Streetwise

Lauren Rudd

Sunday, October 7, 2012

When This Old World

“When this old world starts a getting me down...,” (James Taylor, 1998).

I cannot testify as to the world, but for many of you Wall Street’s seemingly never ending volatility is getting you down. And it is of little wonder. The last few years have not been kind to investors. Despite trading at 5-year highs, the equity markets are still relatively unchanged from where they were a decade ago. Do not despair, I have an answer you might find extremely useful in today’s capricious investment climate.

However, let me preface what follows with the mantra that individual stocks, if selected correctly are and always have been the best investment for increasing your wealth. The key questions of course are what to buy and when. The last point is easy, anytime. Therefore, the only remaining issue is which companies do you invest in?

Let me offer you a short-cut you might find extremely useful. I am reminded to bring this topic up every year at this time because it is part of my teaching curriculum.

Suppose for a moment you had a list of about 260 solid high quality dividend paying companies that have withstood the test of time...would that help? Well such help is available by means of the Mergent Handbook of Dividend Achievers and it remains, in my opinion, the single most useful tool for individual investors.

I was once asked the question that if you took away my computer systems, access to the Internet, my telephone and only allowed me the use of one item with which to select investment candidates, what would it be? This book would be my answer. In fact, at one time I was quoted on the back cover making just that statement. No, I do not have and never have had any financial ties to Mergent other than receiving an occasional review copy.

The book profiles those companies that have increased their regular annual cash dividend for a minimum of 10 consecutive years. If a company misses a year, it is off the list and must again increase dividends for 10 consecutive years to be added back on.

Mergent is not content to simply list the stellar dividend performers. Rather it takes the list and proceeds to slice and dice it in a variety of ways. For example, it ranks the entire list by total return based on 1, 3 and 5 year increments. Then it lists the top 20 companies in 12 different categories such as total assets, return on assets, return on equity and dividend yield.

Yet, the various lists comprise only about 36 pages of the book. The remaining pages are devoted to a detailed description of each company, including 6 years of annual financial data along with the two most recent quarters and a chart of stock prices covering a 10-year period. A web site address for each company is also included as are a number of financial ratios.

I have been using and writing about the Handbook for over 20 years and I believe it to be one of the few true bargains in the arena of independent investment research. Moreover, you do not need any form of assistance to benefit from what Mergent has put together. Some of the companies discussed in this column were initially brought to my attention via the Handbook.

Want to know which company has the longest dividend track record; it is a three way tie. American States Water, Diebold and Procter & Gamble hold the record at 57 consecutive years. And you say you cannot figure out what to invest in.

What do I not like about the book? There are two things. The first is that Mergent has become quite commercial with what used to be a relatively inexpensive investment tool. Four issues per year is probably overkill and the price of a single issue, while not prohibitive, is not what I would call inexpensive.

The other point is relatively minor but annoying nonetheless. The print is rather small. This is a result of having to incorporate as much data as possible in a relative small space. Personally, being a bit long in tooth I keep a magnifying glass nearby, just in case.