History can teach us a lot. I've shown just how much we can learn from mistakes past with the bankruptcy research, and now I want to flip the script. Let's examine 5 case studies of the most successful dividend investing stories from the last 2.5 decades.
While we can't expect to follow these guidelines exactly, the takeaways should help us increase our chances for finding the next dividend investing success.
Even one future successful dividend investment can set up a substantial cash flow for years to come. In fact, research from the world's largest money manager BlackRock has indicated that dividends and dividend growth have made up 90% of investor returns in the past century.
There's no doubting the importance of dividends. Yet even the most novice investor can agree that you can't just throw darts at a wall and hope every stock you buy will continue paying dividends.
Not only does a company need to pay dividends, but increase earnings so those dividend payments can increase. That's when the real power of compounding kicks in.
I implore you to additionally learn about the components of selecting a good stock after you read this article about dividend success stories. While the dividend component should be there, the promise of future growth and a strong balance sheet remains even more critical.
And you'll only be able to find a company in such a promising situation if you know how to do fundamental analysis. So get yourself educated if you want to make some real money.
Caveats to the Case Studies
For this dividend case study examination, I took 5 of the most popular dividend growth stocks that have performed exceptionally well.
I didn't have a particular selection criteria, and just randomly selected 5 winners. This is important so that we don't fall into the confirmation bias trap.
Of course, while this is a cherry-picked study, this isn't to say that selecting stocks just like these will perform just as well.
Looking at a broad range of 5 different stocks in different industries allows us to make small generalizations, without getting too dependent on specific numbers or ratios.
It's good to look at the numbers when you can. I did this extensively when researching about the 30 biggest bankruptcies of the 21st century. However, when I made conclusions… such as "the most common symptom of a bankruptcy is negative earnings" ...I did so in a broad sense.
Trying to take away the important lessons without falling trap to duplicating numbers dependence should be our chief focus.
What I'm trying to say is… just because a dividend winner that we look at had a P/E of 4 or a P/E of 40 doesn't mean a stock with this P/E will be a winner. We CANNOT make these kinds of conclusions when researching the past. It will lead to narrow-mindedness and despair.
Dividend Success Case Studies
I went back as far as the data available would allow me. In this case, I wanted market capitalization numbers and dividend yield numbers.
Finally, I used an inflation calculator to put the market capitalization into dollar amounts that would translate for today. This is a very key detail.
You'll see that a dollar in 1987 would be worth $2.08 today, just from the sheer force of inflation. For us to accurately parallel, the value of the dollar needs to be the same.
Here's the results of the 5 dividend investing success stories I looked at, in no particular order. The first number is the market capitalization of the company in 1987, followed by its dividend yield at the time, followed by its inflation adjusted market capitalization.
$21.66 billion, ~0.44%
inflation adjusted $45.02B
Growth history: 12 yr
$18.66 billion, ~2.36%
inflation adjusted $38.79B
Growth history: 24 yr
$6.098 billion, ~1.68%
inflation adjusted $12.6B
Growth history: 14 yr
$6.655 billion, ~14%
inflation adjusted $13.8B
Growth history: 17 yr
$17.03 billion, ~3.14%
inflation adjusted $35.40B
Growth history: 30 yr
Dividend Investing Success Stories Takeaways
- Dividend yield % doesn't matter
- Yield can be as small as below 1% or as high as above 10%
- It's never too late to catch the train
- Each stock had grown a dividend for over 10 years already
- The market cap sweet spot seems to be $10B - $50B
- Didn't have to buy in at IPO to make significant returns
The biggest takeaway that I can see from all of this is that it pays to wait. An investor can wait for 10 years for a company to show a good dividend growth track record, and for the company to show strong earnings and financials.
Just how profitable were these stocks if you did buy and hold? Well, let these numbers speak for themselves.
$10,000 in each of these companies in 1987 would become:
WMT- $196,152.17 with $1,000+ annual dividend
KO- $172,660 with $1,000+ annual dividend
ABT- $76,580 with $500+ annual dividend
MO - $757,232.14 with $4,500+ annual dividend
PG - $169,504.95 with $1,000+ annual dividend
Do you know what's the best part? If you bought these stocks in 1987, you'd STILL be getting dividend checks in the mail every year.
And it'd be up to you whether you want to reinvest the dividends for higher potential gains or spend them on something nice.
Don't be fooled. Wealth is made in the stock market through the patience of holding dividend paying stocks. Let these dividend investing success stories be your motivation.
Imagine landing just one of these stocks. And imagine how much more money you'd have with continuous investment in a dollar cost averaging plan, instead of just a one-time investment.
The even crazier part? This was all done in less than 30 years (28 to be exact). Imagine the typical Millennial, who has 40 years or longer to live. The investment returns would compound exponentially from this point, to easily surpass the million dollar range.
Yet nobody talks about these possibilities. It's never on CNBC. Because everyone is about short term profit.
5 Ideas Today Based on These Findings
Let's look at 5 dividend aristocrats today that share similar characteristics. This isn't a complete endorsement on any of these, but can be a good starting point for additional research. I'll highlight a few attractive ratios that these companies have.
It's important to check valuations and balance sheet strength to increase the chances of finding the next dividend compounding success story. We'll use a similar format. Market capitalization, which will be followed by dividend yield, followed by consecutive years of dividend growth.
AIZ: ~$5B, 2.14%, 13 years
A company in the insurance sector, AIZ has a low P/E, P/S, and P/B. Checking the debt load on the company should be the next focus.
LEG: ~$6B, 2.69%, 45 years
This company is in the consumer goods space. Based on certain valuations it seems reasonable priced, but whether the business model validates its high P/B ratio would need additional insight.
RHI: ~$6B, 1.94%, 13 years
They provide staffing services worldwide. With zero long term debt to equity, it could be a good long term play. Whether the high P/B makes a good buy point would require further digging.
SCG: ~$9B, 3.61%, 17 years
This is a company in the utilities sector. Continuing to pay and grow this dividend could depend on keeping the payout ratio low (54% currently) and managing long term debt correctly.
FRT: ~$9B, 2.91%, 49 years
This stock is a REIT, which can be tricky for the novice investor. Additional research into the impact of interest rates on REITs would be prudent as well explanations to if it can sustain its high valuations.
The secret to real wealth in the market is that there's no secret at all.
Patience, prudence, and dividends.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.