Announcer: 00:00 You’re tuned in to the Investing for Beginners podcast. Finally, step-by-step premium investment guidance for beginners led by Andrew Sather and Dave Ahern, to decode industry jargon, silence crippling confusion and help you overcome emotions by looking at the numbers, your path to financial freedom starts now.
Dave: 00:37 All right folks, well welcome to Investing for Beginners podcast. This is episode 120 tonight Andrew and I are going to talk about about the dividend aristocrat list, and there were four new companies added in 2019, and we wanted to take a little brief overview of those four companies to kind of fill you in on some of the companies are added to that list. So for those of you who are not familiar with what a dividend aristocrat is, a dividend aristocrat is a company that has been paying a growing very key growing dividend for 25 years is listed in the s and p 500 and has met certain liquidity and market cap restrictions. And there are 57 companies I believe, that are considered dividend aristocrats right now. And there are also dividend kings, but where those are 50 years or more. But tonight we’re going to talk about dividend aristocrats. These are the more popular ones, and these include companies like Disney, Hormel, things of that nature.
Dave: 01:36 So these are great companies that have been paying a dividend and growing dividend for 25 years. And these are some companies that could be fantastic investments for you if you know when to get into them and what to look for in the companies. Now keep in mind, these are, some of these companies are not always going to be great investments. They could be overvalued at a particular time. So they may not be the right thing for you to invest in, but they certainly would be worthy of putting on a waitlist or a watch list to keep your eye on in case the market takes a downturn, and you would have an opportunity to buy into some of these when they would be cheaper for you. So without any further ado, why don’t we go ahead and chat. Andrew, why don’t you talk about one of the first companies?
Andrew: 02:21 Yeah. So what, so first of all, what I find interesting about like the dividend aristocrats lists in general, you mentioned there’s 57 of them. So if we do some quick back of the Napkin math on that, there’s what, 500 companies in the s and p 500 now? I don’t know if all of the dividend aristocrats. Oh, they are. Okay. So first off, dividend, the rest of [inaudible]. That term itself is kind of, and there’s no like official thing behind it. It’s just something that kind of got popular. Secondly, I believe that the definition based on what my sources here say they are s and p 500 companies. So if you kind of think about that, that math 50 out of 500 we’re talking about 10% of the s and p 500 give or take is a dividend aristocrat. So I find that to be very inspiring because it kind of shows that it’s not this mythical creature.
Andrew: 03:18 It’s not like a year Unicorn. The these are though it’s not every company like Dave said, and though, you know, some of this, yeah, we’re looking at it with hindsight, and so it might’ve been better to buy these earlier than later. The fact that such a large portion of it, relatively of stocks we’re able to do this I think is very, very encouraging. I think it’s very reasonable to think that as an investor and the average investor who, who’s looking at stocks, that you could have a couple of these in your portfolio. You could maybe pick one that continues to be on that list 10, 20, 30 years from now and pick stocks that haven’t made it yet. But we’ll make it Disney is one of those or they; they’re, they’re not on the list, just so we’re clear. But a Hormel Coca-Cola, Proctor, and Gamble, the kind of stocks we do talk about all the time, those are on the list and have crane of fantastic rewards for shareholders.
Andrew: 04:21 And I kind of wanted to highlight that, like just how fantastic some of these rewards have been. You understand that. Yeah. We’re listening to a podcast now and so, you know, I don’t want to spit out too many of them or at you, but I’ve mentioned in the past how there are that great dividend reinvestment calculators, so you can see if we were to put in some money in the stock, how good did it do? So if we look at these four companies again, there’s Caterpillar, one called Aosmith, ticker Aos and Chubb, Ticker CB, which they have, I’d love to hear your thoughts on that one since it’s insurance. But, but taking a couple of these tickers. So Lynn was the last one. I’m going to skip that one because that one didn’t show up on the calculator, something with their data.
Andrew: 05:12 But a, you take caterpillar, if you would have invested 25 years ago, which was, you know, before they became a dividend aristocrat to today, through that time, just $10,000 back then would be $232,000. Now, so that’s on 13% returns a year. That’s a little bit of money into a lot of money. If you look at Chubb, which is with the same time, we’re looking at 10,000 into 642,000. Again, that’s even better. And then AOS blew me away. That one, you take 10,000, and it would’ve turned into $2 million. So you could, you know, realistically have one Stock Fund your whole retirement. If you’re investing a decent amount and being patient enough, and this is just over 25 years of some investors who are listening who are younger have even longer periods than they could even see returns greater than that.
