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Another Chart I find very interesting
Old 03-15-2017, 10:02 PM   #1
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Another Chart I find very interesting

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Old 03-16-2017, 05:47 AM   #2
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Impressive. Is it dividends, or the fact that you have to make a profit to be able to afford it? In other words, what does the graph of loss-making vs. profitable companies look like?

Curious also what happens if one sets post-bubble as base year or we have a log-scale. It looks like the pattern is still there, hard to see on the chart.
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Old 03-16-2017, 08:31 AM   #3
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How many stocks in the S&P500 don't pay divs? Could be a small sample size?

And is this a graph of 'survivor bias"? IOW, I don't think they started with the stocks in 1985 that didn't or did pay divs, and look forward 30 years, did they? It looks like that 'rolling 12 month dividend policy" would then include failing companies that cut their divs to zero. In that case, it's not surprising, and also not very informative (with regard to forward looking decisions).

-ERD50
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Old 03-16-2017, 10:56 AM   #4
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Quote:
Originally Posted by Totoro View Post
Impressive. Is it dividends, or the fact that you have to make a profit to be able to afford it? In other words, what does the graph of loss-making vs. profitable companies look like?
+1

Great chart; and spot on question. Dividend growers tend to be profitable. IMO, the best dividend grower performers are also able to pay their increasing dividends from operating cash flows. If you're an investor in individual stocks, look at their operating cash flows over 5-10 years to see if they are generating sufficient cash to pay increasing dividends. It's not the only criteria to consider, but it's the best "first screening" approach that I know of for a solid company with growing dividends.

NL
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Old 03-16-2017, 11:04 AM   #5
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+1

Great chart; and spot on question. Dividend growers tend to be profitable. IMO, the best dividend grower performers are also able to pay their increasing dividends from operating cash flows. If you're an investor in individual stocks, look at their operating cash flows over 5-10 years to see if they are generating sufficient cash to pay increasing dividends. It's not the only criteria to consider, but it's the best "first screening" approach that I know of for a solid company with growing dividends.

NL
But is it cause or effect?

When you go back, and find companies that were increasing dividends, it means they were successful in the past. Are they any more/less likely to be any more/less successful than average in the future?

-ERD50
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Old 03-16-2017, 04:47 PM   #6
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Originally Posted by Nature Lover View Post
+1

Great chart; and spot on question. Dividend growers tend to be profitable. IMO, the best dividend grower performers are also able to pay their increasing dividends from operating cash flows. If you're an investor in individual stocks, look at their operating cash flows over 5-10 years to see if they are generating sufficient cash to pay increasing dividends. It's not the only criteria to consider, but it's the best "first screening" approach that I know of for a solid company with growing dividends.

NL
Quote:
Originally Posted by ERD50 View Post
But is it cause or effect?

When you go back, and find companies that were increasing dividends, it means they were successful in the past. Are they any more/less likely to be any more/less successful than average in the future?

-ERD50
ERD50,

As your question suggests, it's hard to say. I would hope yes (more likely), but the analysis wouldn't stop there. Meeting that cash flow criteria would be a first screen. A deeper view of stocks meeting that criteria would be necessary before deciding to invest.

To Totoro's original point, I do think the chart probably included some survivor bias (those failing to succeed in growing dividends consistently over time were likely dropped or maybe even omitted from the group from the start).

As for his question regarding whether they had to be profitable to afford increasing the dividend payout. The answer of course, in the short run, is no...but in the long-run I generally expect yes. (In the absence of operating cash flows, the company could take to issuing debt or more stock in order to continue to pay more dividends, but this isn't likely sustainable without leading to significant declines in stock price.)

Of course, more to the point, my comment was to suggest using whether the company was consistently generating operating cash flows sufficient to pay for the rising dividends was how I'd measure "successful" (rather than looking to see if it was "profitable").

Another way to look at my comment is: If a company couldn't pay for the increasing dividends from operating cash flows consistently, I'd question whether the company was a good choice for a dividend growth portfolio.

Not sure if I answered your question, but hope so.

NL
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Old 03-16-2017, 06:29 PM   #7
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ERD50,
....

Not sure if I answered your question, but hope so.

NL
Interesting comments, thanks, but I think my question would only be answered by 'freezing' the list of companies selected by that criteria in 1985 (and the 1985 entire list of S&P stocks, to keep it apples-apples), and following their performance through the next 30 years.

Might find the answers here?

Visual History Of The S&P 500 | ETF Database

-ERD50
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Old 03-17-2017, 02:56 AM   #8
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it's not hard to determine those stocks that increased their dividends regularly. Those companies that have done this for the past 25 years are called dividend aristocrats - just google it.
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Old 03-17-2017, 06:16 AM   #9
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And very convenient, there are also ETFs that track them as a group.

NOBL is a good example. It seems that the past four years it performed on par with the S&P.
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Old 03-17-2017, 07:52 AM   #10
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The Drip Investing site is a good resource for the dividend champions. Dave Fish maintains a spreadsheet with all the info and is a regular contributor at seeking alpha.

The DRiP Investing Resource Center - DRiP Information, Tools, And Forms
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