The Initial Grind Is The Hardest

I started my website over fourteen years ago in early 2008. During that time I shared my process of looking for and analyzing companies. I discussed my strategy in detail, delved into topics such as building and monitoring a portfolio. I have discussed resources I use, books I have read, and investors who have inspired me.

Back in 2018, I decided to put all of this information to practical use in real time, and launch a premium newsletter where I show investors how I am building a dividend portfolio from scratch. After investing in this portfolio for 44 months as of April 2022, I have learned a few lessons that are applicable to almost anyone investing in dividend growth stocks.

The goal of this dividend portfolio is to generate $1,000 in monthly dividend income after investing $1,000/month for a certain period of time. I try to allocate the money each month in ten attractively valued companies. It is exciting to launch a new portfolio from scratch, and watch it grow by applying my principles in real time. But investing is a long-term process. This project will go on for at least a decade. As such it is more of a marathon than a sprint.

I have invested $53,300 so far in 83 companies through April 30th, 2022. The portfolio is projected to generate $1730.27 in annual dividend income. This comes out to $144.19 in monthly dividend income, and takes us to around 15% of our long-term dividend goal. The forward dividend income has steadily increased since launching of the newsletter in July 2018. I expect this trend to continue, driven by new investments, dividend reinvestment and dividend growth.

Currently, the impact of new capital contributions drives most of the gains in forward dividend income. The rate of dividend growth is not as significant, given the small relative capital and dividend base. After a few years of investing however, the impact of dividend growth will be much more powerful than the impact of new contributions. This is why when investing, I need to play a long-term game, and focus on companies that can grow earnings and dividends 5 - 10 - 20 years down the road. In an uncertain world, I need to focus on companies with business models that can endure most calamities. Yet, I also need to be diversified, in order to protect against tail risks.

The portfolio has had 207 dividend increases since the launch of the newsletter. We had only three dividend suspensions and two dividend cuts. When we do have a dividend cut, I sell the security with a cut one second after the announcement, and buy something else with the proceeds. I may reconsider a dividend cutter after I have sold it, once it starts growing dividends again. I have had two dividend freezes, which is when companies keep dividends unchanged. I will continue holding, but not sell.

The amounts of dividend income quoted today are low. However, this is just the beginning. Plus, I believe that what I am presenting to you is a strategy/system for achieving long-term financial goals and objectives. This is the type of investment program I have followed in my personal portfolio for over a decade.

By following a consistent program of making regular new investments, reinvesting dividends selectively and patiently holding on to those shares, we have created a virtuous cycle which increases chances of financial success. Best of all, investing is a scalable activity. The same amount of effort is needed to invest $1,000 or $10,000 or $100,000.

The initial grind is always the hardest part of investing. When you buy $1,000 worth of shares, and you generate $30- $40 in annual dividend income, it is easy to get discouraged.

For those rare individuals like you and me however, that first $30 - $40 in annual dividend income is pretty exhilarating. You get your a-ha moment when you see that passive dividend income as your stepping stone towards your eventual financial independence. Once you make the investment, you realize that money is working hard for you, so that you don’t have you. You see each dollar invested as a dollar that will grow dividend income for you, without any additional effort. Similar to building a house brick by brick, you see the process of building a dividend portfolio through the lens of each individual purchase.

You realize that with every single investment you make, you are buying your financial freedom.

After several years of investing, the amounts of dividend income start getting noticeable.

After several years of patiently buying quality blue chip companies, reinvesting the dividends and holding those shares for the long term, the dividend income starts getting some real traction. This is the point where the powerful force of compounding starts to overtake the monthly amounts that are added to the portfolio.

To summarize, the system for building wealth and passive income is really simple:

• Buy quality dividend growth stocks every month 
• Hold those shares for as long as the dividends are not cut 
• Reinvest dividends selectively 
• Maintain a diversified portfolio 
• Be a patient buy and hold investor

Investors with a long-term outlook, who won't despise the days of small beginnings, and who patiently accumulate assets stand a chance to reach their financial goals and objectives.

You can sign up for a seven day free trial for the Dividend Growth Investor Newsletter by clicking on this link. If you have read this site for the past decade or more, you will likely enjoy the newsletter as well.

Relevant Articles:

- Dividend Growth Investor Newsletter
- Use these tools within your control to get rich
- What drives future investment returns?
- Estimating future Dividend Growth
- The value of dividend growth in retirement planning

Utility Companies Between 1929 and 1992

I enjoy collecting old pieces of information, which aid me in my research. A few years ago, I started collecting old editions of Moody's Stock Manuals when they were available for sale at low prices at Amazon or Ebay.