Andrew: 06:12 But what I liked about the track records and going back and looking at some of these and you know you can make, I think we have a lot of episodes talking about evaluating some of these stocks, and you can make judgment calls on them. What I find very, very inspiring in addition to just how, how much they’ve gained over these last couple of decades is this idea that you don’t have to pick them from the very onset. So you know, you talk about survivorship bias, one of those behavioral finance terms and you talk about, well, it’s really easy to look back, and you know, you’re, you’re picking the winners after they’ve already won. But one of the things I like to argue, and I’ve written a blog post about a long, long time ago is this idea that you don’t need to be savant. Somebody who’s like looking into the future and finding these companies, you can take them like somewhere in the middle.
Andrew: 07:09 So maybe you’re not picking them at day one when they first started to increase the dividend and, and pay that out for 25 years. Maybe you wait until they’ve increased the dividend for ten years and then the next 15 years you can still see fantastic returns. And so I wanted to highlight that for these stocks too because it’s, it’s eyeopening in my mind. So if we take the same numbers that we did and instead of looking at the 25 years, let’s take 15 years. So we waited ten years to see like if these stocks had great track records as far as earnings, growing the dividends and all those sorts of things. And then we held it for 15 years, which would be to today now their dividend aristocrats if they’ve been promoted to that status. And what kind of returns would we have seen there?
Andrew: 07:59 Well for a stock like Chubb, again took CB 10,000 would turn into 72,000. So a seven x on your money in 15 years, I would argue that’s very, very good. You take a, a stock like AOS, which was the best performing out of the group and 10,000 turned into 300, 2000. So boohoo we didn’t make 2 million, we still made several hundreds of thousands of dollars from a very small investment in 15 years. So the point is you don’t have to pick them from the start. Sometimes you can pick them and enjoy the ride. And you can use a dividend. If you don’t believe me, use it. Use a dividend reinvestment calculator. Take some of these stocks that are on this list. Procter and Gamble, Coca-Cola, Johnson, Johnson, Hormel, Target, big companies with, with well-known names
Dave: 08:56 And look at, you know, you pick some time during their journey, and you stay along for the ride, and you can still get such big gains being quote-unquote late to the game. And you know, I love to see how much longer a lot of these businesses will ride. And I think, you know, I have a few dividend aristocrats in my portfolio. I have a lot of them that are on my radar. I’m waiting for that lower price. And I think a lot of investors can reach their goals through buying a few of these and seeing the power of drip from them.
Dave: 09:50 Yeah, it’s kind of staggering when you, when you run those numbers. We were talking a little bit off air before we came on and when Andrew was throwing that stuff out at me, I was like, oh my God, that’s, that’s awesome. You know, to see the power of the compounding and how much that can affect what, what it is that we’re, we’re trying to do. And you know, I think those are the kinds of things that people need to hear. And I think this also illustrates when you’re struggling to try to find companies to invest in or where do I look? This kind of list is a great place to start because as we talked about before, these can be fantastic companies that are stable, that are secure, that have been around for a long time. And while we will continue far into the future and we’ll have great opportunities for you to grow your wealth.
Dave: 10:44 And you know, I could hear the excitement in Andrew’s voice when he was talking about AOS and how excited he was about that. I guarantee you he’s probably going to be investigating that company after our discussion. I know that I’m certainly going to be looking at, at Chubb is this an insurance company that I was not familiar with, but I noticed when we were talking about this that they just been added to the dividend aristocrats and they do play overseas. So that’s something that’s maybe a little bit of a concern for me, just cause I’m not familiar with that part of the world and that aspect. But they work with insurance and reinsurance, and that’s something that you know, I’m familiar with and feel comfortable investigating so you can bet your bottom dollar that after we’re off the air today that I will be doing some initial research into the company and try to determine whether at this time it would be a possible good investment or not.
Dave: 11:38 And that’s what’s so cool about doing these kinds of things is just keeping your eyes open and having an idea and a plan of where you can try to look for ideas that could spark a great investment. You know, there’s always the stock screeners that Andrew and I talk about and what I try to do every week with the book that I got from Andrew a years ago. And that’s still a great resource for me. But things like this are also fantastic resources as well. And you know, I can’t stress enough how the dividend aristocrats are, you know, can be a fantastic investment if you can find them at the right price. And that’s, that’s the big, the big issue. You know when you’re looking at somebody like 3m, which is a fantastic company that’s been around for a long, long time and has been doing a great job for a long, long time, but it’s overpriced right now.
