This is a wake-up call to the Apple/Google generation interested in a truly comfortable retirement. You have the best investing asset on your side right now: TIME. Don't waste it.
The apparent death of buy and hold has been greatly exaggerated by an omnipresent CNBC like media pushing sensationalistic journalism to garner eyeballs. The truth still remains the longer you stay invested in quality enduring companies with a history of growing dividends, the more likely you are to finish where you want to be.
Albert Einstein called compound interest "the greatest mathematical discovery of all time". The wonder of compounding transforms your working money into a state-of-the-art, highly powerful income-generating tool. Compounding is the process of generating earnings on an asset's reinvested earnings. To work, it requires two things: the re-investment of earnings and time. The more time you give your investments, the more you are able to accelerate the income potential of your original investment.
Young investors must see the forest through the trees to discern the killer end game provided by prudent dividend growth investing.The younger this strategy is started the better. It is sad because a lot of the younger generation are more inclined to instant gratification rather than seeing what potential there is long-term in this strategy.
1. Procter & Gamble
I began to really appreciate Procter & Gamble when I looked at how broad and diversified their worldwide geographic penetration has become. They are reaching a brand familiarity worldwide that rivals any company. Their products have reached even the local scale worldwide.
In an era dominated by retailers whose shelf space makes them franchisers to whom manufacturers must pay tribute, Procter & Gamble is the most dominant exception because their brands are the franchise.
Warren Buffett and Berkshire Hathaway are very bullish on Procter & Gamble owning more than $485 million worth of it's shares. Lately this recommendation does not hold the same gravitas it once held, though. Many other hedge funds have also joined ship.
Procter & Gamble offers an attractive dividend yield of about 3.57%. The real value in this blue chip is its beyond impressive record of increasing its annual dividend payment for 55 consecutive years. Last year, the company increased its quarterly dividend from $0.4818 per share to $0.5250 per share roughly an 8% increase. They have also participated in buybacks over the last couple years totaling $13 billion.
The company generates revenues of $82,559.00 million and has a net income of $11,797.00 million. The company's earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $18,656.00 million. Because of these figures, the EBITDA margin is 22.60% (operating margin 19.16% and the net profit margin finally 14.29%).
The total debt representing 23.14% of the company's assets and the total debt in relation to the equity amounts to 47.33%. Last fiscal year, a return on equity of 18.32% was realized. Twelve trailing months earnings per share reached a value of $3.21. Last fiscal year, the company paid $1.97 in form of dividends to shareholders. The earnings are expected to grow 8.55% for the next fiscal year.
The P/E ratio is 19.47, forward P/E 14.91, Price/Sales 2.07 and Price/Book ratio 2.60. The beta ratio is 0.44.
The only real future problem I can see is continued declining growth. This might be the real catalyst for the recent cost cutting/reduction program. Over the last couple years operating income and EPS have been steadily declining, but even if their is a potential for market saturation brand loyalty and recognition will always be in their favor.
Procter & Gamble also announced in February that it had reached an agreement to divest its Snacks business to The Kellogg Company (NYSE:K) for $2.7 billion cash. The deal is expected to be completed in mid 2012. According to Procter & Gamble, the transaction is expected to provide a gain of around $0.50 per share.
2. Johnson & Johnson
Johnson & Johnson is one of only four companies in corporate America with an AAA credit rating. The other three include Microsoft (NASDAQ:MSFT), Exxon-Mobil and Automatic Data Processing (NASDAQ:ADP). A fact not often recognized is how many companies have been taken off this list. Several off the top of my head include General Electric (NYSE:GE), Pfizer (NYSE:PFE) and Berkshire Hathaway (NYSE:BRK.A).
What about diversification? Johnson & Johnson is probably the most diversified blue chip healthcare company in the world. Over the past decade, JNJ shares have beat the S&P500 and the S&P Pharma Index.
Johnson & Johnson is also a proven dividend growth champion. It pays a substantial 3.90% dividend yield. The real value in this blue chip is the impressive fact of steadily increasing dividends for nearly 50 consecutive years.
In 2011, Johnson & Johnson increased its quarterly dividends from $0.54 per share to $0.57 per share. This represented around a 5.5% increase.
The company generates revenues of $65,030.00 million and has a net income of $9,672.00 million. The company's earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $15,993.00 million. Because of these figures, the EBITDA margin is 24.59% (operating margin 19.01% and the net profit margin finally 14.87%).
The total debt representing 17.27% of the company's assets and the total debt in relation to the equity amounts to 34.39%. Last fiscal year, a return on equity of 17.02% was realized. Twelve trailing months earnings per share reached a value of $3.64. Last fiscal year, the company paid $2.25 in the form of dividends to shareholders. The earnings are expected to grow 6.45% for the next fiscal year.
The P/E ratio is 17.18, forward P/E 11.47, Price/Sales 2.64 and Price/Book ratio 2.98. The beta ratio is 0.54.
The only issue I have with this company is their recalls of non-prescription drugs involving factories in Pennsylvania and Puerto Rico, quality issues at DePuy Orthopaedocs in hip replacement devices, seem to be eroding the value of the most important intangible asset that a company should maintain- its reputation.
3. Verizon Communication
Verizon Communications was formed in June 2000 with the merger of Bell Atlantic Corp. and GTE Corp. According to the Verizon website, the company name is based on the Latin word veritas, which means "certainty and reliability," and horizon, meaning "forward looking and visionary." Bell Atlantic had been a Regional Operating Bell Company formed in 1982 by the breakup of the American Telephone and Telegraph Co., which was the subject of an antitrust lawsuit filed by the U.S. Department of Justice. General Telephone & Electronics Corp. was, like Bell Atlantic, one of the world's largest telecommunications companies, and was a leading wireless operator in the U.S. The combined company would be able to provide a full package of communications services, including long-distance and data plans.