I was browsing through the 1993 Moody's Manual of Dividend Achievers, and found the following chart of the Moody's Utility Stock Index between 1929 and 1993. 

I really like this chart, because it shows the price for the index, as well as the trends in earnings per share, and dividends per share. It would have been even better if it included total returns, of course, but I would get what I can.

I find this chart to hold a ton of interesting information, that few are aware of today. A picture is truly worth 1,000 words.

You can see that the price index of utilities in the US basically went nowhere between 1929 and 1993. That's because it only looks at stock prices.

You can see that the whole return for this index was derived from dividends, over a long period of 64 years.

Why is that?

First of all, utilities were considered "growth stocks" in the 1920s and 1930s. The electricity consumption was rising for example, and was expected to grow because more customers were going to be connected to the grid. There was a big boom, couple with a lot of investment in anticipation of the future growth. Then, there was also some fraud and manipulation, which is just normal human nature when too much easy money is floating around. A lot of companies were overleveraged as well. As you can see, utility stocks were expensive in 1929.

Then the US experienced the crash of 1929, followed by the collapse of many banks, mass unemployment, and an economic depression. This is referred to in the history books as "The Great Depression". 

You can see that utility earnings declined between 1929 and 1934, which dragged share prices and dividends down along with them. 

There were a few regulatory events happening at the time, which broke down some utilities. The 1930s were a time of largely flat earnings, dividends and share prices. 

Since the 1940s however, utilities started earning more and raising dividends to shareholders. The late 1930s and up until 1940s, utilities were selling at low valuations and offering high yields to investors. Interest rates were artificially low at the time too, similarly to what we saw in 2019 - 2021.

They were depressed however, and probably there was little investor interest. After all, memories from the 1929 - 1933 crash were still there. The utility stock index had declined from 120 to 20, which definitely lost investors money. We should also remember that in the 1920s and early 1930s, it was possible to buy stocks on margin by putting only 10% down. Therefore, if a stock went down by 10%, you were wiped out.

This just shows you that it is important to buy at a good price, without overpaying. It is also important to take speculative bubbles with a big grain of salt. While folks in 1929 were right to expect mass growth in utilities revenues and consumption over the next century, they were not properly compensated for it. That's because they paid high prices for future growth, and invested in overleveraged conglomerates that may have lacked in internal controls and didn't care much for investors money. They also invested in speculative companies that failed. 

While utility companies are considered to be safe today, that's mostly due to the past 80 years. The utility companies from the 1920s and even 1930s were viewed as more growthy companies. Each industry goes through a cycle like this, where it is the new kid on the block that excited investors, who euphorically bid up stocks to the sky. After all, this is a new industry that would revolutionize something. After the bubble pops, investors do not want to touch it with a ten foot pole. That's usually when it is the best time to invest. In the meantime, the industry matures, and starts attracting more seasoned investors.

However, in the 1940s, utilities were very cheap and investors were properly compensated for the risks they took. Despite the fact that interest rates rose from 1940s to 1960s, utility stocks went up in price, their earnings rose and dividends rose. That's because there was an adequate margin of safety in the 1940s and utilities had cleaned up their act from the excesses of the "Roaring 20s".

Utilities kept earnings more and growing dividends through the late 1980s. However, utility stock prices peaked in the middle of the 1960s and then started trending downwards through 1974. There was a big bear market in 1972 - 1974, which explains just part of the story.  After bouncing from the 1974s lows, utilities trended sideways through the late 1970s, despite earning more. That's because interest rates were really rising in the 1970s, due to high inflation.

However, the other factor to consider is that inflation started going up in the 1960s and really increased in the 1970s. As a result, interest rates started growing as well, until reaching close to 20% in the early 1980s.

Interest rates act like a gravitational pull for equities. As a result of rising interest rates, share prices declined, because investors demanded higher dividend yields and lower P/E ratios as a compensation.  It also means that taking on loans to finance new projects is more expensive too. Furthermore, rising interest rates means that cost of capital is higher, and it also means that new projects are more expensive to finance. Therefore less projects may get done, and less future earnings can be generated from that. 

Rising inflation also means that it costs more to maintain and upgrade and run a company. Luckily, utility companies can pass on costs to consumers, albeit at a delay. This is where it really depends whether your state is more business friendly or more consumer friendly. 