Dave: 12:29 So it’s not an option to buy something like that. So when you’re looking at dividend aristocrats, there are fantastic opportunities there. You have to know which ones to choose and when. And like I was saying in the Intro, having a watch list and having some of these companies on that watch list and you’re keeping track of WHO’s on there and who’s not. And when things maybe start to take a turn in the market, then that could be the first thing you’d want to investigate. Hey, is this company fallen to a point where I think it’s going to be a valuable investment? Is there a margin of safety built-in there with what I’m trying to do? And if there is that, hey boom, you’ve got a great company at a, at a discount, just like buying jeans at the store, they’re on sale now, you can make a whole lot of money. You know, you throw $10,000 into a company in 15 years later, it’s going to turn into 300,000. That’s, that’s nothing to seize that, you know, 30 times turn in your money 30 times and the teen years caught. Who wouldn’t want that? It’s just, you know, there are so many opportunities out there, and I think that’s why we wanted to illustrate a little bit about some dividend aristocrats and kind of revisit that a little bit.
Andrew: 13:43 Yeah. And you know, talking about a couple of those again that you mentioned that are now on the list, I’m going back to Aos, which as you said, I will be checking out. You would think that with the stock that’s, that’s risen so high over the years with such a long track record, you would think it would be like value, like an Amazon or value like a Netflix or, or one of those businesses. But it’s, it’s, it’s at those ranges where you, you start to think about, maybe I want to take a second look at this. A price to earnings of 19. This is all according to there’s a price to sales of two and a half. So compared to the market, it’s, it’s very close to buying at the market or maybe even a little bit below it, a low debt to equity as they calculate with longterm debt to equity at 0.2.
Andrew: 14:46 So, you know, it’s, it’s amazing how, so your point these are things that the average investor can pick for themselves and try to get a stock like this and try to get returns that, you know, you won’t necessarily get from an index. And the way I see it is, yeah, you’re not every stock you’re going to pick, it will probably be a dividend aristocrat, but you know, what, if 10% of your stocks, where were the 5% of your stocks were and you have a 30 Bagger, a 10 bagger what was the 2 million? I think that’s like a 200 bagger. So, you know, it could be one of those. And having that in your portfolio can, can give you the type of income that, that, you know, people would only dream of. Today and, and, and see how that can play out 15 years, 25 years from now.
Andrew: 15:41 The last thing I want to piggyback on is the fact that you know, they have mentioned how you can look at the dividend aristocrats list to source ideas and you know, realize that there are other lists out there too. I know as more and more people are getting into like this DIY investing, the individual stock picking and looking at dividend stocks, it’s a movement that’s been growing, especially among what’s called DJ DGI dividend growth investors. There’s now a lot of websites that are focused on dividends, and a lot of them are reporting on, on these and making these different lists. And another one that I’ve seen a lot is the ten-year mark. There seems to be a lot of lists out there that track these stocks when they reached ten years of consecutive growth. So that can be another great place for ideas as well to find maybe a stock that has a good chance of becoming a dividend aristocrat along the way.
Andrew: 16:38 And you know, the counter-argument to this always is while, you know, past performance doesn’t guarantee future results. Right. That’s true. But a lot of businesses which can have great track records can do it for a reason. Tom Brady can win five super bowls because he’s good. And so yeah, there are no guarantees and when the Superbowl next year, but I like my chances with a guy like that. I’m not a fan of him by the way, but to use him as an example. So with businesses too. Yeah. Not every business is going to do; there’s not going to continue. They’re their wind streak. But I like to see good businesses in my portfolio because if they’ve done good in the past, they probably have good business models.
Dave: 17:21 All right folks, we’ll, that is going to wrap up our discussion for this evening. I hope you enjoyed our conversation about dividend aristocrats and the new companies that were added and thought Andrew had some fantastic points and looking at that calculator that he mentioned would be a great way to give you an idea of how these could help you with your portfolio. So without any further ado, I’m going to go ahead and sign this off. You guys go out there and invest with a margin of safety emphasis on the safety. Have a great week, and we’ll talk to you all next week.
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