The investor who buys a share has two ways to get profitability of this financial asset. The most obvious is sell it at a higher price than the one paid, to achieve a capital gain. The second is receive a payment in the form of a dividend. As long as you are the owner of that variable income security, you will have the right to receive a part of the money that the company distributes among the shareholders. Most listed companies are not required to pay a dividend – they can reinvest profits or buy back shares with them – but those that are able to do so on a regular basis, even with recessions in between, and that each year manage to increase it, have a plus of credibility and solvency facing the markets.
The United States has even produced a specific category for those firms that have been more than 100 years old! paying its shareholders a growing dividend. They call them “the dividend zombies”, because they continue to serve their owners even in the most difficult business circumstances, even if they are almost moribund (wars, oil shocks, recessions…). They are business emporiums: Coca Cola, Exxon, Procter & Gamble, Black & Decker, Colgate, Consolidate Edison, General Mills, and PPG Industries. The black legs of investment.
Antonio Rico, manager of the fund Management Boutique VI Baelo Heritage, from Andbank AM, explains that “shareholder remuneration offers very useful information about the company. In general, companies that have always managed to maintain or increase their dividend have had better returns on the stock market than the rest of the shares”. The fund that Rico manages invests fundamentally in firms that are highly committed to paying shareholders.
In the US there are eight firms that have more than 100 years of increasing payments
Since the zombie club is very small (only eight companies), less demanding categories have been created. The calls Dividend Kings They are companies that can prove 50 years of constant and growing payment to their shareholders. A step below in this Old Regime metaphor is the “dividend aristocracy”. To belong to it, it is worth having maintained this commitment with the increasing distribution of profits for 25 years. In the United States there are 64 companies within this last category, within the S&P 500 index, which brings together the most powerful firms.
The consistency of this strategy has been more than proven over the years. In the last two decades, the average annual return of these aristocrats has been 11.1%, compared to 9.7% for the S&P 500. It is in the most difficult years that the pro-dividend companies get their chests out. Thus, in the 2008 crisis, they lost an average of 22%, while the general index fell by 37% in the year.
In these profitability comparisons, it is presumed that the money received in the form of a dividend is reinvested by the client in the same company, so that the comparison is fair with the companies that prefer to bet on the repurchase of shares. Nevertheless, One factor that attracts many investors to these zombies, kings or aristocrats is, precisely, being able to collect a regular income, just as a coupon is charged on the investment in bonds. It is a way to guarantee a recurring income.
Nowadays, The dividend yield offered by this type of company is between 3% per year for Coca Cola, 4% for Black & Decker and 5% for IBM and 3M.
Companies with a long-term commitment to shareholders have earned 2% more per year than the general index
There are also some investment funds specialized in dividend companies. Lucía Gutiérrez-Mellado, director of strategy at the manager JP Morgan Asset Management, explain what in recent months “the demand for one of our global funds, the JP Morgan Global Dividend, has skyrocketed, due to the increased interest in high dividend yield strategies, especially in this market context”. Some of these products reinvest the dividends they receive in the fund, but there are also distribution funds, which pay out the dividends received.
The aristocratic list also has its European version, although with less roots. the noble 40s are companies that have kept their dividends up for 10 years. It includes names like Nestlé, Unilever, Roche, Total or Sanofi. The average annual return generated by these companies is 3.6% over the last decade.
In Spain, there are twenty companies that can boast of two decades of stable dividend payments, with names like Inditex, Viscofan or CAF have maintained the payment to the shareholder, always in cash.
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