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Sunday, January 30, 2011

FASCINATING SLIDE: The Power of Compounding - P&G's 54 Consecutive Years of Dividend Increases

Per our December post, 1-800-Flowers.com (FLWS): Is "Moat" Shallow, Shrinking, or Nonexistent?, we still owe readers follow-up commentary on the company's Fannie May Confections business. We hope to share something soon. Please stay tuned.

About one week ago, we shared a "fascinating slide" from Compania Cervecerias Unidas S.A. (CCU). Here, we share a striking slide related to our stocks versus bonds stance. The fact remains that numerous large, high quality, dividend-paying companies are offered at reasonable multiples of earnings. Moreover, rather than a static coupon payment from a bond, many companies consistently increase dividends to equity shareholders year in and year out.

Take Procter & Gamble (PG) for instance. Per the below slide from P&G's December Analyst Meeting, the company compounded dividends at an average growth rate of 9.5% for 54 consecutive fiscal years:


Not too shabby and evidence of a very durable franchise. SO, in addition to potential capital appreciation derived from a growing stream of earnings (assume constant P/E multiple but higher "P" and "E" over time; "E" grows through levers such as new product launches, market expansion, and pricing power), investors benefit handsomely from a growing stream of dividend income.

While we've no position in P&G, the company's incredible dividend track record neatly illustrates why we prefer equities to bonds for those investors with a long-term time horizon.

Happy investing,

Jeffrey Walkenhorst
CommonStock$ense

Disclosure: long FLWS, CCU.

© 2011 Jeffrey Walkenhorst
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2 comments:

  1. Jeff,

    Are you going to give us your thoughts on SOFO since they just reported?

    Thank you,

    Jim

    ReplyDelete
  2. Hi Jim,

    Thanks for chiming in. Unfortunately, I can't provide subjective commentary on SOFO or other tech related companies. Please see my November post for more details -
    http://www.commonstocksense.com/2010/11/sonic-foundry-sofo-passing-torch-plus.html
    OR -
    http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_S/threadview?m=tm&bn=23029&tid=35446&mid=35446&tof=43&frt=2

    Also, please recall that, when evaluating any company, focus on competitive positioning and franchise value. What would happen if the business went away tomorrow? Would people care? If the answer is an emphatic, jumping and screaming YES, then we have a strong franchise. If otherwise, then the moat likely isn't that strong....

    All the best,

    Jeff

    ReplyDelete

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