

After that, I went ahead and checked to see how these companies did over the next decade (through November 2022).

I went ahead, and looked at companies, which had managed to grow dividends at 10%/year over the preceding decade. I included companies that continued to at least pay a dividend over the next decade, even if they didn't continue raising it every year. But it doesn't include dividend cuts

There were 33 companies that managed to grow dividends at an annualized rate of 10%/year over the preceding decade. 

Not all companies from the original 86 remained continued raising dividends each year. 

For example, CVS didn't raise dividends each year, but it still managed to grow them at an annualized rate exceeding 10%/year. 

For companies that were non US based, like Canadian National Railway, I compared subsequent dividend growth rates in US dollars. 

There were a few ticker changes (Bank of the Ozarks went from OZRK to OZK), and a few acquisitions/mergers. For example, Harris merged with L3 to form L3 Harris. The dividend record for LHX is a continuation of the dividend record for old Harris. 

The fascinating part is that only 5 companies ended up having a consistently high dividend growth exceeding 10%/year over the past 1/3/5/10 years. Those include Canadian National Railways, Fastenal, Lowes, Texas Instruments and Union Pacific.

Another group of 24 companies managed to grow dividends, albeit at dividend growth rates below 10%/year over the ten year period ending in November 2022. The average annualized dividend growth is 7.19% over the past decade, which is pretty good in my opinion. Note there were some foreign companies at the end of 2012, and their dividend growth is in US Dollars. 

Once again, there were companies that didn't raise dividends every single year. However, they still managed to grow dividends at a very good annualized pace. Example includes Deere (DE).

There were 14 companies that ended up cutting dividends over the next decade.

Only one of them ended up in bankruptcy - Carbo Ceramics.  Meredith seems to have cut dividends in 2020, but then ended up getting acquired, so my data sources are murky on the dividend growth. I am keeping it in the dividend cuts section, because that preceded the acquisition.

Teva suspended dividends in 2017, never to initiate them again (as of the time of writing).

Some of the companies that ended up cutting dividends have a negative annualized dividend growth rate - examples include Alliance Resource Partners, ConocoPhillips, Occidental Petroleum.

The surprising fact is that 5 out of the 14 companies that cut dividends, ended up having an annualized dividend growth exceeding 10%/year over the past decade. I have no idea what to make of this.

There were 10 companies that ended up getting acquired at different times throughout the decade:

Conclusion:

I believe that high rates of dividend growth are more likely to persist than not over time. 

This applies to a large group of companies however. Individual cases can vary across the board, from one company to the next. When I say over time, I mean the immediate future of the next 5 - 10 years. 

I would argue that afterward, there are a lot of pressures on dividend growth to be closer to earnings growth, which in itself is subject to competitive pressures. Even if you have a great business model, we all know that trees do not grow to the sky. It is important to be skeptical and more conservative than necessary.

Addendum:

I wanted to present the most current list of high dividend growth companies. 

These companies have managed to:

1) Increase annual dividends for five years in a row

2) They have managed to grow annualized dividends by over 10%/year over the past 1/3/5/10 years:

You can check this list in Google Drive:

22 Companies Spreading Holiday Cheers To Shareholders

As part of my review process, I evaluate dividend increases every week. This process helps me to see how my portfolio holdings are doing. It also helps me to uncover and review new candidates for my portfolio.

I look for dependable dividends from companies with a minimum ten-year streak of annual dividend increases, fueled by earnings growth. I look for dependable dividends from companies with dependable earnings, and solid competitive advantages, which I can acquire at attractive valuations.

During the past week, the following companies increased dividends to shareholders. Each company has a ten year streak of annual dividend increases. I review the latest dividend increase relative to the ten year average, and the growth in earnings per share over the past decade. Last but not least, I discuss current valuation. The companies include:

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.

The next step is to check each business, in order to determine if it is worth further review. I would look at ten year trends in earnings per share, dividends per share, payout ratios, shares outstanding. I would try to understand what the business does, and make an assessment if the good times would continue, so that I can expect higher earnings, dividends and intrinsic values over time. I would look at the valuation relative to earnings and dividend growth, in order to determine if the business is fairly valued, if it looks promising too. 

Companies listed in this post include: ABM, ABT, AMT, ARE, AVGO, AXS, BCPC, BMY, CUBE, ECL, EIX, ERIE, INDB, MA, PFE, SEIC, SYK, TEL, THG, TRN, WM, ZTS

Relevant Articles:

- Six companies delivering value to their shareholders

- Four Companies Rewarding Thankful Shareholders With Raises

- Twelve Cash Machines Hiking Dividends Last Week

- 13 Dividend Growth Stocks Rewarding Owners With A Raise

The best investors in the world are dead

A few years ago, I read about a study conducted by Fidelity on its client brokerage accounts. The study tried to identify the best performing investors at the brokerage, by reviewing account returns.

