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Dividend Stocks RULE!

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January 28, 2010 – Comments (23) | RELATED TICKERS: MO , SO , T

In a (welcome) change of pace from my last post here, an article of mine went up on Fool.com today looking at dividend stocks.

I've always thought highly of dividends, particularly because if you look back to the classic tomes of Foolish investing (I'm talking about Graham's Security Analysis and The Intelligent Investor) you can see just how much importance Graham put on dividends. And heck, if you look at Buffett's portfolio, you won't find any dearth of dividend payers there. 

Of course, it can be a little hard to get your arms around just how well dividend payers do because many of the screening tools out there focus on stock performance in terms of changes in price. As dividend diehards know though, much of the greatness that comes from dividends comes from the fact that you build your position over time through the payouts from the company.

So lately I've been doing a lot of research and calculating dividend adjusted returns by hand (thankfully Yahoo!Finance at least publishes dividend adjusted prices). The results were pretty surprising to me and I showed some of them, along with some of my conclusions in the article linked above.

So what do you think community? Have you known about the true power of dividends all along? Do these results surprise you?

Matt

23 Comments – Post Your Own

#1) On January 28, 2010 at 8:01 PM, Option1307 (29.91) wrote:

Many people think dividend investing is boring, and maybe they are right in some sense. However, I've always been a huge fan of having, at the very least, a small portion of any portfolio invested in high yielding companies. While it won't make you super rich overnight, there is nothing wrong with a slow and steady approach.

I've held MO for many many years and it's been fantastic, obviously. I set it up w/ a DRIP way back when and have essentially "forgot" about it.

Good article btw, I recently recommended VZ and T for the very same reason, dividends all the way...

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#2) On January 28, 2010 at 8:17 PM, goalie37 (93.40) wrote:

I like the article. 

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#3) On January 28, 2010 at 9:10 PM, truthisntstupid (92.94) wrote:

They absolutely rule.  As a dividend investor I actually only use the market as the place where I have to purchase my shares.  Most of my actual return comes from the companies I buy shares in.  I don't have to wait for Mr. Market to eventually come around, because I'm not seeking capital appreciation.  I'm looking at cash flow payout ratios and dividend growth rates.  A 10% dividend growth rate means that particular dividend will double every seven years and quadruple in fourteen years as long as that growth rate is maintained.  That's what I hope for.  If a good dividend growth stock goes up $5 or $10 a share that may not be much compared to what I hope to get out of it in the long run.  Besides, I use only direct stock purchase plans, and they may frown on too much "trading."   So I plan to largely adhere to the principles outlined in Todd Wenning's article,  "Build A High Yield Portfolio."   Unless I start to have reason to question the stability/safety of my dividend, I buy to keep.  Dips in price unaccompanied by any deterioration in the company's financial strength are simply buying opportunities.  

Think it might seem unrealistic to hope for a company to maintain a high dividend growth rate over a decade or more?   $6500 for 100 shares of JNJ yielded $7968 a year annually in 2007 (of course, they split five times as well). 

This is all information from "The Ultimate Dividend Playbook"  by Josh Peters.  

It's one of those Oh-wow-I-may-never-need-another-investing-book  kind of books. 

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#4) On January 28, 2010 at 9:13 PM, truthisntstupid (92.94) wrote:

Oops!  That's $6500 for 100 shares of JNJ bought in 1977 that yielded $7968 a year in 2007. 

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#5) On January 28, 2010 at 9:46 PM, TMFKopp (98.23) wrote:

truth -- I'm liking you more and more every time you post. Thanks for the book rec, I'm putting that on my Amazon list right now.

Matt

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#6) On January 28, 2010 at 10:23 PM, truthisntstupid (92.94) wrote:

Thanks Matt

I have all my most important investing books in hardback including the fourth edition of The Intelligent Investor.   Hope you enjoy The Ultimate Dividend Playbook.  It has edged out The Intelligent Investor as my personal favorite.  Never thought I'd say that but it's not even close.

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#7) On January 28, 2010 at 10:35 PM, masterN17 (< 20) wrote:

Second the book recommendation. On my list as well.

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#8) On January 28, 2010 at 10:39 PM, HarryCaraysGhost (99.74) wrote:

   $6500 for 100 shares of JNJ yielded $7968 a year annually in 2007 (of course, they split five times as well). 

Damn Truth, that would be one hell of a return:)

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#9) On January 28, 2010 at 10:48 PM, truthisntstupid (92.94) wrote:

msftgev

That's over thirty years.  In the first post I nglected to put a date on that $6500 purchase.

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#10) On January 28, 2010 at 11:28 PM, truthisntstupid (92.94) wrote:

My attempt to fix that didn't make it sound right either!  Let me try again.

$6500 purchased 100 shares of JNJ in 1977.   Thirty years later,  after those 100 shares had split five times, they yielded $7968 annually in 2007.   

Ah.  That's better.  One hell of a return, yes.  During those thirty years, J&J managed to increase its dividend at an average rate of  14.4% annually.  

Which is why I need to get out of utilities and redirect my investments into dividend stocks that have much better dividend growth potential....

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#11) On January 28, 2010 at 11:40 PM, HarryCaraysGhost (99.74) wrote:

Truth yeah I know, was just having fun with the thought of those massive returns.

