We all know the story of how Apple's (AAPL) late co-founder Steve Jobs attended a calligraphy class at Reed College that gave him a tremendous aesthetic advantage over Microsoft (MSFT) co-founder Bill Gates when it came to designing the typography for the Macintosh computer. It is particularly impressive to see how Jobs transferred the skills from one area of his life and applied them to another.
The Vice Chairman of Berkshire Hathaway (BRK.B), Charlie Munger, has once remarked that not taking this approach to life is "like being a one-legged man in an ass-kicking contest." I'm about to graduate from a liberal arts school, and one of my majors is history, and I have often wondered: How could I apply my history major to investing?
And then it hit me. Almost every class I've ever taken on 20th century history has been a series of one bad thing happening after another. For the heck of it, I went to the 1900s History website to get a quick rundown of all the disastrous events that have struck in the past 100 or so.
And here's a snippet of what has happened: the sinking of the Lusitania, WWI, Pearl Harbor, the Bataan Death March, WWII, the Holocaust, Hiroshima and Nagasaki, 1906 San Francisco Earthquake and Fire, Great Depression, explosion of the Hindenberg, Mt. St. Helen's eruption, the sinking of the Titanic, the Great Depression, The Stock Market Crash of 1929, St. Valentine's Day Massacre, Oklahoma City Bombing, Murder of Rasputin, the assasination of President McKinley, JFK, Martin Luther King, and Bobby Kennedy, the Munich Olympics Massacre, the Fatty Arbuckle Scandal, the sinking of the Titanic, the Vietnam War, the Challenger disaster, and the Columbine shooting. Yikes. What a fun century, eh?
But here's the thing. Keeping this in mind provides a great amount of necessary perspective when it comes to investing with dividend growth stocks that have long records of dividend increases. I mean, Procter & Gamble (PG) has been paying a dividend since 1896, and has been raising it for over 50-plus years. Remember when the Archduke of Austria, Franz Ferninand got assassinated? Yeah, Procter & Gamble was paying out a dividend then. It then continued to pay a dividend through Pearl Harbor, WWII, the Korean War, and has raised its dividend every year since at least the Vietnam War era.
And what are the screaming headlines talking about today? The debt crisis with Greece and severe fiscal woes in the Euro zone? The US Treasury printing money in a way that might lead to 7-8% annual inflation? This seems almost tame compared to some of the bigger problems we've seen in the past century. Check out the headlines on the Wall Street Journal complaining about Lord-knows-what - would you prefer that, or trying to invest during the Cuban Missile Crisis? Do you think it felt relaxing calling your broker to buy shares of Anheuser Busch (BUD) in 1957 right after hearing that the Soviets launched Sputnik into orbit?
But here's what I find interesting - not only are the problems tamer now compared to what our country has seen over the past century, but many of the dividend growth stocks are much stronger today than they were fifty to sixty years ago. Procter & Gamble has much larger economies of scale, product outreach, and brands under the P&G umbrella than it did right after WWII.
This is why being a history major has pointed me in the direction of dividend growth investing. Not only do these companies manage to stay alive when everything hits the fan, but they continue to give their investors an even larger amount of profits than the previous year. Here's a quick list of some companies that have managed to raise dividends for over 51 years:
And here's the really crazy thing - not only has Emerson Electric (EMR) paid out a larger dividend every year since 1957, but its November 2011 increase was a 16% rate hike. Sometimes, when I talk about Coca-Cola (KO) potentially raising its dividend 8-10% annually for the next 10 years, I get the 'ole stink eye from some investors who think that is way too optimistic of a prediction. They may be right - but who would have thought in 1957 that Emerson Electric would raise its dividend every year for the next half century, and then give a 16% dividend increase in 2011?
Investing in the same stocks for the long-term is all about identifying strong business models that come with the competitive advantage of a strong moat, and I can't think of a better indication of such a company than looking for the firms that have been paying out increasing amounts for thirty, forty, even fifty years.
It's easy to read the bad news in the headlines and wonder how it will affect your investing strategy. But that's why I look to the companies that have records of not only surviving when disaster strikes, but continue to get stronger every year as technology increases efficiency, the economies of scale get larger, and the brands become entrenched.
If we experience another stock market crash like we saw in 1987, how could you possibly worry if you plan on owning a portfolio stuffed with Coke, Pepsi (PEP), Colgate-Palmolive (CL), Chevron (CVX), and Johnson & Johnson (JNJ) for the long term? This might be why dividend growth stocks seem so perfectly suited for long-term investing. Even when disaster strikes, more and more profits continue to roll in.