They came to a stark discovery – the best investors were either dead or had forgotten to log on to their accounts for a long period of time. Perhaps they forgot their passwords, and got locked out of their accounts, but didn’t bother resetting them.

It makes intuitive sense that accounts where investors do little trading would do better than accounts that are more active.

There are several reasons why that would make sense:

1) When you buy and sell stocks often, you incur costs. 

Back in the day, you had to pay a commission to buy and to sell a stock. If you do that enough times, you can be out of some serious cash. Even if you lose 1% of your portfolio value to commissions and fees each year, that could eat away a sizeable chunk of returns over time. Costs compound over time, but unfortunately not in your favor. Plus, when you buy and sell stock, you end up losing a little bit on the buying and selling, because you buy at the ask price and sell at the bid price. The difference varies from company to company, but it also adds up over time. We are not even going to discuss taxes, which can eat up a portion of returns, especially if you invest in a taxable account.

2) When you buy and sell stocks too, you often pay an opportunity cost as well. 

I have read some academic research that showed how companies that investors have sold tended to do much better than the companies the investor replaced them with. For example, if you sold Johnson & Johnson (JNJ) in the year 2000, you missed out on a stock that returned several times its original cost. 

If you replaced it with a tech flyer like Nokia for example, you ended up losing money, and missing out on Johnson & Johnson. If you had simply sat tight, you would have actually made money. That difference between what you could have achieved by patiently holding on to Johnson & Johnson and the actual result from buying Nokia in 2000 is your opportunity cost. Some may call this behavioral cost as well. Chasing what is hot, which is what following Nokia or other red hot tech darlings were in 1999 – 2000 was a big cost to investors.

3) Behavior costs are costly

I have personally fallen for behavioral costs. I have seen companies that seem to suffer through some issues, and I would sell them. Then these companies would miraculously recover and returns would revert to the mean. The companies I replaced them with either turned out ok, or they didn’t do as well.

I have also ended up selling companies because I thought they were too high, and replaced them with something else. You live and you learn.

At the end of the day, a lot of investors fall for the idea that you won’t go broke taking a profit. The problem is that you won’t get rich either. That’s because if you look at the Paretto principle, 80% of results would be concentrated in the top 20% of companies. In other words, if you sell too early from these 20% of companies that generate most capital gains and dividends, you are shooting yourself in the foot. And if you replace these companies with bad ones, you are compounding your mistakes. 

Peter Lynch describes it as “cutting the flowers and watering the weeds”.

Investors tend to trade a lot in general, chasing what is hot, and selling what is not. At the end of the day, they end up consistently buying high and selling low, which turns out to be costly for long-term returns.

While the study does sound plausible, the reality is that it does not exist. It is just a popular piece of Wall Street Folklore.

However, it does confirm my observations that your portfolio is a like a bar of soap – the more you handle it, the smaller it gets.

You can read more about my observations in the four articles referenced below:

- Corporate Leaders Trust - No new investments since its launch in 1935

- Coffee Can Portfolio

- The performance of the original companies in S&P 500 from 1957

- Stocks that leave the Dow tend to outperform after their exit from the average

Six companies delivering value to their shareholders

A dividend increase shows a commitment to enhancing total shareholder returns through both strong business performance and returning cash to shareholders.

It is a testament to a diligent capital allocation and management framework, and it reinforces our commitment to deliver value for our shareholders. The increase in the dividend highlights the board of directors confidence in the company’s overall financial condition and its increasing earnings capacity. It usually shows that they are allocating capital with the best interest of shareholders in mind.

During the past week, there were several companies with established track records that rewarded their shareholders with a dividend increase. The companies include:

Graco Inc. (GGG) designs, manufactures, and markets systems and equipment used to move, measure, control, dispense, and spray fluid and powder materials worldwide. 

The company increased quarterly dividends by 11.90% to $0.235/share. This marked the 25th year of consecutive annual dividend increases for this dividend aristocrat.

Over the past decade, the company has managed to boost dividends at an annualized rate of 10.40%.

The stock sells for 27 times forward earnings and yields 1.20%. The stock seems a little overpriced.

Merck & Co., Inc. (MRK) operates as a healthcare company worldwide. It operates through two segments, Pharmaceutical and Animal Health.