Of course, this index shows how a group of utility companies performed during that long period of time. There was turnover in the group of companies that comprised the index. Plus, some companies did better than others. For example, Con Edison (ED) ended up cutting dividends in 1974, because it used oil to generate electricity. When oil prices spiked, the company was in real trouble and had to be effectively bailed out. 

There were some utilities that had other issues. The Three Mile Incident was a major disaster in the US, which altered the public opinion on Nuclear Energy. The company that owned it, ended up suspending dividends in the late 1970s.

I am posting this, in order to provide some more context behind this long-term chart of Utility prices, earnings and dividends from 1929 - 1993.

You can see that after interest rates peaked in early 1980s and started going down, utility company share prices started rising and eventually surpassed the highs from the 1960s and even reached all-time-highs by the 1990s.

It does look that utility earnings stopped growing in the latter part of the 1980s and dividends didn't grow by much in the latter part of the 1980s. I believe that they grew from there, albeit slightly. 

You can view a chart of US interest rates between 1790 and 2010 here for reference:

Source:

You can also view the annual inflation rate in the US sine 1900 in the chart below:

Source:

Why am I posting this information?

Mostly because I view it as an interesting historical lesson, which contains traces of information that could be beneficial for investors. For example, I believe that bubbles created in new industries are something that you would see over a 30 - 40 year history as an investor. So it may pay to educate as much as possible on the topic. I am of course, just scratching the surface on the topic.

The other reason is because it is possible that the current environment does turn into something that resembles the situation from the 1970s. This is where higher inflation and higher interest rates push share prices lower, even if companies earn more and grow dividends. This means that paying too high of an entry multiple for shares may not be a good idea if interest rates are about to rise dramatically. That's because multiples would likely shrink. (e.g. from a P/E of 30 to a P/E of 10)

In addition, it is important to focus on companies where earnings grow, because that could ensure that dividends can grow and compensate for the eroding power of inflation.

Long term returns are a function of:

1) Initial dividend yield

2) Growth in earnings per share

3) Change in valuations

If you overpay massively at the start, and growth is slow, while valuation shrinks, you may be in for trouble. This is the time where you need to review each company you own, and determine if it can deliver a return on investment in various scenarios.

For example, Con Edison (ED) is selling for 21.50 times forward earnings today. It yields 3.27%. The stock is at an all time high. This dividend aristocrat has managed to grow dividends for 48 years in a row. However, it has a ten year dividend growth of 2.60%.

Earnings per share have gone from $3.86/share in 2012 to $3.85/share in 2021. This is the type of investment that may not be able to grow dividends fast enough in an inflationary environment, so their dividends would lose purchasing power. In addition, the stock may decline if the P/E ratio declines and the dividend yield increases. This is the type of quick review I would do.

Relevant Articles:

- How Dividend Growth Investors can prosper even if interest rates increase

- How dividends protect income from inflation

- Interest Rates Affect Stock Valuations

- A Look Under the Hood For Inflation

- High Dividend Utility Stocks – Are they a trap for income investors?

Eight Dividend Growth Stocks Raising Distributions

I review the list of dividend increases every week, as part of my monitoring process. I usually focus my attention on the companies with a ten year streak of annual dividend increases, and then review each company using my criteria. I am always on the lookout for new ideas, and to determine if my existing holdings are working. I also want to be ready to act quickly, when the right time arrives.

This exercise helps me to evaluate companies I already own, and see how they are doing. This is a helpful piece of the puzzle, that would be helpful when/if I decide to add to these companies at the right price.

This exercise also helps me identify companies for further research. A large part of the time is spent reviewing companies, screening for companies, and trying to learn more about companies, their business, etc. 

It is not glamorous at all, but dull and boring. 

But it does pay dividends.

Over the past week, there were several companies raising dividends. The companies include:

This of course is just a list, not a recommendation.

I also wanted to mention Lindt & Sprüngli, which raised its annual dividend by 9.09% to 1,200 Swiss Francs/share. This is the 27th year in a row that the company has increased the annual dividend. It is traded on the Swiss stock market, although the stock is also traded as an ADR on the OTC market in the US. The stock is expensive based on absolute share price and based on valuation however. 

When I review companies, I look at ten year trends in:

1) Earnings per share

2) Dividend payout ratio

3) Dividends per share

4) Valuation

Since I have some experience evaluating dividend companies, I also modify my criteria based on the environment we are in and the availability of quality companies. If I see a company with a strong business model and certain characteristics that I like, I may require a dividend streak that is lower than a decade. I have also found success in looking beyond screening criteria by purchasing stocks a little above the borders contained in a screen.

It is important to be flexible, without being too lenient.

