5 Unbelievably Solid Companies

Quick test: Which of the following is false?

  • The average American's lifespan is nearly 80 years.
  • The average large American corporation's lifespan is between 20 and 50 years, depending on the source.
  • Dinosaurs still exist and can be seen roaming throughout Kansas, Nebraska, Iowa, and Rhode Island.

You didn't hear about the T-Rex in Pawtucket?
Oh, OK, we'll fess up: Dinosaurs remain extinct. That means an average American outlives an average large-sized American corporation by a factor of 2 or more.

Two years ago, we wrote a column advocating that investors look for companies with the following four characteristics:

  • Built to last for 100 years or more.
  • Little-known, yet dominating their growing industries.
  • Steered by committed management teams.
  • Governed by the highest corporate values.

Little did we realize just how preposterous it is that companies would be built for "100 years or more"! In fact, according to Arie de Geus, author of The Living Company, "a full one-third of the companies listed in the 1970 Fortune 500 … had vanished by 1983 -- acquired, merged, or broken to pieces."

Professor Jeremy Siegel's meticulously researched book The Future for Investors studied the original companies of the S&P 500, which was put together in 1957. Of those 500 firms, Siegel found, just 25% survived intact to 2003! Over that 46-year span, the other 75% (fully 375 companies) went bankrupt, merged, or were taken private.       

That's our advice: Invest in unicorns and sasquatches
This doesn't invalidate our earlier advice -- that you should look to invest in businesses built to last for 100 years or more. If you can do that, after all, you'll align yourself with managers who are thinking long-term rather than short-term.

It does, however, make an elite group of U.S. businesses stand out even more -- for one shared trait that is almost as unbelievable as unicorns and sasquatches. Before we get to that trait, let's look at that List of Five:

  • Target (NYSE: TGT  ) . Has been paying dividends every quarter since it went public in 1967.
  • Wal-Mart (NYSE: WMT  ) . Has been raising its quarterly cash dividends since it began paying a dividend in 1974, not long after it went public.
  • SYSCO (NYSE: SYY  ) . Has paid dividends for 158 consecutive quarters (roughly 40 years).
  • Emerson Electric (NYSE: EMR  ) . Has increased its dividend every year for 52 years.
  • General Mills (NYSE: GIS  ) . Has paid uninterrupted dividends -- when you include the cereal king and its predecessor company -- for 110 years!

These five businesses have shown remarkable track records. What's most impressive: Each has been paying a dividend for more than 35 years.

We've written a lot about global stocks lately, but if you're a gun-shy investor looking for stocks on which to build your retirement foundation, dividend stocks are a vital arrow in your quiver.

Here's why
The benefit of dividends to shareholders is clear: You get paid cash each and every year, regardless of whether the underlying stock is up, down, or indifferent. Furthermore, you can pocket that cash or use it to buy more shares of stock. Dividends, however, also have a benefit to the companies that pay them, and we think it's no coincidence that these long-lasting companies are all dividend-payers.

That's because dividends -- and the need to be consistent in paying them once a company starts paying them -- force companies to be responsible with their cash. In fact, a recent paper by Douglas Skinner and Eugene Soltes of the University of Chicago found that dividend-paying companies have better earnings quality than their non-dividend-paying peers, and that "dividend-payers are less likely to report losses" [emphasis added]. And because companies go out of business only when they start losing money, it's clear that companies that don't lose money won't go out of business.

So there's one little secret when you're seeking companies that are being built to last 100 years: Look for stocks that pay dividends.

It's not all joy in Dividend-ville
Of course, there are no sure things, and that's just as true with longtime dividend-payers as it is in sports. Even worse, the current economic downturn has forced a number of former "dividend dynasties" to cut or even do away with their dividend -- State Street (NYSE: STT  ) and Wells Fargo (NYSE: WFC  ) are two high-profile examples. Thus, it's as critical now as ever to carefully scrutinize any stock you choose to invest in and diversify your portfolio broadly across a collection of superior companies.

If you're interested in doing just that, click here to join our Motley Fool Income Investor service free for 30 days. The dividend-fiends there run a model portfolio of their top dividend-stock ideas, and with yields creeping up recently as the stock market has dropped, their hunting grounds are as fertile as ever.

Join up, and you'll enjoy immediate access to their six "buy first" dividend payers.

Already subscribed to Income Investor? Log in at the top of this page.

This article was originally published March 27, 2009. It has been updated.

Neither Brian Richards nor Tim Hanson owns shares of any companies mentioned. Sysco is a Motley Fool Income Investor pick. Sysco and Wal-Mart are Inside Value choices. The Fool's disclosure policy loves Dubuque, Iowa.


Read/Post Comments (6) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 30, 2009, at 3:24 PM, remysfc wrote:

    WMT??? Why would you suggest anything carrying so much debt, super low margins, terrible short term debt obligations, possible unionization, all coupled with rising energy costs. You guys should put some glasses on those glasses you are wearing.

    Remysfc

  • Report this Comment On June 30, 2009, at 3:26 PM, remysfc wrote:

    p.s. any foundering company like walmart will increase their dividend to gain acceptance in recession times. How about looking into that? Remember a business cannot be built on an ever increasing amount of debt to cash...

  • Report this Comment On June 30, 2009, at 10:44 PM, wolfhounds wrote:

    No mention of PG, the all time winner in longevity (founded in 1890) AND paying a dividend every year since. I would own it (and do) before any of the five you chose.

  • Report this Comment On July 01, 2009, at 12:59 AM, redclaymud wrote:

    What's not to love about Dubuque, Iowa other than the fish flies? Great city, beautiful vistas, but watch your speed as you head down those hills toward the Mississippi. When the speed limit sign says 15mph, you had better not be doing 20.

    Glad the Fool's disclosure policy loves Dubuque, Iowa. I do too.

  • Report this Comment On July 01, 2009, at 3:13 PM, plange01 wrote:

    target(tgt) still has far to much hedge fund exposure and that has kept its stock down..until target can rid itself of its ties to the poorly run hedge fund pershing square its not going anywhere.....

  • Report this Comment On July 01, 2009, at 4:36 PM, DBrown7 wrote:

    Walmart generated $11 billion in free cash flow over the trailing 12 months. I think they'll have absolutely no problem servicing their debt.

    Walmart has always been a low margin business. But when you turn your inventories as often as they do, you still end up with a very profitable business.

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