The company increased quarterly dividends by 5.80% to $0.73/share. This is the 11th year of consecutive annual dividend increases for this dividend achiever.

Over the past decade, the company has managed to boost dividends at an annualized rate of 5.50%.

The stock sells for 14.90 times forward earnings and yields 2.65%. It looks like a good value for further research.

McCormick & Company (MKC) manufactures, markets, and distributes spices, seasoning mixes, condiments, and other flavorful products to the food industry. It operates in two segments, Consumer and Flavor Solutions.

The company increased quarterly dividends by 5.40% to $0.39/share. This marks the 37th consecutive year that the Company has increased its quarterly dividend. 

Lawrence E. Kurzius, Chairman & CEO, said "Our proven strategies are designed to drive long-term profitable growth and build value for our shareholders. We are proud to be a Dividend Aristocrat and remain committed to our long history of returning cash to shareholders. I am pleased to announce another dividend increase."

Over the past decade, the company has managed to boost dividends at an annualized rate of 9.30%.

This dividend aristocrat sells for 32.31 times forward earnings and yields 1.81%. I find it a tad overpriced today.

PNM Resources, Inc. (PNM) provides electricity and electric services in the United States. It operates through Public Service Company of New Mexico (PNM) and Texas-New Mexico Power Company (TNMP) segments. 

The company increased quarterly dividends by 5.80% to $0.3675/share. This is the 11th year of consecutive annual dividend increases for this dividend achiever.

Over the past decade, the company has managed to boost dividends at an annualized rate of 10.10%.

The stock sells for 18.90 times forward earnings and yields 2.85%. This looks like an interesting value for further research for me.

Raymond James Financial, Inc. (RJF) is a diversified financial services company, which provides private client group, capital markets, asset management, banking, and other services to individuals, corporations, and municipalities in the United States, Canada, and Europe. 

The company increased quarterly dividends by 23.50% to $0.42/share. This is the 10th year of consecutive annual dividend increases for this dividend achiever.

Over the past decade, the company has managed to boost dividends at an annualized rate of 11.60%.

The stock sells for 12.34 times forward earnings and yields 1.41%. This looks like an interesting value for further research for me.

Universal Health Realty Income Trust (UHT) is a real estate investment trust, which invests in healthcare and human service related facilities including acute care hospitals, rehabilitation hospitals, sub-acute care facilities, medical/office buildings, free-standing emergency departments and childcare centers. 

The company increased quarterly dividends by 0.70% to $0.715/share. This is the 37th year of consecutive annual dividend increases for this dividend champion.

Over the past decade, the company has managed to boost dividends at an annualized rate of 1.40%.

The stock sells for 15 times FFO and yields 5.32%. Given the slow rate of dividend growth, I view it as a hold at best.

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.

The next step is to check each business, in order to determine if it is worth further review. I would look at ten year trends in earnings per share, dividends per share, payout ratios, shares outstanding. I would try to understand what the business does, and make an assessment if the good times would continue, so that I can expect higher earnings, dividends and intrinsic values over time. I would look at the valuation relative to earnings and dividend growth, in order to determine if the business is fairly valued, if it looks promising too.

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How to become a successful dividend investor

Becoming a successful dividend investor takes time, effort, and dedication. You need to understand the basics, stick to a clear investment strategy, be able to do your own research, diversify and stay disciplined and patient.

Here are some steps you can take to become a successful dividend investor:

1. Start by educating yourself about dividend investing. 

Read books and articles about dividend investing to learn about dividends, This also means learning about different types of dividend-paying stocks, how they are taxed, how dividends are paid, and how to evaluate the potential of a company to continue paying and growing dividends.

You may like this list of books that shaped my strategy. For retirees, qualified dividends are taxed at a lower rates than regular income. For some retirees, dividend income can be tax-free.

2. Develop a clear investment strategy. 

Decide what your investment goals are and how dividend investing fits into your overall investment plan. Dividend investing is a long-term game, so it's important to have a plan in place that will guide your investment decisions. This plan should include your investment goals, the types of stocks you want to invest in, and the amount of money you want to allocate to dividend investing.

You may like this brief overview of my investing strategy. Of course, my archives show a lot more resources.

3. Do your own research. 

Before investing in any stock, be sure to do your homework. Don't just rely on the advice of others or the recommendations of brokers. Take the time to thoroughly research potential investments, and consider using tools like stock screeners to help you identify promising dividend stocks. This also means reading company reports, studying the company's financials, and getting a sense of the company's overall health. Pay particular attention to the company's dividend history, as well as its ability to continue paying dividends in the future.