You may like this analysis of Johnson & Johnson (JNJ) as an example of how I review companies.

I would expect further dividend increases next week from Apple (AAPL), Ameriprise Financial (AMP) and W.W. Grainger (GWW). 

Relevant Articles:

- Dividend Stock Analysis of Johnson & Johnson (JNJ)

- Johnson & Johnson (JNJ) Raises Dividends by 6.60%

- Four Notable Dividend Increases Expected for April 2022

- Five Companies Delivering Dependable Dividend Raises

Companies discussed in this post: BHB, DGICA, DGICB, JNJ, LAD, NDAQ, SO, STBA, TRV

Dividend Stock Analysis of Johnson & Johnson (JNJ)

Johnson & Johnson (JNJ), together with its subsidiaries, is engaged in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices & Diagnostics. This dividend king has paid dividends since 1944 and has managed to increase them for 60 years in a row. Dividend increases have been like clockwork every year for decades.

Johnson & Johnson earned $3.49/share in 2011 and managed to grow earnings to $7.81/share in 2021. The company expected to earn between $10.53/share in 2022.

Johnson & Johnson has a diversified product line across medical devices, consumer products and drugs, which should serve it well in the future. This makes the company somewhat immune from economic cycles. Investors looking for a safe and dependable earnings can look no further than Johnson & Johnson. In addition, the company has strong competitive advantages due to its scale, leadership role in various diverse healthcare segments, breadth of product offerings in its global distribution channels, continued investment in R&D, high switching costs to users of its medical devices, as well as its stable financial position.

Future profits growth could come from new product offerings, which are the result of continued investment in research and development, and through strategic acquisitions.

Johnson & Johnson has managed to reduce number of shares outstanding over the past decade, which helped earnings per share growth. Between 2011 and 2021, the number of shares went from 2,775 million to 2,877 million and then declined to 2,674 million. The short bumps up were related to acquisitions.  

The company managed to grow its dividends by 7.40%/year over the past decade. The company's latest dividend increase was announced in April 2022 when the Board of Directors approved a 6.60% increase in the quarterly dividend to $1.13/share.

The dividend payout ratio has decreased from 64% in 2007 to 54% in 2021. The ability to generate strong cash flows, have enabled Johnson & Johnson to reward shareholders with higher dividends for 60 consecutive years. I believe that the dividend is safe today, but will likely be limited to future growth in earnings per share of 5% - 6%/year over the next decade. A lower payout is always a plus, since it leaves room for consistent dividend growth and minimize the impact of short-term fluctuations in earnings.

Currently, the stock is attractively valued at 16.90 times forward earnings, yields 2.45% and has a forward dividend payout ratio of 43%.

Relevant Articles:

- Eleven Dividend Focused Companies For Further Research
- Dividend Growth Investor Newsletter Turns One
- Dividend Kings List For 2019
- How to value dividend stocks

Johnson & Johnson (JNJ) Raises Dividends by 6.60%

Johnson & Johnson (JNJ), together with its subsidiaries, is engaged in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices & Diagnostics. This dividend king has paid dividends since 1944. Dividend increases have been like clockwork every year for decades. Check my analysis of Johnson & Johnson (JNJ) for more information about the company.

I just read that Johnson & Johnson (JNJ) has hiked dividends by 6.60% to $1.13/share. This marked the 60th consecutive annual dividend increase for this dividend king. There are only 38 companies in the US which have managed to increase dividends annually for at least 50 years in a row.

Over the past decade, Johnson & Johnson has managed to grow dividends at an annualized rate of 6.40%/year.

When reviewing press releases that discuss dividend increases, I always find it helpful to see the tone from top management. I especially liked what the CEO had to say (Source: Press Release):

"In recognition of our 2021 results, strong financial position, and confidence in the future of Johnson & Johnson, the Board of Directors has voted to increase the quarterly dividend for the 60th consecutive year," said Joaquin Duato, Chief Executive Officer of the company.

This dividend increase is a testament to the stability of the business model. Johnson & Johnson was one of the first companies to raise dividends in April 2020, amidst the uncertainty of the Covid-19 pandemic. It has also delivered during the last few crises, such as during the Global Financial Crisis of 2007 - 2009. When other companies cite current conditions as unprecedented,  Johnson & Johnson actually can provide guidance on revenues and earnings. It is always reassuring to understand that long term fundamentals remain intact, no matter what life throws at this business.

The company expects to earn somewhere between $10.15 and $10.35/share in 2022. 

