Own The Portfolio Of The One Percent

by: Matthew Waterman

The families of the wealthy elite aren't just lucky. They're trained to stay wealthy.

The businesses they own pay reliable, frequently increasing dividends.

There is a built in layer of protection for investors in a closely held company.

(Image source: still screen from "The One Percent" via Youtube)

Before I begin, another big thank you to all of my readers.

It is such a great feeling to be able to deliver content that I actually care about to people who are interested in reading about it. I'll be back to writing focus articles soon, but I've been sitting on this article for a while and I wanted to get it out there because I've been buying some of the tickers that I mention here.

The phrase is classic.

It has been said by many that "the rich get richer while the poor get poorer". Not too long ago I got a chance to see a documentary via Netflix (NASDAQ: NFLX) called "The One Percent". I really enjoyed it. The theme of the movie centers around Jamie Johnson's perceptions of inequality between the wealthy and the remainder of the population. Jamie is a filmmaker as well as an heir to the estate that created Johnson & Johnson (NYSE: JNJ).

What really made this a great watch for me was that it gives an insight towards the financial behaviors of the wealthy elite and how they are focused on preserving their wealth internally. There is a scene centered around a family meeting with their long-time financial advisor. The strong theme that is being shared in that meeting was that as an heir, you should never sell your stock. The family was being trained on how to become richer by being disciplined. It was being ingrained that it was impermissible to give your wealth away to people through selling your holdings.

The rich get richer because they are frugal.

That got me thinking that the reason that the rich continue to get richer is that they simply live off of the dividends earned through their stock holdings. Once a certain level of wealth has been reached, it becomes really difficult for a person with that discipline to ever exhaust their fortune. The underlying theme, therefore, is that families with huge fortunes are frugal. They have vast means, but they do live within them. And those means get larger and larger as time passes.

When those fortunes are publicly traded, then what we see is the wealthy becoming even more wealthy by sharing the opportunity to grow with everyone else. You could try to buy their potential fortune away from them, but when there is excessive demand the company can just issue more shares, which allows for even more growth. Because of the root family's conservative attitudes, it protects the rest of the public from the business making risky decisions, and dividend increases become a priority over storing cash.

There is built in protection from sharing the wealth.

And if there is some kind of crisis that brings the stock price way down, then the people close to the business tend to accumulate even more shares. It effectively creates a built-in put trade to protect you from permanent loss. It's my strong belief that this psychological behavior of the wealthy is a key component to maintaining the durable competitive advantages of the businesses I talked about in my last article.

So with that, here are the USA's top ten wealthiest families built on publicly-traded companies (Source):

10. The Brown-Forman Family, Brown-Forman Corporation (NYSE: BF.B). Bottlers of Jack Daniels and other fine whiskeys and alcoholic beverages. Current P/E ratio of 29, dividend yield of 1.6%. Dividend growth has been a little uneven, but it's in the neighborhood of about 10% per year. The balance sheet is not as light on debt as I'd prefer, but net income is growing healthily.

9. The Mellon Family, BNY Mellon (NYSE: BK). Current P/E 14, yields 1.8%. Dividends were reduced like pretty much every bank in the 2008 financial crisis, but since then have recovered nicely, increasing by better than 14% per year in each of the last three years. There has been a year over year decrease in net income over that time as well, but I see that the interest expense has been decreasing so future results should be more robust.

8. The Dorrance Family, Campbell's Soup Company (NYSE: CPB). Current P/E 17, yields 2.6%. The growth story is unexciting here, but the business is about as steady as any could be. Dividend increases in the area of 8% per year. This is a good stock to buy during recessions, as Campbell's makes a lot of ingredients that are key to low cost family meals.

7. The Busch Family, Anheuser-Busch Inbev S.A. (NYSE: BUD). Current P/E of 22, yield 2.0%. From its roots in Budweiser to it's now multinational beverage conglomerate. There was a very nice growth in net income last year, due to a huge drop in advertising costs. I would keep an eye on that cost moving forward. Dividends are paid semi-annually, with total payment amounts doubling in four of the last five years. This is one of the stocks available to buy and sell without trade fees at Loyal3. I own this and add to the position frequently.

6. The Charles and Rupert Johnson Family, Franklin Templeton Investments (NYSE: BEN). Current P/E of 14, yields 2.3%. A note about that yield, it is based on a special dividend payment of $.65 cents made at the end of 2014. The company shares more of the wealth in good years. Historical increases have been in the range of 10-20% per year, and have been consistently increased 35 times to date.

5. The Du Pont Family, E.I. du Pont de Nemours and Company (NYSE: DD). P/E of 19 , 2.5% yield. Dividend growth has not been as impressive as some of the other names here, at around 5% per year. The balance sheet and net income have been improving recently though. The price of the stock has been on a tear since 2012, rising almost 200%. I almost never utter the words "I would wait for a pullback", but I think I'd be tempted to say that here.

4. The Lauder Family, Estee Lauder (NYSE: EL). P/E of 27, current yield is 1.9%. Very nice dividend increases, approaching 20% per year on average. The company is doing a great job of managing its interest expense and translating that into earnings. Buy this for the woman in your life, she'll love you for it. I have done an individual analysis on Estee Lauder, you can find that article here.

3. The Duncan Family, Enterprise Product Partners (NYSE: EPD). P/E of 24, current yield is 4.1%. This is one of the holdings in my income portfolio, and I recently added to it. It compares favorably against other large Master Limited Partnerships such as Kinder Morgan (NYSE: KMI). When I made the decision to buy more, I noted that growth in payments at EPD has been slightly larger in recent years, and so I chose it over KMI even though there was a somewhat higher yield with the current price of KMI. Average rises hover around 6% per year.

2. The Pritzker Family, Hyatt Hotels Corp. (NYSE: H), as well as Royal Caribbean Cruises (NYSE: RCL). Hyatt does not pay a dividend, but there are numerous REITs that contain Hyatt-leased properties. RCL has a current P/E of 22 and yield of 1.6%. RCL has proven itself to be a resilient company in the face of adversity. Every time there has been a major problem with a cruise ship on any line, RCL stock also takes a sharp drop in price, but has always recovered pretty rapidly. In 2014 it was an especially good value when the stock sank due to a seriously overblown scare over Ebola. The company has since continued a long term trend of profitable operations, and I expect this moving forward as well.

1. The Walton Family, Wal-Mart (NYSE: WMT). Current P/E of 18, yields 2.2%. Dividend growth really tapered off last year after a pretty long string of increases. The company has been putting a lot of cash into buying back its shares. Ultimately, that should lead to some nice growth in earnings per share and more dividend increases down the road. Wal-Mart also seems to be doing some work to improve its store appearances. I'm glad to see that, because allowing the stores to deteriorate was one of K-Mart's (NYSE: SHLD) misgivings. The company is also putting effort into improving its corporate image with the public. I have been adding to this position recently. This stock is also available to purchase without trade fees at Loyal3.

I hope you found this article useful, at the very least increased your knowledge about some good companies that might make great buying opportunities in the future. I intend to cover some of these brands more in-depth in upcoming articles. Until then, continue to follow me for updates, and thanks again for reading.