Billionaire Rockefeller's Legacy, And 2 Big Dividends You'll Always Love

Summary

• Rockefeller was a big believer in creating wealth and growing his income.
• We can learn a lot from his legacy and how to create our own wealth.
• These two picks can provide countless opportunities via the dividends paid out.
• Looking for a portfolio of ideas like this one? Members of High Dividend Opportunities get exclusive access to our model portfolio. Learn More »

Hulton Archive/Hulton Archive via Getty Images

Co-produced with Treading Softly

Humanity has a habit of over-complicating things. We like to assume that simple is ineffective or inefficient. We build complex structures and algorithms when the same issues can be solved with simple logic.

We do this, mostly because we want to feel like we achieved victory on our own. This gives us the feeling that we deserve to carry a sense of pride. Ironically, even if you achieve something using the correct and simple method, you have every right to be proud of your accomplishment since, after all, you did it.

I see investors following complex mathematics, spreadsheets, charts, and computer screens that look like NASA - trying to predict where a stock's price might go tomorrow. Trying to buy the next big thing before everyone else and trying to sell before the price falls. There is an easier way.

When it comes to generating wealth, the simple solution means producing more income than expenses. Yes, it is that simple - make more than you spend, and spend less than you make and you are building wealth. Every excess dollar you make, or save, can be put to work to generate more income, and accelerate your wealth growth. Use your excess cash flow to buy dividend-paying income generators that will help grow your income and speed up your wealth accumulation. Prices will rise, prices will crash, but as long as your income exceeds expenses, your wealth will grow.

Consider John D. Rockefeller, widely viewed as one of the richest men in modern history. His net worth, when adjusted for inflation, was $350 billion. This is almost double the net worth of the current richest man, Jeff Bezos, who has $177 billion.

Both used a keen knack for entrepreneurial acumen and operated companies that generated large profits. Rockefeller was the CEO, Chairman of the Board, and major shareholder of Standard Oil. Bezos founded, was CEO, and is Chairman of the Board of Amazon (AMZN).

Yet, when they stepped away from day-to-day operations, the two took different approaches. Rockefeller maintained his majority shareholder control and was Chairman of the Board of Standard Oil. With this leverage, he required Standard Oil to pay 2/3rds of its profits in dividends. Bezos, as Chairman of AMZN, has not done the same.

This meant that Rockefeller not only benefited from Standard Oil's strong share prices but more importantly its dividends. He famously stated:

Do you know the only thing that gives me pleasure? It's to see my dividends coming in.

Rockefeller knew that share price alone was meaningless. He never intended to sell.

Source: Visual Capitalist

Some years later, Standard Oil was forced by the U.S. Supreme Court to divide into multiple companies. Through mergers and acquisitions, many large oil names to this day are directly tied to Rockefeller. If you are holding Chevron (CVX), Marathon (MRO), Exxon Mobil (XOM), or even BP (BP), you are holding remnants of Rockefeller's Standard Oil.

So how can we learn from Rockefeller and get the pleasure of seeing dividends come in? By following his blueprint as a shareholder and owning firms that pay strong dividends to you. Here are two excellent Rockefeller-style dividend-paying picks for you today.

Source: Shutterstock

Pick #1: AM - Yield 8.4%

Antero Midstream (AM) has pulled back from July peaks, along with much of the energy sector, as concerns over the Delta variant and possible impacts on energy demand have been at the forefront of investors' minds.

AM stores and transports natural gas [NG] and natural gas liquids for its parent company, Antero Resources (AR). Despite the fears of the Delta variant impacting the stock market, NG prices remain extremely high. We have seen a dip after peaking recently at $5.66, and now is back up close to $6. Seasonally, summer is usually a slow time for NG demand and often tied to weaker pricing, however, this year is seeing some of the highest prices in a decade. There is usually a fall/winter demand spike, and some estimates are that NG prices could exceed $100 in Europe and over $6 in the U.S. if there is a cold snap this winter.

These prices are a very bullish driver for the expansion of AR, which in turn will drive growth for AM. AM is already able to fully fund its cap-ex and dividends from free cash flow, so growth will make its already-secure dividend that much safer.