The valuation seems fine today at 16.90 times forward earnings, albeit it would always be better if the stock is available at a lower price. The stock yields 2.45%.

Relevant Articles:

- Four Notable Dividend Increases Expected for April 2022

- Dividend Kings list for 2022

- Dividend Stock Analysis of Johnson & Johnson (JNJ)

- Help! I have a serious spending addiction

Five Companies Delivering Dependable Dividend Raises

As part of my weekly review process, I monitor the list of dividend increases and focus on the companies with at least a ten year history of dividend increases. This process helps me to monitor existing positions, but also to identify companies for further research. 

It is also a good reminder about the companies that I never pulled the trigger on, despite understanding them. As an investor, I get to learn from mistakes I make, and hopefully improve over time. 

Over the past week, there were several companies that raised dividends. The companies with at least a ten year track record of annual dividend increases include:

The Procter & Gamble Company (PG) provides branded consumer packaged goods to consumers in North and Latin America, Europe, the Asia Pacific, Greater China, India, the Middle East, and Africa. It operates in five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. 

Procter & Gamble raised its quarterly dividend by 5% to $0.9133/share. This was the 66th consecutive annual dividend increase for this dividend king. I liked this part from the press release:

This dividend increase marked the 66th consecutive year that P&G has increased its dividend and the 132nd consecutive year that P&G has paid a dividend since its incorporation in 1890. It reinforces our commitment to return cash to shareholders, many of whom rely on the steady, reliable income earned with their investment in P&G.

Over the past decade, the company has managed to grow dividends at an annualized rate of 5.20%.

Between 2012 and 2021, the company managed to grow earnings from $3.66/share to $5.50/share.

P&G is expected to earn $5.86/share in 2022.

The stock is selling for 27.05 times forward earnings and yields 2.30%. Check my review for more information about the company.

Costco Wholesale Corporation (COST) engages in the operation of membership warehouses in the United States, Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan. 

Costco raised its quarterly dividend by 13.90% to $0.90/share. This was the 18th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to grow dividends at an annualized rate of 12.70%.

Between 2012 and 2021, the company managed to grow earnings from $3.89/share to $11.27/share.

The company is expected to earn $13.04/share in 2022.

The stock is selling for 45.26 times forward earnings and yields 0.61%. Check my review for more information about the company.

Aon plc, (AON) is a professional services firm, provides advice and solutions to clients focused on risk, retirement, and health worldwide. 

AON increased its quarterly dividend by 9.80% to $0.56/share. This is the eleventh year of consecutive annual dividend increases for this dividend achiever.

During the past decade, the company has managed to increase dividends at an annualized rate of 12.70%.

Between 2012 and 2021, the company managed to grow earnings from $2.99/share to $5.55/share.

The company is estimated to earn $13.27/share in 2022.

The company is selling for 24.74 times forward earnings and yields 0.68%.

First Republic Bank (FRC) provides private banking, private business banking, and private wealth management services to clients in metropolitan areas in the United States. It operates in two segments, Commercial Banking and Wealth Management. 

First Republic Bank raised its quarterly dividend by 22.70% to $0.27/share. 

This is the banks 11th consecutive year of dividend increases. The company has raised dividends by 6.40%/year over the past decade.

Between 2012 and 2021, the bank managed to increase earnings from $2.75/share to $7.68/share.

The company is expected to earn $8.44/share in 2022.

The stock is selling for 19.05 times forward earnings and yields 0.67%. 

Quaint Oak Bancorp, Inc., (QNTO) operates as a chartered stock savings bank. The company operates in two segments, Banking and Mortgage Banking. Quaint Oak Bancorp increased its quarterly dividend by 18.20% to $0.13/share. This was the 14th consecutive annul dividend increase for this bank.

Between 2012 and 2021, the company managed to grow earnings from $0.55/share to $3.06/share.

The company is selling for 7.60 times earnings and yields 2.24%.

Relevant Articles:

- Costco (COST) Hikes Dividends by 13.90%

- Procter & Gamble (PG) Raises Dividends For 66th Consecutive Year

- Four Notable Dividend Increases Expected for April 2022

- Four Dividend Growth Stocks Rewarding Shareholders With Raises

Costco (COST) Hikes Dividends by 13.90%

Costco Wholesale Corporation (COST) operates membership warehouses in the United States, Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan. You may have seen its stores mentioned in news stories, where long-lines of shoppers are waiting to get in the store. You may have also seen Costco material on empty shelves that used to have toilet paper before.

That company managed to increase its quarterly dividend by 13.90% to $0.90/share. (Press Release) This marked the 18th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to increase dividends at an annualized rate of 12.70%.