100 shares- 3,200 shares. In one year(Awesome) 

Other thing I found interesting was

JNJ- Jan 3,2007

$66.13

JNJ- Dec 31,2007

$67,29

Did'nt do the math on the div's yet.

 

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#12) On January 29, 2010 at 12:12 AM, truthisntstupid (92.94) wrote:

Unless Josh Peters made a mistake in his book, one of those splits must have been three-for-one.  In the example I'm referring to he says that those initial 100 shares became 4800 shares 30 years later, unless dividends were reinvested...in which case they became 8900 shares by 2007. 

Anyway...it's a mighty good book. 

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#13) On January 29, 2010 at 12:49 AM, topsecret10 (< 20) wrote:

Check out this stock If you like dividends.......    http://www.fastretailing.com/eng/ir/    (FRCOY.PK)   Semi annual dividend of 100 yen =  $2.22 (year)    Stock Is $17.00     TS

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#14) On January 29, 2010 at 8:36 AM, rd80 (98.35) wrote:

Most everyone knows the power of compounded returns.  Picking good dividend paying stock and reinvesting the dividend doubles down on the compounding - you get compounding from the reinvestetd dividends AND compounding from the dividend raises.

Over one or two years it doesn't make much difference, but roll out to 20 or 30 and numbers like what truthisntstupid presented start happening.

I actually like it when my core divvy payers drop in price - get to pick up more shares on the reinvestments.

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#15) On January 29, 2010 at 9:12 PM, truthisntstupid (92.94) wrote:

rd80

Yeah, hitting a home run in slow motion still gets you home, doesn't it?  

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#16) On January 31, 2010 at 8:11 PM, TMFKopp (98.23) wrote:

@rd80

"Most everyone knows the power of compounded returns."

Interesting comment. I agree 100% -- most everyone does know, at least intellectually, about the power of compounded returns. Supposedly, Einstein said that the most powerful force in the universe is compounding interest (and that cuts both ways -- good for investors, bad for those racking up credit card debt).

Unfortunately, it seems to me that there are a heck of a lot of people that invest as if they have no idea of the power of compounding returns. When you see mutual funds turning over their portfolio multiple times during a single year, you have to wonder whether they've even heard of compounding returns...

Twenty or thirty years... yup, that's really the key...

Matt

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#17) On February 01, 2010 at 12:06 AM, truthisntstupid (92.94) wrote:

Kopp

You know what strikes me as funny, is, all the really good articles Motley Fool publishes every day about how amazing dividend investing returns are in the long run, still this site is full of people trying to guess "which way the market's going next"  and the silly  "bull vs bear"  nonsense.

And I don't see the sense in any of it.  Neither one matters to me.  What matters to me is,  "is this company strong enough to not only make its dividend secure but also to hopefully maintain its dividend growth rate?  

"Bulls"  vs  "Bears."   "Which way is the market headed?"   This strikes me as so much nonsense.  Just recently on another blog I pointed out to someone that right now  Chevron is priced to give me about a 14%  yield on cost in about 14 years, based on their current dividend and their average dividend growth rate.   And I showed why.  So why do people want to gamble when they can nail these entirely predictable returns instead and more likely than not?

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#18) On February 01, 2010 at 12:27 AM, goalie37 (93.40) wrote:

Truth - I agree completely.  Dividend is and has been my strategy for years.  But try telling somebody about it and all they do is roll their eyes.  They will never let go of the idea that the market will make them rich overnight.

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#19) On February 01, 2010 at 1:02 AM, ozzfan1317 (82.23) wrote:

I have both I figure high growth and dividends balanced just right isnt a bad deal at all.

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#20) On February 01, 2010 at 1:07 AM, truthisntstupid (92.94) wrote:

Goalie

I know.  So many would rather speculate thinking they can win.

Kopp:

I neglected to mention that the yield on cost from CVX in about 14 years that I'm talking about is from dividend growth only without even reinvesting dividends.

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#21) On February 01, 2010 at 2:36 PM, TMFKopp (98.23) wrote:

@truth

Hmm... don't know what to say re: the coverage on our site. I guess the way I'd put it is that, yes, we (and I put myself here too) do end up covering the "where will the market go in the next three or six months" question.

However, I like to believe at least that our message continues to come across more as "here's what the market may do in the next X months, but the best way to make money in the market is by being focused on the longer term." That's as opposed to "The markets going to go down 3% next month, GET OUT!!!!" which is a lot of the reason I stopped watching CNBC (at least when I don't have lots of Tums on hand).

Matt

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#22) On February 01, 2010 at 3:56 PM, truthisntstupid (92.94) wrote:

Kopp

Yeah, you do speculate on the direction of the market...but the Fool doesn't obsess on it.  That is all I meant.  It seems to me that the Fool's message is one I greatly agree with.  That there are always worthwhile investments to be found regardless of what "the market's"  doing.  This, to me, is the Fool's greatest contribution.  

I worry for people that are just starting to invest that the Fool's message will be lost or drowned out by people with high scores and ratings writing blogs proclaiming the imminent "collapse of the S&P"  and posting comments telling anyone who will listen how "stupid anyone is that for investing now."

As far as I'm concerned, now is always good.

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#23) On February 01, 2010 at 5:16 PM, truthisntstupid (92.94) wrote:

"stupid anyone is for investing now."

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