Source: EIA.gov

Natural gas continues to have a lot of tailwinds, as it is becoming an increasingly popular option for "greener" electricity generation. As can be seen above, it has essentially absorbed all of the fallout from reduced coal production.

As we go into fall, storage levels are below average, demand is rising, and supply has failed to keep up. Add in inflation, and you have a recipe for very high NG prices this winter. AM is in prime position to grow with its parent AR in these conditions. The tailwinds in the sector are strong, and we are happy to take advantage of any dips.

AM is an income generator and investors' friend in that it issues a 1099 at tax time and is taxed as a C-corp, offering favorable tax benefits. Rockefeller reaped the benefits of seeing the future with oil. Natural Gas has a bright future and a growing demand curve. I wager he'd love to see these dividends coming in.

Pick #2: HQH - Yield 7.8%

Tekla Healthcare Investors (HQH) is a CEF that focuses on the healthcare sector, investing in health services and medical technology companies. These companies enjoy strong tailwinds due to the aging U.S. population.

Despite this, healthcare has actually been an underperforming sector over the past five years and is relatively inexpensive today.

COVID was a wake-up call, and healthcare is being taken more seriously by the government, by consumers, and by investors. We can expect to see a lot of investment and a lot of innovation in the coming years and HQH is well-positioned to benefit. HQH holds companies like Moderna (MRNA), Gilead Sciences (GILD), and Abbott Laboratories (ABT).

Source: HQH Fact Card

HQH has 62.5% exposure to biotechnology and nearly 14% exposure to pharmaceuticals. It will benefit from the latest innovations, including the expansion of mRNA vaccines. As the third round of COVID-19 vaccine doses is starting to be required in many places, whether you agree with this or not, money is available to be made.

An aging population means demand for healthcare will continue to increase. When you combine this increasing demand with new innovations that cure, alleviate or manage health issues, you have the ingredients for strong tailwinds.

Healthcare is an undervalued sector that will thrive over the next decade, as Baby Boomers age and a larger portion of their wealth is redirected to healthcare.

HQH's distribution policy is to pay out 2% of NAV (net asset value) each quarter. This means that the dividend is variable and will go up or down with NAV. As NAV grows, your income grows too! Currently, HQH is trading at a slight discount to NAV. With the healthcare sector poised to outperform, HQH is a great opportunity to get a growing income.

Source: Shutterstock

Conclusion

I get great joy whenever a dividend arrives in my brokerage account. Some come monthly, others quarterly, and I have a few rarities that come annually.

Rockefeller said his only pleasure in life was seeing his dividends come in. He was revealing a timeless truth. The best means to grow wealth in investing is to get paid by the companies you invest in!

More income means more excess income after your expenses. That excess income can be reinvested to generate even more income, creating a virtuous cycle where your income grows your wealth a little bit faster with each dividend paid.

While I don't want you to only enjoy dividends rolling into your account, I do want you to enjoy them. I want them to open doors of possibility for you to enjoy all that life has to offer us.

Income investing is a time-tested means to generate long-term wealth. Rockefeller was a believer in it after he stopped being primarily a businessman. Keep it simple, make your income higher than your expenditures, and then reinvest the difference in more dividend-paying stocks. Your income will grow, and the rate of growth will accelerate over time!

Analyst’s Disclosure: I/we have a beneficial long position in the shares of AM, HQH either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Treading Softly, Beyond Saving, PendragonY, and Preferred Stock Trader all are supporting contributors for High Dividend Opportunities. Any recommendation posted in this article is not indefinite. We closely monitor all of our positions. We issue Buy and Sell alerts on our recommendations, which are exclusive to our members.

Comments

[Vandooman]

Rockefeller lived before the age of income taxes. What Bezos, Zuckerman et all do is borrow against their stock holdings and realize cash for buying their toys, with no income tax hit and no sales of stock. In my banker days we had a $1 billion line for Paul Allen secured by $37 billion in Microsoft stock. In Allen's case he used it to buy sports franchises and build stadiums, later refinancing.