4. Diversify your portfolio. 

Dividend stocks, like any other investment, can be volatile. Dividend investing involves taking on some level of risk, so it's important to spread your money across a variety of different stocks to reduce your overall risk. To reduce the risks, make sure to diversify your portfolio by investing in a variety of stocks from different industries and sectors. This means investing in stocks from different industries, with different levels of risk, and from companies of different sizes. 

5. Stay disciplined. 

Investing in dividend stocks is a long-term strategy, so it's important to stay disciplined and avoid making rash decisions based on short-term market fluctuations. Stick to your investment plan and don't let emotions drive your decisions.

When you're first starting out as a dividend investor, it's important to start small but invest consistently. This means setting aside a small amount of money each month and using it to gradually build up your portfolio. As you gain experience and become more comfortable with dividend investing, you can gradually increase the amount of money you invest.  It's very important to remain disciplined by investing consistently. 

6. Be patient. 

Dividend investing can take time to pay off, so be patient and stick with it. Dividend investing is a long-term game, so it's important to be patient and not expect immediate results. It may take several years before you start to see significant returns on your investment, but with patience and dedication, you can become a successful dividend investor. Over time, the steady stream of income from dividends can add up and help you achieve your financial goals.

Conclusion

To sum up, becoming a successful dividend investor requires a thorough understanding of dividends and a clear long-term investment strategy. It also involves doing your own homework, regularly reviewing your portfolio, being disciplined and patient, and diversifying the portfolio. With these steps, dividend investing can be a rewarding and potentially profitable endeavor.

Thank you for reading!

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The Gift That Keeps On Giving

We just had Black Friday and Cyber Monday. The Holiday Season is approaching. Everyone is rushing to buy gifts to the people that are most important to them. An expensive gift shows appreciation, and your love for the other person.

At least that’s what the marketing departments at some of the worlds largest companies have convinced us to believe.

People rush to overcrowded stores, and scour the internet for great shopping and gift ideas. I am guilty of that as well, as I bravely ventured to the parking lots of Target and Bed Bath and Beyond. I also set foot in the stores. Perhaps I even dared to buy a few things.

At the end of the day, everyone gets more stuff, filling our basements, landfills, storage units.
Parents usually feel the pressure to provide that exciting gift for their child, which is promising to develop them, entertain them and teach them important lessons. Kids will play with the toys for a while, until they end up gathering dust in a basement or just thrown in the trash.

I have come to the conclusion that no one will remember your gift ten or twenty years down the road. It is very rare that this gift will be a life changing event.

I believe that the best gift to provide to others is the gift of stock. I think that the best gift should be buying quality dividend paying stocks to recipients.

The gift recipient will receive dividends for decades. Every time they receive a new dividend check, and every time that dividend check increases with dividend growth, they will think fondly of the person that gave them that stock.

For example, if your great grandfather bought just one share of Coca-Cola stock in 1919 for $40,and reinvested those dividends, he would have left an estate worth $21 million today from just that one investment. This investment would generate close to $50,000 in monthly dividend income, which has increased for 60 years in a row.

I believe that the best holiday gift is the one that keeps on giving. This is why I prefer providing the gift of stock to the people closest to me. Namely, my offspring.

I still do actual presents, but I supplement them with a deposit and an investment in an investment account in their name. Time is the most valuable asset that a young person has. The ability to sit on an investment made at a young age, and then compound it for many decades is very helpful in accumulating wealth.

There are many ways to give the gift of stock. I would focus on the cheapest ways, and look for ways to minimize fees and costs as much as possible. There are a myriad options to accomplish this. Each will be available to you depending on your individual circumstances. However, the optimal one will vary from person to person, which is why I would encourage you to speak with a CPA, particularly if these options seem overwhelming.

One way of giving stock as a gift is by opening a custodial account. You control the stock as the adult, and the child becomes its owner at the age of 18 or 21 ( depending on your state). This is as simple as opening a new brokerage account. 

There may be tax implications however.

For 2022,  the first $1,150 in qualified dividends are not taxable. 

The next $1,150 is the child's marginal tax rate. 

Anything above $2,300 is taxed at the parents' marginal tax rate.

The tax rates on dividend and capital gains income for minors are more onerous than the dividends and capital gains rates for their parents. 

Taxes can become more complicated if the child has earned income too. I'd touch base with a CPA/Tax Advisor to address any specific situations.

Fidelity and Schwab have interesting information on the Kiddie tax. They also refer you to IRS publication 929. It's excellent bed time reading.