Costco has paid special dividends on three separate occasions over the past decade. The company paid $7/share in 2012, when taxes on dividends were supposed to increase ( they didn't). Costco also distributed $5/share in 2015, and $7/share in 2017. The last special dividend was $10/share in 2020.

Costco is a great company that cares about its employees, customers and shareholders, and has created a unique business model that benefits all stakeholders. The ability to distribute special dividends shows this to me. The company is a rarity today, since it has largely kept the number of shares outstanding stagnant. It favors special dividends to share buybacks, so it is a company after my own heart.

The dividend growth was supported by strong earnings growth. Earnings per share increased from $2.47/share in 2009 to $11.27/share in 2021. 

Prior to the financial crisis, the peak earnings for Costco were in 2008 at $2.98/share. This makes the decrease to $2.47/share not that bad. Otherwise, earnings per share have been trending upwards. The company is expected to generate $13.04/share in 2022. 

The company tends to offer a large quantity of limited variety products at competitive prices. Costco buys directly from vendors in bulk. It also has a quick inventory turnover. This results in generating cash from a sale before having to pay the supplier invoices. Shoppers are loyal to Costco, and employees love working there. Employees are paid very competitively, which is why they stick around, reducing costly turnover. Most of the profits are coming from recurring membership fees, as Costco largely sells its merchandise at a price to cover its expenses.

Charlie Munger, the investing partner of Warren Buffett is a director at Costco since 1997. He has seen the inner workings of the retail giant closely for over two decades. This statement of his is insightful about the inner workings of Costco:

"It has a frantic desire to serve customers a little better every year. When other companies find ways to save money, they turn it into profit. Sinegal passes it on to customers. It's almost a religious duty. He's sacrificing short-term profits for long-term success."

Costco has also maintained a relatively stable dividend payout ratio. It has largely remained between 25% in 2013 to a high of 32% in 2016. This is a fairly tight range, and shows that dividend growth was entirely driven by growth in earnings per share.

I have liked Costco's business model, and have also been a member for several years. I believe that this is a business built to last, which will be successful in the long-term. However, the valuation has always stopped me from initiating a position in the stock, which seems like a mistake in hindsight.

	2021	2020	2019	2018	2017	2016	2015	2014	2013	2012	2011	2010
High Price	460.62	349.06	299.95	233.52	183.18	169.73	156.85	126.12	120.20	99.28	83.95	62.12
Low Price	307	271.28	189.51	154.11	142.11	137.50	117.03	109.50	93.51	76.59	55.74	49.95
P/E High	40.9	38.7	36.3	32.9	30.1	31.8	29.2	27.1	26	25.5	25.4	21.2
P/E Low	27.2	30.1	22.9	21.7	23.4	25.8	21.8	23.5	20.2	19.7	16.9	17.1

The stock has not sold at less than 20 times earnings since 2011 - 2012. This is fascinating.

Currently, Costco is selling for 44.57 times forward earnings and pays a dividend yield of 0.90%. While it has a high valuation and a low yield, we can expect a higher dividend growth. At the right balance of yield and growth may come the right opportunity for the enterprising dividend investor.

Relevant Articles:

- Four Notable Dividend Increases Expected for April 2022

- How to select winning retail stocks

- The advantages of being a long-term dividend investor

- Dividend Achievers Offer Income Growth and Capital Appreciation

Procter & Gamble (PG) Raises Dividends For 66th Consecutive Year

The Procter & Gamble Company (PG) provides branded consumer packaged goods to consumers in North and Latin America, Europe, the Asia Pacific, Greater China, India, the Middle East, and Africa. It operates in five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care.

The company increased its quarterly dividend by 5% to $0.9133/share. This dividend increase will mark the 66th consecutive year that this dividend king has increased its dividend. The new quarterly dividend of $0.9133/share is almost exactly 5% higher from the prior dividend of $0.8698/share. Fractions make it possible to get even dividend raises on a percentage basis. 

This dividend increase will mark the 66th consecutive year that P&G has increased its dividend and the 132nd consecutive year that P&G has paid a dividend since its incorporation in 1890. It reinforces our commitment to return cash to shareholders, many of whom rely on the steady, reliable income earned with their investment in P&G.

There are only 38 dividend kings in the US. Those are companies that have managed to increase their annual dividends every year for at least 50 years in a row.

Source: Press Release

During the past decade, the company has managed to increase dividends at an annualized rate of 5.20%.