Asian real estate investors in California routinely refinance their real estate, realize cash from increased valuations, and buy homes and cars. The rental income covers the debt service and the debt is never repaid. If valuations crash there is no default so long as interest is paid and in any case, under the single course of action rules, lenders can only go after the asset.

[Rida Morwa]

@Vandooman Good point, but that is an option most of us retail investors don't have. It does explain why dividends are rather small and rare among the "new money" companies in big tech.

[Valuestocks007]

@Vandooman When you say later refinanced it.. you mean against his MSFT stock? I heard a podcast recently that explained this issue once people get to $50 mil the bankers fight over you to give you credit against your holdings thus you essentially get out of the tax system. The people who really get crushed in this country are people between $250k-$2 mil K per year.. that work for a company with no writes off and you likely don't get to $50 mil to borrow against it.. Thus we keep trying to tax the same people more and more rather than fix the system! Thank you for your insights... its frustrating we have the money and income in the USA to tax it we just never do!

[Valuestocks007]

@Rida Morwa Its crazy! But some of those tech companies MSFT, CSCO add more and more to the dividend bucket every year!

[Current$ea]

Rockefeller must have been the true hero of @Buyandhold2012 ‘s mom!

For all the Rock-haters, don’t forget his famous Ledger “A”, the little red book he started on the first day of his first full-time job at age 16. He celebrated that date (September 26) annually as “Job Day” every year of his life until he died at age 97.

In his ledger “A”, he recorded every transaction he made to the penny, a practice he continued for the rest of his life. He kept that Ledger A with him til the end. They may have buried him with it…

Maybe more people today should be like that rather than credit card spendthrifts they are. The nation would be in much better shape today, and wealth “inequity” wouldn’t be the issue it is now, would it? Oh, and he lived way more frugally than most people today, by a long shot.

When it comes to wealth, the comparison of Rockefeller’s $350B (adjusted for inflation) to Bezos’ $175B severely underestimates the Rock’s fortune. Rockefeller’s maximum net worth was calculated in cash (!) after he liquidated his shares. If Bezos did that today, his $177B on liquidation would be far less.

[GE watcher]

@Current$ea I wouldn't necessarily say that he lived frugally. The Rock estate just north of Manhattan was 4300 acres with a nice mansion and family houses including his own 18 hole golf course. He did not value material things such a art, boats, cars jewels..ect.
btw... the A Ledger is in the family archives

[Preferred Research]

@GE watcher Senior was frugal, but willing to spend when he wanted something. NY Central RR had a line which ran through his Westchester County property. He paid 100% of the costs to have it moved, eliminating 3 stations. He purchased every house in the village of Eastview NY (east of Tarrytown) and moved all the residents.
He was vain, and in the picture at his desk he is wearing a wig.

[JANFA]

Thank you for the article. What do you think is the ~5% drop of HQH during September?

[PendragonY]

@JANFA

A setup for a good time to buy more shares.

[Slade_01]

I like many aspects of $AM outside of its dependence on $AR. I have several midstream holdings (ENB, EPD, and MMP). Why would AR be superior to any of my current positions?

[Rida Morwa]

@911Slade I like your various holdings as well. AR is a good capital gains play while AM is an excellent income investment. The focus on dry natural gas with high Natural gas prices bodes well for increased production by AR thus leading to increase revenue for AM

[allenhe]

Nice article. Would have preferred some REIT names. These ones seem a bit risky (hence the big yields).

[Rida Morwa]

@allenhe Thank you. We have some REIT ideas coming down the pipes, or you can join HDO and get our top weekly picks which are released every Monday to HDO members only.

[PendragonY]

@allenhe

I have been hearing that for some time. BUT, I have already gotten about 55% of the money I invested in AM back in distributions, and my average share price is such that if the price falls by half, I will still have about a 60%+ gain over less than 2 years. And while the price might drop to $9 or so, I think dropping back to the $5 range is very unlikely. So even new shares bought now don't have a lot of risk.

[carnegie]

Hard pass !!!

