As we all know, this is a very difficult stock market in which to make investments, based on major trends in the global economy. And, even if you identify, research and feel confident about an investment theme or trend on which to speculate, outside shocks like the eurozone debt crisis can blindside your holdings. Without question, the current environment continues to be a difficult one for stock market investors.
I know that the past can’t predict the future, but I’m a big believer in a company’s long-term track record of success (both operationally and its history on the stock market) as an important factor in considering new equity investments. I’m not talking about trading here; I’m talking about investing for the long haul in well-managed enterprises that pay dividends; that have created a lot of wealth shareholders. With a solid, long-term track record of wealth creation on the stock market (almost always a combination of capital gains and dividends), a company offers investors a level of comfort that is not demonstrable from other securities. History suggests that, in many cases, large companies that pay dividends and boast relatively consistent share price appreciation can really pay off when their shares are temporarily down in value on the stock market.
Consider the following examples of companies that pay dividends. In my view, they all boast excellent, long-term track records of wealth creation on the stock market. They have increased their dividends over time, and shareholders could have been reinvested these dividends, thereby compounding the gains they provided: Colgate-Palmolive Company (NYSE/CL); PepsiCo, Inc. (NYSE…PEP); United Technologies Corporation (NYSE/UTX); Canadian National Railway Company (NYSE/CNI); McDonald’s Corporation (NYSE/MCD) 3M Company (NYSE/MMM); and ConocoPhillips (NYSE/COP), to name a few.
Pull up a long-term stock chart on any of these companies and you’ll see the price performance. Many of these longer-term stock market winners belong to the Dow Jones Industrial Average and they all pay varying rates of dividends to shareholders. Over the long haul, the charts show that they’ve all paid off handsomely after they’ve been down in price on the stock market. In fact, most of these companies haven’t been down in value for very long at all.
Previous stock market winners that have consistently increased their dividends are the kind of companies that I think are worthy of consideration in the current environment. As much as the global economy produces great new technologies, people still need toothpaste, soda, elevators, burgers and petroleum to get through the day (see Soda or the Latest Hot Software—Guess Which Industry Pays Off Better Over Time?). In an era of declining expectations, a strong track record of wealth creation is very important.
We are in an age of austerity now where what’s old is new again. It’s going to last for quite a number of years yet and it’s going to continue being a difficult time for stock market investors. That’s why dividends and a long-term track record of success are so important. The companies you want to own are those that have proven they can weather the storms.