The company is expected to generate $5.88/share in earnings in 2022. That being said, the core business is very stable, which means that long-term earnings power should not be affected. Based on forward earnings, it appears that the forward dividend payout ratio is at 62%, which means that the dividend is sustainable.

Earnings per share have increased from $3.66 in 2012 to $5.50 in 2021.

In the past decade, the dividend payout ratio increased from 58% in 2012 to 59% in 2021. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

The number of shares outstanding has been decreasing gradually over the past decade too.

It is interesting to look at the company's performance over the past decade for perspective. The stock sold for approximately $66/share a decade ago, and paid a quarterly dividend of 52.50 cents/share, for an annual dividend yield of 3.20%. 

Fast forward to today, and the company is paying a quarterly dividend of almost 91 cents/share, for a total yield on cost of 5.53%. If we take dividend reinvestment into consideration, a $1,000 investment ten years ago would be generating $74.60 in annual dividend income today.

At the current price of $159.01/share, the stock seems overvalued at 27.14 times forward earnings. The stock yields 2.30%. P&G may be worth a second look on dips below $120/share.

Relevant Articles:

- Four Notable Dividend Increases Expected for April 2022

- Dividend Kings for 2022

- 35 Dividend Aristocrats For Further Research

- Where are the Original Dividend Champions today?

Four Notable Dividend Increases Expected for April 2022

One of the aspects of Dividend Growth Investing that appeals to me is the predictability of dividend payments and dividend increases. Many of the great dividend growth companies tend to pay dividends on a predictable timetable every three months. In addition, these companies tend to increase dividends during a typical month, and they do that for many years.

I expect a few notable dividend increases for the month of April from the following companies:

Apple (AAPL) designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. 

When the company raises dividends this month, this would be the tenth consecutive year of annual dividend increases. This means that Apple will become a dividend achiever.

The company has managed to grow dividends at an annualized rate of 9.20% in the past five years. The current quarterly dividend is $0.22/share.

Apple is not cheap at 26.93 times forward earnings and a dividend yield of 0.53%.

Procter & Gamble (PG) provides branded consumer packaged goods to consumers in North and Latin America, Europe, the Asia Pacific, Greater China, India, the Middle East, and Africa. It operates in five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. 

A dividend increase would mark the 66th year of consecutive annual dividend increases for this dividend king.

The company has managed to grow dividends at an annualized rate of 4.90% in the past five years. The current quarterly dividend is $0.8698/share.

The stock does not seem cheap at 27.14 times forward earnings and a dividend yield of 2.18%.

After posting this article, P&G hiked the quarterly dividend by 5% to $0.9133/share. One down, three to go.

Johnson & Johnson (JNJ) researches and develops, manufactures, and sells various products in the healthcare field worldwide. It operates in three segments: Consumer Health, Pharmaceutical, and Medical Devices.

A dividend increase would mark the 60th year of consecutive annual dividend increases for this dividend king. 

The company has managed to grow dividends at an annualized rate of 5.90% in the past five years. The current quarterly dividend is $1.06/share.

The stock seems fairly valued at 17.09 times forward earnings and a dividend yield of 2.36%.

Costco (COST)  engages in the operation of membership warehouses in the United States, Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan.

A dividend increase would mark the 18th consecutive annual dividend increase for this retailer with a loyal customer fan base. That dividend track record is as impressive to me as the $1.50 hot dog, whose price hasn't changed since 1985. It may also be nice to see Costco sending out a special dividend to shareholders.

The company has managed to grow dividends at an annualized rate of 11.90% in the past five years. The current quarterly dividend is $0.79/share.

Costco is not cheap at 44.82 times forward earnings and a dividend yield of 0.54%.

Relevant Articles:

- Dividend Kings List for 2022

- Dividend Aristocrats List for 2022

- Dividend Champions List for 2022

- Dividend Achievers Offer Income Growth and Capital Appreciation

The Best Time to Buy US Stocks

The best buy signal to invest in US stocks has been when companies drastically reduce buying back stock.

That occurred in 2008 - 2009 and in 2020.

Source: S&P Global

Companies tend to initiate share buybacks when share prices are high, and they are flush with cash. Then they end up cancelling them, or not going through with the share buybacks, when share prices are low. This is the opposite of how you should be buying shares in my opinion.

On the other hand, companies tend to maintain or even increase dividends, even during a downturn.

I prefer the relative stability, predictability and dependability of the dividend payments over share buybacks. With dividends, I have the option to reinvest into the stock or put the money to work elsewhere. Once a company declares a dividend, it tends to stick to this schedule. I like this consistency, because it reminds me of successful investing. Successful investing is about consistency.