Verizon Wireless is a joint venture between parents Verizon Communications and Vodafone (NASDAQ:VOD). It uses CDMA technology for its 2G and 3G network, and LTE technology for the 4G network that it launched in December of 2010.
I continue to be cautiously bullish on Verizon Communications because of an aggressive stance to become the industry leader. They are attempting to do this by acquiring more market share, more broadband spectrum, and more distributors and business partners.The risk profile of Verizon has recently increased due to this aggressive behavior, which is a reason to have some slight concern. Verizon offers a compelling dividend of 4.79%. The growth of the mobile market is undeniable.
Verizon has recently signed an agreement with cable companies Comcast (NASDAQ:CMCSA), Time Warner Cable (TWC), Bright House, and Cox. The golden goose in this purchase gives Verizon 122 Advanced Wireless Services broadband spectrum licensees encompassing areas with a populations of 259 million.
An interesting tidbit, though, is the FCC has not yet allowed the $3.6 billion dollar deal to go through. This also allows the cable companies to market Verizon products and vice versa.
The argument that Verizon has put forward to regulators in favor of the deal is that without the purchase, Verizon's network will run out of wireless spectrum by next year.
This fake ID may not work as the government nixed the AT&T and T-Mobile merger for reasons of unfair competition, and AT&T was up front about wanting the deal primarily to add to its spectrum reserves.
Undaunted by the potential blockage, Comcast and Verizon recently announced their plan to offer bundled services from each vendor to six new markets, in addition to the three markets in which the pair launched the service earlier in the year. Verizon has also sold bundled services with Time Warner Cable, but has not done so with Bright House or Cox yet.
Indeed, smaller carrier T-Mobile has already filed a complaint against Verizon, claiming that much of the spectrum it already has goes unused.
The company generates revenues of $110,875.00 million and has a net income of $10,198.00 million. The company's earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $29,376.00 million. Because of these figures, the EBITDA margin is 26.49% (operating margin 11.62% and the net profit margin finally 9.20%).
The total debt representing 23.93% of the company's assets and the total debt in relation to the equity amounts to 153.33%. Last fiscal year, a return on equity of 6.45% was realized. Twelve trailing months earnings per share reached a value of $0.93. Last fiscal year, the company paid $1.98 in the form of dividends to shareholders. The earnings are expected to grow 11.55% for the next fiscal year.
4. Altria Group
I feel Altria is an increasingly more diversified company with its recent purchase of U.S Smokeless Tobacco to go along with its stake in SABMiller and can grow revenue by increasing wine, beer, smokeless, cigar, and financial/lease divisions.
Altria Group has a market capitalization of $65.64 billion. The company generates revenue of $23,800.00 million and has a net income of $3,393.00 million. The firm's earnings before interest, taxes, depreciation and amortization amounts to $6,321.00 million. The EBITDA margin is 26.56% (operating margin 25.50% and the net profit margin 14.26%).
The total debt represents 37.04% of the company's assets and the total debt in relation to the equity amounts to 371.98%. Last fiscal year, a return on equity of 76.13% was realized. Twelve trailing months earnings per share reached a value of $1.67. Last fiscal year, the company paid $1.58 in form of dividends to shareholders. The earnings per share are expected to growth by 7.27% for the upcoming five years.
The P/E ratio is 19.35, Price/Sales 2.71 and Price/Book ratio 17.62. Dividend Yield: 5.17%. The beta ratio is 0.41.
5. Exxon Mobil
Exxon-Mobil has global operations and was, until recently, the worlds largest oil company in terms of production. The dividend payout has essentially doubled over the past 10 years making this a nice, conservative dividend growth candidate for the long haul. The company is also well positioned for future development of natural gas as a clean energy source.
Exxon Mobil has a market capitalization of $383.63 billion. The company generates revenues of $486,429.00 million and has a net income of $42,206.00 million. The firm's earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $89,087.00 million. Because of these figures, the EBITDA margin is 18.31% (operating margin 15.06% and the net profit margin finally 8.68%).
The total debt representing 5.15% of the company's assets and the total debt in relation to the equity amounts to 11.03%. Last fiscal year, a return on equity of 27.26% was realized. Twelve trailing months earnings per share reached a value of $8.28. Last fiscal year, the company paid $1.85 in form of dividends to shareholders. The company raised dividends for 30 consecutive years.
The P/E ratio is 9.91, Price/Sales 0.79 and Price/Book ratio 2.51. Dividend Yield: 2.84%. The beta ratio is 0.49. It has a price-to-earnings growth ratio of about 1.5 and return on equity is a solid 27%.
I received a great recent testament from an octogenerian about his positive real world experience with his successful long term strategy of dividend growth investing. The keys are to pick great companies that stand the test of time and have a historical precedence of dividend rate increases.
"I have owned CVX since March 1970 when I bought 100 shares at $44.00 a share. After four 2 for one splits, we own 1600 shares. My cost basis is $2.75/share.. You mentioned that CVX has increased their dividend for 25 consecutive years that include the recession years of 2008 and 2009.
In 2001, the annual dIvidend rate was raised to $1.30/share. Currently, it is $3.60/share - an outstanding example of Dividend-Growth investing. I estimate that during the 42 years I have owned CVX, I have received about $112,000 in sweet, cash dividend.
On a total return basis, this has been a wonderful investment!"