[PendragonY]

@carnegie

Thanks for reading and commenting.

[rado403]

That was fun to be reminded about the break up of ESSO and what became of all the various branches

[Rida Morwa]

@rado403 I'm glad you enjoyed the history lesson

[Valuestocks007]

Gates would be worth over $500 billion had he just held msft! Great stay on Rockefeller all time net worth

[Rida Morwa]

@MJB007 Gates is too busy buying up all the farmland he can now. In the end, I guess we all love to own a piece of the planet.

[littlecubbie2019]

@Rida Morwa I wonder if there is something more sinister going on as far as gates is concerned. Why does he keep buying farm land?

[Valuestocks007]

@Rida Morwa He has done some good with the money and reallocated a bunch for sure. Had he pulled a Buffett and just held his own stock.. can you imagine!

[Villi Grdovich]

Not sure what % of Standard Oil the Great Man held, but if he had kept >50%, he would have had access to the company cash flow which would be more than its dividends.

[Rida Morwa]

@Villi Grdovich Are you claiming he would just siphon off its cash flow when he was no longer in the active management role but as the chairman of the board.

[hawkeyec]

@Villi Grdovich

In those days he didn't need to own 50%. He merely owned all of the shares of the various trusts he set up to obtain voting control of all the subsidiaries he created. Today trusts are an underutilized vehicle for managing the control of large corporations.

[Villi Grdovich]

@Rida Morwa No, he could not would.

[WelshWB]

"Do you know the only thing that gives me pleasure? It's to see my dividends coming in."

This is so misleading Rockefeller initially reinvested all of the earnings of Standard Oil to grow the company so he did not draw much out of Standard Oil. He was not driven by dividends for the sake of dividends.

In the era of Rockefeller oil extraction was cheap and thanks to the economy of scale there was minimal wastage so the company had a huge surplus of capital. By the time Rockefeller retired Standard Oil dominated the oil industry the company had non growth left and it was forced to breakup therefore it was no longer practical to reinvest the dividend between companies. This is why he took dividends.

On the other hand Amazon is the harbinger of most sector it just seems to grow and grow. Once Amazon has dominated one sector it moves to a new one. This is why Bezos is unlikely to want dividend reinvest earnings in a new business to grow the company. Also Bezos can sell just 0.1% of his net holding per annum to fund his lifestyle and even if he did that for 100 years he would only sell 17% of his stake.

[PendragonY]

@WelshWB

Standard Oil didn't break up because it was too big to grow anymore. But perhaps a similar fate awaits Amazon.

[Don P]

@PendragonY He didn’t say that it did. He stated:”…the company had non growth left and it was forced to breakup…” He stated that both things happened, but he didn’t state that one caused the other… but I can see how you could interpret it that way.

[Finici]

First, Don, you are correct in that 'non-growth' was not the cause of Standard Oil breaking up.

Rida is also very correct in that the court caused the breakup...it was a forced break-up in 1911 as a result of a case brought by the federal govt under the Sherman Anti-Trust Act.

I suspect that were that case not brought old JD's successors would still be in business as the holding company (Std of NJ/Exxon) of all the subsidiaries, which was a pretty byzantine arrangement of ownership and trusts.

Jay

[fun times!]

I gotta say it ... the two best dividend compounders in this blog post are in your graphic ... CVX and XOM. And if you believe the ESGers, the Rockefeller heirs cannot sell the shares fast enough. fun times! long and short both.

[Rida Morwa]

@fun times! Thank you for sharing your thoughts

[bill.ott]

Holding both stocks, doing well, happy with the buy decisions

[Rida Morwa]

@bill.ott I'm glad you're happy with your decisions. Thank you for commenting.

[mlasell]

Rockefeller could only eat bread soaked in milk towards the end of his life because of his ulcer. He was famous as a skinflint for giving out dimes during the depression from his limousine. He made his son’s life unpleasant because his son did not want to continue piling up money but instead wanted to give it away.
I doubt that John D. was a happy man, and aspiring to be like him by collecting dividends from companies that are actively destroying our future will not make you feel good.