With buybacks, I don't have this option - company management allocates excess cashflows to their stock, whether or not it is a good value. They do buybacks when they are flush with cash, rather than on a consistent and predictable schedule. Companies seldom care about valuations with share buybacks. They also do buybacks when they feel like it. While I could be taxed on the dividend, there are multiple ways to eliminate or defer paying taxes (for US shareholders). A large portion of investors in US stocks are not taxed (e.g. pension funds, endowments, retirement accounts). Given the short holding periods for US stocks, taxation is a moot point. Share buybacks remind me of the futile attempt to time the market, which are seldom consistent and often disappoint. Consistency in dividend policies beats doing things when you feel like it (like buybacks).

I like the predictable nature of dividends, because I know exactly how much is going to be allocated. It's better to buy stock with dividends regularly, rather than when some executive feels like it (like they do with buybacks). Buybacks are definitely more discretionary than Dividend policies.

Canceling a buyback or not going through with it is rarely noticed or mentioned, because they are treated as a lower priority by company managements. Canceling a dividend is definitely viewed negatively, because it signals problems with the underlying business. A dividend is more visible to the investing community than a buyback, hence dividend announcements get more publicity. 

A track record of annual dividend increases speaks volumes to the stability and dependability of long-term cashflows for a business. This is what causes me to research and potentially invest in a stock, provided the valuation is not too excessive.

In general, I believe that dividends are better than share buybacks. 

That's because dividends can accomplish everything that buybacks can supposedly accomplish, but in a much more efficient, consistent and dependable way.

I like the fact that cash dividends provide the investor with the option to invest back in the company, or invest in the best available opportunity for them. A buyback makes that decision for them. Options have value.

This ends my rant of the day.

Relevant Articles:

- Who owns US stocks?

- Long Term Investors Needed

- Dividends versus Share Buybacks/Stock repurchases

- Share Buybacks and Dividends Are Not The Same Thing

99% of Buffett's Wealth Came After Age 56

In a meeting with Warren Buffett, Jeff Bezos asked him: 

"Your investment thesis is so simple. You’re one of the richest guys in the world and it’s so simple. Why doesn’t everyone just copy you?”

Warren Buffett responded by saying:

“Because nobody wants to get rich slowly.”

The power of compounding is truly visible with Warren Buffett. He first became a billionaire at the age of 56 in 1986. This reflects his approach of getting rich slowly and enjoying the journey, rather than the destination. In his words, Buffett has been "Tap Dancing to Work" for decades.

Today, his net worth is about $125 billion at the age of 91. And that’s after he donated tens of billions of stock to charity. You can see that due to compounding, over 99% of his net worth was built after the age of 56.

He was able to achieve this by compounding his investments at a high rate of return for a long period of time. This is what makes him the best investor in the world.

We also need to note that since 2006, Buffett has donated shares to charity. While these shares were worth $41 billion at the time of donation, they have appreciated mightily since then. 

In June of 2006, he owned 474,998 “A” shares. Now, he owns 238,624 shares, worth about $100 billion. (source)

If Buffett had not donated any shares, his net worth would have been $250 billion today. Instead, it is about $125 billion.

Most of these shares are destined for philanthropy. Buffett will donate 99% of his net worth to charitable causes. This is admirable, and it is great that he will see some benefit of his donations during his lifetime. However, it is a very high tradeoff between donating money today, versus donating more money in the future.

The power of compound interest is definitely a magnificent force. If we assume a total return of 10%/year, each dollar I put to work today could turn into $117 in 50 years. In reality, due to the power of compounding, the upside is virtually unlimited, while the downside is capped to the amount invested. The investor just needs to be patient, and select investments that have a long runway and can compound at a high rate of return for decades. This is where focusing on companies with wide moats definitely helps. In my opinion, the list of Dividend Aristocrats is a good starting place to identify good long-term investments that can compound wealth for long periods of time.

I like researching different stories and viewpoints, and then trying to take the best lessons that apply in my situation. Ultimately, you are successful if you do something you enjoy and you do it for a long period of time. When you compound at a high rate of return for a long period of time, you end up with massive outcomes in your favor. This concept goes for money, knowledge, relationships, health.

Relevant Articles:

- Buffett’s Investment in See’s Candy

- Warren Buffett's Investment in GEICO

- Buffett's Folly and Opportunity Cost

- Warren Buffett’s Dividend Payback

- Buffett on ignoring stock price fluctuations and thinking like a business owner