Depending on your individual circumstances, and if you do not want to deal with stepping on to the kiddie tax, it may make sense to just open an account in your name. You can then keep the funds in your name, but mentally earmark it for the benefit of the child. At a certain point in time, you may decide to transfer the stock as gift to the younger person. Brokerages like Fidelity can easily accommodate these requests, but may charge a small fee for it. You also need to pay attention to the gift tax. Right now, all you need to know is that a gift of up to $15,000 that you make to someone is not subject to a gift tax. If you are married, each partner can donate securities worth $15,000, for a total of $30,000. The recipient gets your cost basis in the stock.

When the young person inherits the stock from you, their cost basis will be the price of the security at the date of your death. That’s the third way of getting the gift of stock, but it is the worst way for the person who makes the gift of stock.

A fourth way to give the gift of stock is by using designated tax-deferred accounts. If the minor has some earned income, you can let them spend it or do with it as they please. You can then go ahead and put the same amount as their earned income in a Roth IRA. You are then free to invest in anything you want, without worrying about taxes. The money will compound tax-free for decades.

Alternatively, you can put the money in a 529 plan or an Educational Savings Account. There are limits to how much you can invest in each account, and the money has to be used for certain purposes. I do not like the restrictive nature of these accounts, the taxes and fees if the money is withdrawn and not used for education. I also dislike the fees on the 529 accounts in general. There are limits in 529 accounts to what you can invest the money in. For educational savings account, the money has to be disbursed by the recipient’s 30th birthday.

The last way is the most common way for richer individuals to gift stock to their beneficiaries. It involves setting up a trust fund, whose sole purpose is to hold the stock for the beneficiary. The trust fund disburses dividends, interest and income to the beneficiary, but usually is a separate legal entity. This provides protection to the trust assets, and the beneficiary gets to enjoy a stream of income over their lifetime. Trust and estate is a very complex matter, which will not be explained by a single blog article. The biggest advantage of a properly structured trust is that it eliminates the estate tax for the wealthy individual, while also showering their offspring with rising dividends for decades to come. That’s what the Rockefeller family has done in a nutshell. You definitely need to engage a qualified professional, or a team of professionals, before even thinking about starting a trust fund. If the Rockefellers can teach us anything, it’s that a proper trust fund planning can provide for several generations.

Today, we discussed gifting dividend stocks as presents, rather than spending the money on gifts that no one will remember in a decade or two. Dividend stocks are the gift that keeps on giving, as they will provide dividend income for decades to the recipient. There are different ways to accomplish this task, which can be used as tools to do what is necessary in order to give the gift that keeps on giving.

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Four Companies Rewarding Thankful Shareholders With Raises

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. 

The companies include:

Hormel Foods Corporation (HRL) develops, processes, and distributes various meat, nuts, 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. 

Hormel Foods increased its quarterly dividends by 5.80% to $0.275/share, marking the 57th consecutive annual dividend increase for this dividend king.

The company has managed to grow annual dividends at an annualized rate of 8.87% over the past five years.

The stock sells for 27.27 times forward earnings and yields 2.23%.

HP Inc. (HPQ) provides personal computing and other access devices, imaging and printing products, and related technologies, solutions, and services in the United States and internationally. The company operates through three segments: Personal Systems, Printing, and Corporate Investments. 

HP increased quarterly dividends by 5% to $0.2625/share, marking the 13th consecutive year of annual dividend increases for this dividend achiever.

The company has managed to grow annual dividends at an annualized rate of 13.50% over the past five years.

The stock sells for 9.08 times forward earnings and yields 3.48%.

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

The company hiked its quarterly dividend to $0.63/share. This is a 3.30% increase from the prior quarterly dividend paid in the third quarter of 2022. It is also a 14.54% increase from the dividend paid during the same time last year.

The bank has consistently increased regular cash dividends for the past 27 years. In addition to that, it has managed to pay a special dividend in December, for the past 28 years. 

The special dividend is $0.63/share for 2022, which is down from the special dividend of $0.75/share paid for 2021. Overall annual dividend income paid in 2023 is set to exceed overall annual dividend income paid in 2022 however (including special dividends).

The company has managed to grow annual dividends at an annualized rate of 12.28% over the past five years.

The stock sells for 14.34 times earnings and yields 0.88%.

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

The company increased quarterly dividends by 4% to $0.2027/share. This dividend champion has increased dividends for 26 consecutive years.

The company has managed to grow annual dividends at an annualized rate of 4% over the past five years.

The stock sells for 33.06 times forward earnings and yields 1.78%.

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