Deferred gratification is a principle where one or more people choose to postpone near-term benefits in order to enhance their chances of greater benefits in the future. In our microwave society marked by the ‘I want it now’ attitude, it is unusual to find someone willing to wait. However, deferred gratification is essential for anyone wanting to build wealth and is a key ingredient in a successful dividend investing strategy.
Below are several stocks building future gratification through with the promise of higher cash dividends:
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Linked here is a detailed quantitative analysis of Illinois Tool Works Inc. (ITW). Below are some highlights from the above linked analysis:
Company Description: Illinois Tool Works Inc. is a diversified manufacturer that operates a portfolio of 60 business units that serve industrial and consumer markets globally. [more]
What makes a good dividend growth stock? Every dividend growth investor is looking for a stock that will increase its dividend each and every year at a rate that makes the stock a better investment than fixed income alternatives. I have found that stocks that are able to do this share some common characteristics. Brand Recognition/Low PriceDuring an economic downturn consumers may flee many popular brands if their cost is high and generic alternatives are substantially cheaper. Procter & Gamble Co. (PG) has seen this occur in some of their premium brands like Pampers and Tide. However, most people aren't willing to save a few pennies on a generic soda of unknown quality when a Coca Cola Co. (KO) or Pepsico Inc. (PEP) is available.
Value-Priced ConvenienceIn addition to Brand Recognition/Low Price some companies also provide convenience. If you have been out shopping all day and are tired, you are likely to stop on the way home and pick up something that is quick and inexpensive. There seems to be a McDonald's (MCD) on every corner. A stop there provides the guest with a known commodity - clean restrooms, quick service and an inexpensive meal.
A Superior Operating ModelHow do you compete with a company like Wal-Mart (WMT)? As most of their competitors have learned, you can't beat WMT at providing brand name, quality merchandise at rock bottom prices. During the good times, some people don't mind paying premium prices at an upscale store, but there are plenty of us value conscious people that keeps WMT humming. Where WMT really shines is during an economic downturn. When losing your job is a real option, $120 sneakers just don't quite seem as important as they once were.
A Pseudo MonopolyIf you are the only company in the world that is allowed to sell a product that people's lives depend on, you will likely have a robust profit margin. This is the world that pharmaceutical companies operate in. Granted companies like Abbott Laboratories (ABT) and Eli Lilly and Co. (LLY) have to keep coming up with new products as old patents expire, and have to deal with government regulation, but the good ones not only survive, they thrive.
Sell What People Want and NeedSounds simple, but so few companies have mastered it. Consumer staples seem to be the best at it. When you consider the longevity of Johnson & Johnson's (JNJ) products such as Band-Aid, Johnson Baby Products, Listerine, Rolaids, Tylenol, Motrin, Benadryl and many others, it is easy to conclude that the company has identified what people want/need and are providing it at a reasonable cost. Although some of Procter & Gamble Co.'s (PG) premium products are struggling, management has taken action to focus on the company's bargain-priced alternatives and those are seeing some success.
They Got a Name for the Winners in the WorldJust as in life, companies that are winners separate themselves from the others. They won't settle for second best, instead they continue to look for advantages that will them keep a few steps ahead of the competition. Warren Buffet would describe many of the above advantages as wide moats. If you want to buy and hold a stock forever, make sure it has a competitive advantage that is not easily duplicated.
Full Disclosure: No position in the aforementioned securities. See a list of all my dividend growth holdings here.
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Linked here is a detailed quantitative analysis of International Business Machines Corp. (IBM). Below are some highlights from the above linked analysis:
Company Description: IBM's global offerings include information technology services, software, computer hardware equipment, fundamental research, and related financing. [more]
There are income investors and Dividend Growth investors. While the distinction is rather simple, it slips past many casual observers. Income investors are investing for maximum current income, while dividend growth investors are looking to maximize income over an extended period of time — usually sacrificing current income for potential greater future earnings. Unlike fixed income investments, a growing dividend means a growing yield on cost.
This week several companies pumped up their shareholders' yield by increasing their cash dividends:
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