Comment
0
Tweet
0
Print
RSS Feeds

The Hundred-Year Dividend

Friday - 5/24/2013, 2:35am  ET

Many dividend-seeking investors like to screen for sky-high yielding companies when looking for their next possible investment opportunity. While there is nothing inherently wrong about this strategy, high yields alone can often mean little if the company lacks the financial strength to maintain and continually increase their dividend payouts. Some of the most consistently well-performing companies have been those who value dividend appreciation. And in the world of consistent dividend payers, few are more consistent than companies with more than a hundred years of dividend payments.

Hundred Years of Baking Soda
A few weeks ago, the 166-year-old consumer products company Church & Dwight declared its 449th consecutive dividend payment (or 112 years and 3 months worth of checks). The company is also poised to become a member of the Dividend Champion club in the not too distant future (companies with 25 or more years of annual payout increases); currently with 17 years under its belt. Church & Dwight’s relatively small yield of 1.78% is not likely to excite many dividend investors, but the reason for its small yield is that its share price has run up so much; up nearly 500% over the past 10 years.

Church & Dwight’s management team has done a wonderful job of positioning the company to be able to pay out a dividend for another 112 consecutive years. If you looked at the company 10 years ago, you would hardly recognize it. A decade ago, Church & Dwight was a company with just one signature brand (Arm & Hammer) and sales almost entirely from the United States. Today, Church & Dwight has seven additional “Power Brands” (OxiClean, Trojan, Nair, Spinbrush, Orajel, First Response and XTRA) and receives 18% of its sales from overseas. With seven of their eight Power Brands (all except XTRA) occupying the No. 1 position in their respective product categories, and management’s increased emphasis on international sales, current investors should be very optimistic about the future growth of Church & Dwight.

Hundred Years of Chemicals
DuPont
is a true superstar in the world of dividend-paying companies. Like no other company, DuPont has demonstrated an impressive long-term commitment to dividend appreciation. Not only has DuPont paid a dividend since 1904, but it has increased that dividend payout every single year since initiating it. That is 108 years and counting of annual dividend payout increases.

Like all chemical companies, DuPont is partially at the mercy of the price of various hydrocarbons (oil, natural gas) as one of the company’s biggest raw material cost. But in recent years, DuPont has had a major leg up on its European and Asian competition. While natural gas prices elsewhere in the world are relatively high, natural gas prices in America are near all-time lows thanks to the fracking revolution.

Since natural gas is not easily transported or priced on a world market like oil is, foreign chemical companies have no choice but to purchase the much more expensive hydrocarbon raw materials available to them. Although plans are in the works, by companies like Cheniere Energy, to build export facilities to ship American natural gas overseas where prices are much higher, the advantage of operating in America with an abundance of cheap natural gas will continue to benefit DuPont for many years to come.

Hundred Years of Canadian Deposits
Non-US companies and investors tend to not place as much emphasis on consecutive annual payout increases. That is why Bank of Montreal will likely never appear on a Dividend Champion list. This Canadian bank’s policy is to pay out 40% to 50% of its earnings out as dividends. During some years that might mean a significantly higher dividend payout, while during others it might mean the same payout or even lower. What earns BMO a place on this list is the company’s record as the longest-running dividend paying company in Canada, having paid a dividend every year for the past 184 years.

Canadian banks, such as BMO, generally remained strong during the global financial crisis. While the largest American banks were highly exposed to the sub-prime nonsense and mortgage-backed garbage, Canadian banks simply profited from the making and collecting loans (or what a bank should be doing in the first place).

Since the financial crisis, BMO has used American banking sector weakness to acquire their way into the United States on the cheap. This includes the acquisitions of two Wisconsin banks in 2007, a US municipal bond dealer in 2008, AIG’s Canadian life insurance business in 2009, Citigroup’s Diners Club North American franchise in 2009, a mid-western regional bank in 2010 and M&I Bank in 2011 (in additional to other transactions that are still pending). While there has and will continue to be short-term integration costs associated with their recent acquisitions, longer-term will see greater profits as American banking recovers and BMO brings its conservative lending philosophy to the States.

   1 2  -  Next page  >>