[zolton7620]

@mlasell You missed the whole point of the article.

[oilBoss]

@mlasell "He did his way..." and that's OK.

[Rida Morwa]

@mlasell Many people struggle to eat near the end of their lives and disagree with the views of their children, if we were to throw away any possible lessons from those people, we would lose the benefit of learning from the experiences of others.

[TomJeff]

@Rida Morwa These two picks simply don't yield enough after 5% inflation.
Stick with your very great pick OXLC. Yields 6% AFTER inflation and moving up strongly recently. Up 1.66% today.

[Rida Morwa]

@TomJeff I like to have a wide diversity of income sources. OXLC is an excellent one I agree.

[NYer1]

@Rida Morwa
Not a big fan of HQH hwere due to over valuation vs. its long term avg. discounts.
I took my profits in it about a month ago when it was trading at 1.5-2.5% premium to NAV.
I moved into BMEZ recently at a discount of over 8% to its NAV ,which I find much more attractively valued currently vs. HQH.
I also prefer the income BMEZ pays (even though it is slightly lower) because it is not dependent on NAV .
I think HQH will have a bigger drawdown when the market tumbles over the next cycle and I also like the fact BMEZ has exposure to private equity in healthcare which has a higher potential for long term profits while being less volatile.

[PendragonY]

@NYer1

The income from BMEZ isn't slightly lower, it is only 5.5% while HQH is 7.98%.

[masterwork]

I have been thinking to buy this fund for a while, but the expense ratio seem kind high, 2%?

[Rida Morwa]

@masterwork The expenses are paid internally for a CEF so you get the entire distribution. I do not let expense ratios alone govern my investments.

[PendragonY]

@masterwork

Remember, the yield and the distribution are net of expenses.

[Craig69]

"Humanity has a habit of over-complicating things. We like to assume that simple is ineffective or inefficient. We build complex structures and algorithms when the same issues can be solved with simple logic."

Great quote which I have saved in my memo's😊

[Rida Morwa]

@Craig69 That is a very good quote I agree.

[PendragonY]

@Craig69

I try to use the KISS principle whenever possible. That is a great quote.

[Craig69]

@Rida Morwa
Check this one out:)

"Thought becomes Idea,
Idea becomes Action,
Action becomes Habit,
Habit becomes Destiny".

[JEUWetzel]

If your main pleasure in life is seeing dividends come in, then you might want to keep searching.... Yes, it's nice, but there is a lot more to life. I didn't see him with a u-haul behind him when he died...

[Rida Morwa]

@JEUWetzel Uhaul's didn't exist back than, but yes I get your point. I think money is a tool to achieve one's goals, not the best goal in and of itself.

[sheepdip]

@JEUWetzel It reminds me of a tombstone . Albert Pease III 1902-1992. Ninety years upon this earth.
AND NEVER DIPPED INTO CAPITAL

[HugoTheImpaler]

Rockefeller was an extreme socialist.

[Rida Morwa]

@HugoTheImpaler We can often learn valuable lessons from those we disagree with while also rejecting those things we disagree with.

[GE watcher]

@HugoTheImpaler Not even close to a socialist. He was the perfect definition of a capitalist

[HugoTheImpaler]

@GE watcher Yes. He was a socialist.
It was just regressive socialism.

[pauliel]

I think your comparison of Standard Oil to AM and HQH is stretched rather thin. Standard Oil generated a lot of wealth as a market disruptor because of the mushrooming acceptance of the automobile and ultimately airplane travel following WWII. Neither of your picks is in that enviable position. In fact, I would argue that they may face long-term headwinds despite intermediate-term advantages. Long term there will be a shift to green energy away from fossil fuels and we are seeing a stagnant birthrate.

While Standard Oil and its successors have experienced long-term dividend growth I don't see that happening for your picks.

[Rida Morwa]

@pauliel "So how can we learn from Rockefeller and get the pleasure of seeing dividends come in? By following his blueprint as a shareholder and owning firms that pay strong dividends to you."

I would say this is not a stretch at all. I respect your difference of opinion.