Other than the Great Depression, nothing was more dreadful for stocks than the bear market experienced during the 2008 financial crisis. Vast amounts of wealth evaporated during the crisis, scaring investors out of stocks and into bonds and other "safe" investments. However, the companies known as dividend champions that I chose for this article are now trading higher than their 2007 highs, while the S&P 500 has not yet returned to that level. The dividend champions that I'm referring to are companies that raise dividend payments every year over decades. The fact that they were able to achieve this through numerous recessions over the years gives them a special status in the investment world.
These are also great investments for outpacing the rate of inflation over time. With their consistency in dividend raises and steady price appreciation, the dividend champions provide a certain degree of predictability and can withstand the toughest bear markets and volatility over the long-term.
The buy and hold strategy should never go out of style. Most of the short-term trading going on is making lots of commissions for the brokerage firms, but not individual investors. Putting money into the dividend champion companies will win over the long-term, while trading frequently is a zero-sum strategy.
These companies survived stock crashes, recessions, and the financial crisis. They have emerged stronger than they were before these incidents. They are the pillars and cornerstones of the market.
Kimberly-Clark (KMB) is a solid, consistent, company with products that are used daily by many consumers. Its personal care and healthcare products are staples that are needed on a regular basis. Huggies, Pull-ups, Kleenex, Scott, Kotex, and Cottonelle are just a few of the many brands under the KMB umbrella.
Kimberly-Clark pays a generous dividend of 3.6%. It has increased its dividend payment every year for 40 years. What a solid company.
McDonald's (MCD) is a far-reaching international presence with over 33,500 restaurants in 119 countries. Its ability to adapt its menu to the needs of each individual country that it operates in, has brought continued profitability and growth. The menu expansions such as the McCafe coffee and drinks, healthier offerings (oatmeal, apples, salads), Premium Chicken sandwiches, the McRib, etc., have given consumers a vast array of food to choose from.
McDonald's continued expansion throughout the world will ensure positive future revenue and earnings growth.
MCD currently pays a dividend of 3.6%. It has proven to be consistent by raising the dividend every year since 1976.
Wal-Mart (WMT), the $246.9 billion market-cap retail and grocery powerhouse, has become a steady, low-risk dividend stock. The company weathered the financial crisis much better than the overall market. The company is able to maintain low-prices through its economies of scale to achieve steady growth in its low-margin, high-volume business. Wal-Mart has enabled consumers to save money on everyday goods, which is the primary reason for its success.
Wal-Mart pays a dividend of 2.1%. The company increased its dividend every year since 1974.
Colgate-Palmolive (CL) is another steady dividend champion with a strong ability to withstand bear markets. Like Kimberly-Clark, Colgate-Palmolive offers a variety of consumer staples that are used repeatedly. The company has products in oral care, personal care, home care, and pet nutrition. Its focus on a worldwide financial strategy should continue to drive future growth. CL sells products in over 200 countries and derives 75% of its sales from overseas.
CL pays a dividend of 2.4%. The company increased payments to shareholders every year for 41 years.
The stock market can be angry and dreadful at times. The dividend champions featured here empower investors with predictable dividend payments and steady stock appreciation over the long-term. All of these companies are now trading higher than they were before the financial crisis. This shows their strength and resiliency. These are the companies that can be relied upon to withstand the worst price action of the overall stock market.
Disclosure: I am long MCD. Although I don't currently own the other three companies, I would consider owning them in the not too distant future.