255 years of dividends

Procter & Gamble, Emerson Electric, Coca-Cola, Colgate-Palmolive, Johnson & Johnson. Five companies which alone total 255 consecutive years of increasing their dividends. Like an impregnable citadel, they watch wars, famines, natural disasters and revolutions pass under their noses, without worrying too much. This impressive history gives an image of the endurance capacities of these five companies, which manage to generate cash over the long term, regardless of economic hazards.

Le nombre d'années consécutives d'augmentation des dividendes est un indicateur puissant pour celui qui possède une stratégie d'investissement basée sur le revenu. Qui plus est, à moins que l'on ait déjà les pieds bien ancrés dans la retirement, il vaut mieux rely on average but progressive returns que sur des distributions importantes et stables (ou pire inconstantes). L'avantage est double : non seulement on s'assure contre les risques d'inflation, mais aussi on bénéficie de la magie des intérêts composés qui permet de rattraper et surpasser après quelques années seulement les rendements de sociétés dites plus généreuses.

Let's take two fictitious companies, Gaz-Superdividende SA (GSD) and Pharma-Dividendecroissant SA (PDC). GSD currently offers a dividend of $6 for a stock price of $100. PDC, which is trading at the same price, offers a dividend of only $3, a yield half as high. GSD never increases its distributions because it already uses almost all of its earnings to pay the dividend and because the company has a sluggish growth rate. On the contrary, PDC increases its distributions at a sustained rate of 15% per year. It can afford to do so because its earnings more than cover the dividend payments and, moreover, it has a very attractive growth rate. After only five years, the PDC dividend will have caught up with that of GSD, after ten years, it will have doubled it, after 13 years, it will have tripled it, after 15 years, it will have quadrupled it... We can see that, The magic of compound interest is discreet during the first few years, but the longer you keep the title, the more it works!

On dit que lorsqu'on investit en actions, c'est pour une durée d'au moins cinq ans. Cette valeur est déjà très basse, surtout lorsqu'on se fie à la 'décennie perdue' 2000-2010. Un minimum de dix ans paraît nettement moins risqué. Sur un tel horizon temporel, il vaut donc mieux renoncer à des distributions généreuses au profit de growing dividends. Mais il faut aussi to ensure that the company is sufficiently strong to continue to pay and grow its distributions in the future. In addition to the distribution ratio, the number of consecutive years of dividend increases gives a good picture of this capacity, especially when we are in the presence of five aforementioned mammoths.