In last few weeks, I have looked at dividend stocks (aristocrats and achievers) that have dividend yields of less than 2%. There is a school of thought among dividend crowd that low dividend yields will take more than 10, 12, or even 15 years to match income from high yielding CDs or money market accounts. Furthermore, when low yield dividend stocks are compared to high yield dividend stocks, considering conservative dividend growth rates, low yielding stocks will often lag by significant amount. I agree that, mathematically, there is no argument for low yielding dividend stock providing lower income. Purely based on numbers, it is always good to go for relatively higher yield dividends stocks. In general, the cut off used by dividends investors vary such as 2% absolute dividend yield, 3% absolute dividend yield, or dividend yield higher than market (i.e. S&P500 yield).
Theory of evolution says continuous change is inevitable and if one does not evolve, they will perish. This is true for businesses and corporations. If corporations do not evolve then their survival is in jeopardy. One thing key to survival is a core competency that the company has built over time. Yes, it is important to make and sell products or services. However, I believe products and services are just the end product or end result.
Corporations that are successful and continue to survive have shown that they focus more on building core competency. Based on their core competence these corporations have build products or services that can be applied to variety of applications. Successful companies are more eager to build competence that will help them become world leaders. They do not solely focus on products alone.
One of the traits of a good dividend paying company it is continuously evolving over time. What keeps such companies successful is their ability to recognize the changes in market place and adapting to the new needs. Last week, I highlighted Sysco’s initiative to adapt to changing market place. Today I am moving over to Proctor and Gamble’s industrial design initiatives that has enabled it to continuously increase its market footprint.
P&G has more than 200 plus brands of which approximately 30 bands rake in about billion dollar revenue every year. P&G sells shampoos, toothpaste, toothbrush, shaving razors, diapers, soaps and detergents, tissue papers, etc. The actual products itself are mature and does not have any path breaking innovation (e.g. Shampoo, what will be the path breaking innovation? at the most tweaks?). The challenge for P&G is not about selling these products to consumers. Instead, it is about how to grow continuously, it is about how to maintain the sustainability of its income, and it is about making consumers to pay same (or more) year after year. continue reading rest of the article….