In my last stock market post, I explained that I do not rely on corporate annual reports, which I consider relics. Glossy corporate reports are sadly late to the party in terms of providing timely intelligence. In fact, annuals are often promotional devices written by youngsters talking about “growing earnings.” No thanks. Certainly annuals provide income statement, balance sheet, and cash flow numbers, but this info is available in many forms much quicker and easier to use than in annuals.
Every investor benefits from having access to the relevant data required to make sound investment decisions. And I am in the same camp as every other investor when it comes to desiring relevant financial figures, especially since my job is purposely more focused than that of most investors. I am interested only in dividend-paying companies with a tendency to increase dividends over the years. I concentrate on a company’s size and dominance. I do not concentrate on the small fry.
I look for a total of only 32 suitable companies for investment. (Portfolios at our family investment management company are crafted with 32 dividend payers.) My decades-long view has been to seek a stock portfolio yield of at least double the S&P 500’s yield, which further narrows the playing field by concentrating on stocks yielding ideally 4% or more. Yes, I make exceptions, but you’ll not find me digging through lists of 1% and 2% payers. I further concentrate on companies sharing what I analyze to be a sustainable advantage—that is companies with the benefit of a high barrier to entry, which most often leads to utilities, pipelines, rails and consumer staples, such as Coca Cola. As you can see, concentration and a narrow focus are hallmarks of my equities strategy.
Most of the statistical support I need is found in a couple of industry publications that I have long relied upon as timely sources, specifically Mergent’s Handbook of Dividend Achievers and Standard & Poor’s Security Owner’s Stock Guide. The Mergent quarterly tells me that KO, for example, has increased its dividend for 48 consecutive years at a compounded 9.35% annual rate. Obviously KO is a name I would keep at all times on a short list. The Mergent book delivers seven full years of cash flow, income statement and balance sheet data, the most recent quarterly data, and a nice display of annual ratios and percentages in a timely and detailed package. The S&P guide includes detailed statistical info on thousands of issues and certainly extends coverage well beyond my narrowly focused needs. For any company in which I am interested, I can quickly check the current yield, the current indicated dividend, the prior year’s dividend, and the date each company commenced paying cash dividends. In Coke’s case, that would be 1893. Data on cash, debt and stock price returns over various periods is quickly visualized. This too is a veritable treasure trove of timely data available at a glance each month.
I have followed this course of action for a long, long time. The end result is recorded in the complete record of The Retirement Compounders table provided for you.
I am probably more conservative than are most of you, and I also recognize that my keep-it-simple strategy is not for everyone. But at the end of the day, the proof is in the pudding, is it not? Give my framework of reference and consistency outlined above some serious thought. I believe a sense of comfort will come over you. Remember, investing is an individual art not science. I have made no substantive changes in my investment format since I first opened Ben Graham’s Security Analysis back in 1963. It’s a program from which anyone can benefit and prosper.