It pays to invest in shareholder-friendly companies. After all, as a shareholder you are the management team's business partner. One of the most fundamental measures of a company's management shareholder friendliness is their commitment to the dividend. In this article, we'll look at five companies with different business models--Cracker Barrel (CBRL -0.62%), Procter & Gamble (PG -0.03%), CVS Caremark (CVS -0.65%), Tiffany (TIF), and Wal-Mart Stores (WMT 0.57%). What they all have in common is an excellent track record of dividend growth, which we will see is an important ingredient in long term total returns.
These are all household names. Procter & Gamble, CVS Caremark, and Wal-Mart maintain large market share in everyday consumer products. While Cracker Barrel and Tiffany occupy opposite ends of the consumer spectrum (roadside pit stop versus high end mall), they are nonetheless well-established consumer brands. None of these companies is too subject to the whims of the economy from one day to the next. Instead their businesses have held up well through lean times like the financial crisis.
Let's cut to the chase and check out how these stalwarts served their owners, i.e. you the shareholder, with dividend growth over the last decade.
These five companies delivered handsome dividend growth over the decade. In four of the five cases, it was slow and steady, while Cracker Barrel posted steep dividend raises at the behest of activist investor Sardar Biglari. The ten year annualized dividend growth track record shows a real commitment to paying shareholders.
| Company |
Ten Year Annualized Dividend Growth Rate |
|---|---|
| Cracker Barrel | 37% |
| Procter & Gamble | 11% |
| CVS Caremark | 23% |
| Tiffany | 22% |
| Wal-Mart | 18% |
All of these companies have more than doubled their dividends paid out to shareholders over the last decade. This time period includes the Great Recession, a tepid recovery, unemployment issues, the US credit rating downgrade, the London Whale, Bernie Madoff and a whole raft of other bad economic news. But those stories are noise. What's much more important to individual investors is finding easy to understand business models with both the willingness and ability to grow their dividends over time.
| Company | 10 year annualized return |
$1,000 invested 10 years ago worth now |
|---|---|---|
| Cracker Barrel | 11.9% | $3,077.42 |
| Procter & Gamble | 7.3% | $2,025.12 |
| CVS Caremark | 15.3% | $4,156.64 |
| Tiffany | 9.4% | $2,463.52 |
| Wal-Mart | 5% | $1,623.04 |
(Source: Long Run Data)
As a group, these companies served up excellent total returns over the last ten years. Its worth noting that these returns were earned not by trying to spot the next Amazon or Netflix. Investors didn't have to take wild risks or make sweeping assumptions to earn these excellent returns.
Still, this is a backwards-looking analysis. Just like driving by looking through the rear view mirror is a bad idea, you cannot simply draw a straight line through the next ten years that assumes uniformly stellar results. What investors can take comfort in is these companies' commitment to pay out cash to shareholders and to increase that pay out over time, and that growth is what drives long term total returns.
