To my long-term readers, I have a feeling that this article's title will sound familiar. For the past two years I have reviewed the "most valuable brands" according to Interbrand - the world's largest brand consultancy. As you might have inferred from the subtle foreshadowing, it turns out that the world's most valuable brands tend to reward shareholders in the form of cash dividends. So with Interbrand's recent release of the "Best Global Brands of 2013" it seemed natural to provide you with an update.
First some history: in January of 2012 I wrote an article titled "Why Dividend Stocks Dominate The World's 'Most Valuable Brands'" Here's a look at how the powerful brand world looked way back in 2011:
|Coca-Cola (NYSE:KO)||71.861 ($b)|
|IBM (NYSE:IBM)||69.905 ($b)|
|Microsoft (NASDAQ:MSFT)||59.087 ($b)|
|Google (NASDAQ:GOOG)||55.317 ($b)|
|General Electric (NYSE:GE)||42.808 ($b)|
|McDonald's (NYSE:MCD)||35.593 ($b)|
|Intel (NASDAQ:INTC)||35.217 ($b)|
|Apple (NASDAQ:AAPL)||33.492 ($b)|
|Disney (NYSE:DIS)||29.018 ($b)|
|Hewlett-Packard (NYSE:HPQ)||28.479 ($b)|
Coca-Cola, long revered as the gold-standard for brands, again sat atop the list as the perennial favorite this side of the new millennium. Interestingly, the $71 billion brand value represented about half of Coca-Cola's market capitalization at the time; some might argue it makes the entire company. Eight of the top 10 paid dividends with KO and MCD having multi-decade increase streaks. In 2011 neither GOOG nor AAPL were paying dividends, although in the article I did indicate that it was likely only a matter of time. (2 months on the nose for Apple, but I'm not holding my breath for GOOG just yet)
In October of 2012, I penned a second article titled: "Why Dividend Stocks Still Dominate The World's 'Most Valuable Brands'" Here's a look at the top 10 most valuable brands from last year:
|Coca-Cola||77.839 ($b)||71.861 ($b)|
|Apple||76.568 ($b)||33.492 ($b)|
|IBM||75.532 ($b)||69.905 ($b)|
|69.726 ($b)||55.317 ($b)|
|Microsoft||57.853 ($b)||59.087 ($b)|
|GE||43.682 ($b)||42.808 ($b)|
|McDonald's||40.062 ($b)||35.593 ($b)|
|Intel||39.385 ($b)||35.217 ($b)|
|Toyota (NYSE:TM)||30.280 ($b)|
Note that the top eight brands were precisely the same, albeit shuffled slightly. Both Disney and Hewlett-Packard dropped off the list for Samsung and Toyota, but otherwise the dividend core remained basically intact.
Today all the talk is about Apple and Google rising up to take the #1 spot away from Coca-Cola.
|Most Valuable Brands||2013 ($b)||2012 ($b)||2011 ($b)|
Interestingly, aside from the top of the leader board shuffle, not a whole lot changed. The top 10 most valuable brands of 2013 are precisely the same 10 brands that were tapped in 2012. And it follows that the same basic dividend construct that I detailed in the previous two articles basically holds for this one. It's not much of a secret why these companies remain on the list - people are continuously willing to a pay a premium for their products. In turn, shareholders are rewarded for partnering with wonderful companies.
For this year's update, I would like to highlight the 4 companies that have not only paid but also increased their dividends for at least a decade. Specifically, let's use the lens of F.A.S.T. Graphs to take a look at Coca-Cola, McDonald's, IBM and Microsoft.
Perhaps Warren Buffett's favorite company, KO has long been a knock-out for investors. Coca-Cola has increased its dividend for 51 consecutive years, with the last decade of increases coming in at about a 10% average yearly growth rate. Trading at a price-to-earnings ratio around 18, KO has a 3% current yield and rarely "goes on sale." As you can see from the graph below, operating earnings have been more than consistent and the dividend remains sustainable.
McDonald's has been serving up dividend increases for 36 straight years now. Some might attribute it to luck that MCD emerged as the fast food leader, but I have a feeling that founder Ray Kroc might see it otherwise; as Kroc quipped: "Luck is a dividend of sweat. The more you sweat, the luckier you get." For MCD shareholders this has meant average yearly dividend increases of 28% over the last decade, with more recent increases coming in the low double-digits. McDonald's currently trades at about 17 times earnings and has a current yield of 3.4%
Another Buffett favorite, both Warren and Peter Lynch have before said "you can't get fired for going with IBM." (Warren was talking about being a competitor and Lynch was referring to owning the stock for a client) Big Blue has increased its dividend for 18 consecutive years, with a 10-year average annual growth rate of about 19%. Today IBM trades at a P/E ratio around 11, has a current yield of about 2% and an intermediate EPS goal of $20 by 2015.
Finally, there's MSFT with its decade long streak of increasing payouts; moving from 16 cents a share in 2003 to today's annual mark of $1.12. A lot of people like to blame Steve Ballmer or even Bill Gates now for Microsoft's apparently lackluster performance. However, I would advocate that the true culprit was overvaluation, or at the very least prolonged hype. As seen in the graph below, Microsoft's operating earnings have been doing just fine. In fact, a 12% compounded growth rate is fantastic for a maturing company. The real problem was paying 70 times earnings at the turn of the millennium; even the best companies would have trouble recovering from a less than 2% initial earnings yield. MSFT trades at a current P/E around 12 with a 3.3% current yield.
In sum, the world's most valuable brands have continued to remain valuable. In fact, I have a feeling that I'm going to run out of ways to say "still" or "continue" well before the majority of these brands lose their luster. Although that's certainly not to say that they don't need to be monitored (see HPQ). However, I would continue to argue that a premium-demanding brand is one of the fundamental tenets behind finding consistent income providers.