Most Popular ArticlesA Blizzard of Dividend Increases!
Ingrid R. Hendershot
Hendershot Investments
March 3, 2010The Blizzard of 2010 will not be soon forgotten for the folks in the Washington DC area. During the height of the storm, all activity came to a halt as people hunkered down in their homes. Under the weight of too much snow, weak structures suffered roof collapses. After the record snowfall, it was difficult to gain traction as everyone tried to dig out of the mess. Even the federal government had to remain closed for four days.
In a similar fashion, no one will soon forget the 2007-2009 financial meltdown that hit the global economy. At the height of the credit crescendo, economic activity came to a halt as business froze. Weak businesses collapsed under the weight of too much debt. Following the storm, the economy is attempting to gain traction. Many wish the government would close down once again instead of threatening higher taxes and more regulations on firms still trying to dig out of the mess. Despite the many challenges of the storms, HI-quality companies managed well through the turmoil. A key task of management is to carefully allocate a company’s capital between investments in the growth of the business and distributions to shareholders. With strong cash flows and sturdy balance sheets, fourteen of our HI-quality companies delivered a blizzard of dividend increases during the last three months with these dividends compounding strongly over the last five years, too! (See adjoining chart.) Double-digit dividend increases were shoveled out by Abbott, Becton Dickinson, Fastenal, Hormel, Kimberly-Clark TJX and United Technologies, demonstrating management’s confidence in their financial strength and long-term growth opportunities. Western Union delivered the largest increase by raising its dividend more than six-fold from $.04 to $.24 per share while also announcing a new $1 billion share buyback program. Several of our HI-quality companies have increased their dividend every year for more than 50 years, including Emerson, Genuine Parts and 3M. With durable competitive advantages, all these firms over the decades have increased their profits and shared the wealth with investors no matter what the economic climate, whether it be inflation, recession and/or popped asset bubbles. Steadily growing dividends provide powerful returns to long-term investors. While Genuine Part’s current 4% dividend yield is attractive, we now are enjoying a nearly 8% dividend yield from the company on our original purchase ten years ago. Our HI-quality stocks boast generous dividend yields today compared to miniscule money market fund rates and short-term CD and U.S. Treasury rates. Even better, these growing dividend income streams should bubble well ahead of inflation in the years ahead. With steadily growing dividends, our HI-quality portfolio pantry is well stocked to comfortably weather future blizzards!
(c) Hendershot Investments
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