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. Which means that an average American outlives an average large-sized American corporation by a factor of two 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 companies, 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:

  • Colgate-Palmolive (NYSE: CL  ) . In today's uncertain economy, it recently increased its dividend 10%; it has been paying dividends without interruption since 1895.
  • Abbott Labs (NYSE: ABT  ) . In February, Abbott raised its dividend for the 37th consecutive year; it's been paying a dividend since 1924.
  • Emerson Electric (NYSE: EMR  ) . Has raised its dividend for 52 straight years.
  • United Technologies (NYSE: UTX  ) . Has paid a dividend every quarter since 1936.
  • Kimberly-Clark (NYSE: KMB  ) . Has raised dividends to shareholders for 37 straight years.

These five businesses have far surpassed the average -- each dates back at least 70 years. Even more impressive: Each has been paying a dividend for more than half a century.

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 only go out of business 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, say, horse racing. Even worse, the economic downturn has forced a number of former "dividend dynasties" to cut or even do away with their dividend -- Dow Chemical (NYSE: DOW  ) and Citigroup (NYSE: C  ) 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. Kimberly-Clark is a Motley Fool Income Investor pick. The Fool's disclosure policy loves Dubuque, Iowa.


Read/Post Comments (3) | Recommend This Article (14)

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 October 09, 2009, at 9:49 PM, murlan3 wrote:

    Comment on Colgate: extremely well managed, and extremely shareholder focused. They sell something like 50% of all the toothpaste sold IN THE WORLD. Reuben Mark (recently retired CEO) is almost unheard of. Jack Welch is a household name. When Jack retired the stock of GE fell off a cliff. When Reuben Mark retired the earnings continued to climb as well as the stock. It is a truly great American company. Also, since 75% (or so) of company earnings are outside the US, the weakening dollar is a big plus.

  • Report this Comment On October 09, 2009, at 10:58 PM, HectorLemans wrote:

    Add Church & Dwight of Trojan condoms and Arm & Hammer baking soda fame to that list. Their dividend yield is anemic but I don't mind since they reinvest their profits effectively. Walk down the health & beauty or cleaning sections of Wal-Mart and notice how many products boast the distinct Arm & Hammer logo. Their stock has doubled in the last 5 years (vs 4% loss for the S&P500) and has done quite nicely in bust and boom times. Good stock for the Roth IRA.

  • Report this Comment On October 10, 2009, at 1:39 PM, LoneWolf888 wrote:

    Why does every analyst jump on the same boring bandwagon ? Talk about sheeple, wow - what a herd.

    Plain and simply, if you wish to look at safe, comatose,boring dividend payers ..BMY will outperform ABT ..BMY pays a dividend of 5.4% , and it's very safe.

    The company is superbly managed..The Medarex acquisition will be accredive to earnings as well as produce exciting new drugs.The fact is that BMY languishes $22 plus while ABT is a $50 stock..

    My opinion is simply; If you're going to go boring, yawn at half the price -- BMY..Yes, ABT is good, but at twice the price of BMY - Why and what for ?

    Just my opinion !

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