Widows, Orphans, and Me

Let me admit my prejudice, I like dividends. I don’t own too many stocks that do not pay a dividend. Some of these stocks, such as Johnson & Johnson are traditionally called, “widow and orphan” stocks. The idea is that they are so safe that widows and orphans can count on a dividend income that will last the rest of their life. Of course, there is no such thing as a sure bet in this life, only probabilities. Conservative, boring, dividend stocks are relatively safe but not guaranteed. British Petroleum was viewed as a profitable, well managed corporation that paid a good dividend—until it didn’t. The proverbial black (in this case a black oily) swan flew over a drilling platform in the Gulf of Mexico. In a matter of weeks British Petroleum, a company whose dividends paid approximately 1 out of every 7 pounds sent to British pensioners, lost ½ its value and all of its dividend. That is why we diversify.

Historically, dividends account for 43% of the U.S. stock market’s long-term returns.

Dividend paying stocks do better in bad times than those that do not pay a dividend. In the crash of 2008 stocks that paid a dividend lost an average of 39%. Non-dividend stocks lost 45%. One of those widow and orphan stocks, Procter & Gamble, only lost 15.8% in that debacle. They continued to pay their dividend, even through that horrid debacle. The widows and orphans still received a check every month and those of us who use DRIP plans (dividend reinvesting) to buy more shares of P&G with our dividends now own a more shares that continue to pay more dividends.

A word about DRIP, most dividend paying American corporations allow investors to use their dividends to buy fractional shares of the same stock without any charges. Using this method of investment brings the full force of compound interest to increase your holdings.

Dividends can grow. P&G has raised its dividend 53 years in a row! It is one of 42 dividend aristocrats, companies that have raised their dividend every year for at least 25 consecutive years. I can not think of a better objective measure of good management.

Here is a list of ten of those dividend aristocrats found in an article entitled, “10 Stocks with 45+ Years of Boring Steady Annual Dividend Increases. I own three companies on this list, Coca-Cola, Proctor & Gamble, and Johnson & Johnson. I also own General Electric, a company that use to be on these lists, until investments made by its financial division caused the company to tank in the bank crisis of 2008. Parts of GE’s financial division were legally classified as a bank, so that the company could share in the Federal Bail Out. Also the genius, Warren Buffet, took advantage of the situation and purchased $3 billon in a special issue of General Electric preferred. GE will survive, but I took a bad beat down on that black swan.


Colgate 47 consecutive years of dividend growth pays 2.50%
Johnson & Johnson 48 consecutive years of dividend growth pays 3.55%
Coca-Cola 48 consecutive years of dividend growth pays 3.34%
Cincinnati Fin. 50 consecutive years of dividend growth pays 5.62%
3M 52 consecutive years of dividend growth pays 2.54%
Proctor &Gamble 53 consecutive years of dividend growth pays 2.93%
Emerson Elec. 53 consecutive years of dividend growth pays 2.77%
Genuine Parts 54 consecutive years of dividend growth pays 3.89%
Dover Corp. 55 consecutive years of dividend growth pays 2.22%
Diebold, Inc. 57 consecutive years of dividend growth pays 3.57%

A final word from Seeking Alpha, “Earnings can be manufactured, cash can not. Always follow the cash and it just might lead you to a great company. There is no faking the cash that shows up in your brokerage account.”

Hey, let’s be very careful out there.