If you're serious about making money in the stock market, you need to start thinking like an owner, not a trader. Owners know two things that traders generally overlook:
- A share of stock represents a partial ownership position in a company.
- Over time, that company's operational results determine the wealth it generates.
In other words, when companies make money, their shareholders benefit.
Rocket science it's not
This connection is most obvious with reliable, dividend-paying businesses. Dividends are the most direct way a company can reward its investors for the risks they've taken by investing.
As important as the payment itself, however, is the message a dividend sends to the world. When a company initiates a dividend, it announces that it has more than enough cash to reward its owners. In fact, a dividend is probably the clearest signaling device in any company's arsenal.
Keeping the message strong
To see how well some companies do at signaling their fiscal strength, here are names of members of the "half-century" club -- businesses that have been paying dividends without interruption for at least 50 years:
|
Company |
Current Annual Dividend |
Yield Without Interruption Since |
|---|---|---|
|
Bank of New York Mellon (NYSE:BK) |
2.4% |
1838* |
|
Eli Lilly (NYSE:LLY) |
4.0% |
1885 |
|
Coca-Cola (NYSE:KO) |
2.8% |
1920 |
|
Caterpillar (NYSE:CAT) |
2.6% |
1933 |
|
Walgreen (NYSE:WAG) |
1.2% |
1933 |
|
Alcoa (NYSE:AA) |
2.4% |
1939 |
|
Schlumberger (NYSE:SLB) |
0.9% |
1957 |
*Would have been 1784, if not for a government-imposed moratorium in 1837. May include predecessor companies.
Some of these companies can trace their consistent payments back more than a century! Consider some of the "knock the world for a loop" events that couldn't derail the dividends from the longer-lived members of these great companies:
- World War I
- The Great Depression
- World War II
- The Korean War
- The Vietnam War
- The OPEC oil embargo
- Stagflation
- The Persian Gulf War
- Sept. 11, 2001
Through it all, these companies could not be stopped from rewarding their owners. Over such a long time frame, a single, modest investment, with dividends reinvested and compounded along the way, would add up to a sizable nest egg. Make a lifetime habit of owning the best of the best dividend payers around, and you and your family could wind up quite well off.
This is the logic we use to invest at Motley Fool Income Investor. Strong companies that treat and pay their owners well make great long-term investments. Our market-beating results showcase just how well companies can perform when they focus on their long-term owners' needs. If you're ready to get serious about investing, join us today .
This article was originally published on May 4, 2007. It has been updated.
At the time of publication, Fool contributor Chuck Saletta did not own shares of any company mentioned in this article. Coke is a Motley Fool Inside Value recommendation. Eli Lilly is an Income Investor pick. The Fool has an unstoppable disclosure policy.
