Not a subscriber? Click here to learn
more.
|
| Home | About Us | Resources | Archive | Free Reports | Market Window |
A Common Sense Guide to "World Dominating" Dividend StocksBy
Monday, May 21, 2012
As I've been expecting for years, the world is now flocking toward World Dominating stocks...
Right now, investors are fleeing bank stocks and mining stocks... the kind that tend to be very speculative. But most every "World Dominating Dividend Grower" (WDDG) stock is holding up just fine these days. While the market is sinking, stocks like Coca-Cola and Wal-Mart are near yearly highs. I'm not surprised...
As I've been saying for years, these stocks are different from typical stocks. They are different from "the market." WDDGs are vastly better.
If I could teach investors just one thing, it would be how to identify and value a World Dominating Dividend Grower business. It's the single-best way to get rich in stocks...
Let's use Microsoft as a "case study"...
Microsoft (Nasdaq: MSFT) is the World Dominator of personal computer software. Its Microsoft Windows and Microsoft Office products enjoy enormous market shares of approximately 90% worldwide. So all over the world, whenever someone buys a PC and needs an operating system and office productivity software, he buys Microsoft nine times out of 10.
Nothing dominates its market the way Microsoft dominates PC software. Even Intel's share of the global microprocessor market is "only" 80%.
In other words, it has an extraordinary brand, and it is No. 1 in its industry. Those are "on the surface" clues to finding these stocks. But we also need to look inside the company... to find the financial clues of a WDDG business.
To say Microsoft has all the financial clues of a World Dominating Dividend Grower is the understatement of the year...
One of the hallmarks of a WDDG stock is consistently thick profit margins. This is the amount of money a company earns from each dollar of sales. A great business should have thick profit margins, so it can pay you plenty of dividends... but that company should also have a sustainable long-term competitive advantage so it can consistently earn those thick margins.
Well, Microsoft doesn't merely have consistently thick profit margins. It has the thickest margins of any business I know of, with gross margins (the margin earned before deducting the basic costs of doing business) consistently around 80% and net margins (the margin earned after deducting all expenses) consistently around 25% – after taxes.
That's huge. Most businesses are ecstatic to earn net margins of 5% or 10%.
Another hallmark of a World Dominating Dividend Grower is huge free cash flow. Free cash flow is the final "cash in hand" number that a business owner has after deducting expenses. It's a vital number for investors.
Microsoft gushes free cash flow like no other business. On sales of just over $73 billion, Microsoft generated just under $27.5 billion in free cash flow the last four quarters.
A third sign of a World Dominating Dividend Grower stock is a strong balance sheet. As shareholders of a business, we want to see lots of valuable assets and low debt. We want a strong balance sheet so we don't have to worry about tough times causing a bankruptcy.
Microsoft's balance sheet isn't merely strong. It's a financial fortress. The company has $59.5 billion in cash and short-term investments and less than $12 billion in debt. It could afford to pay off its debts nearly five times over. Microsoft has zero interest net expense because it earns more interest on its cash and investments than it pays on its debt. Sales could go to zero, and this company wouldn't go bankrupt. It doesn't get much safer than that.
Finally, for a company to qualify as a WDDG, we need to see a history of dividend growth. Microsoft is a relatively young dividend-payer. But what it lacks in history, it makes up for in growth.
The dividend has grown 150% since Microsoft initiated it in 2003. So the dividend has grown at about 10.9% per year for nine years... That number jumps to an even more impressive 12.4% if you look at the last five years alone. And it's accelerating recently, with a 25% increase last fall...
 Microsoft pays out less than 30% of its earnings per share. So there's plenty of room for big dividend growth in the coming years. Right now, Microsoft yields 2.6%. Even if it merely maintains its growth of 12.4% per year, you'd be making 27% over your original cost in 20 years.
To sum up, there are obvious things to look for when you're after the world's safest, best dividend-paying stocks... the kind you can hold for decades and get rich. This includes a dominant brand and the top position in an industry.
But today's essay shows you some vital "financial clues" for finding these stocks... and why Microsoft is a great example.
Good investing,
Dan Ferris
Further Reading:
Read up on some of Dan's favorite World Dominating Dividend Growers, including cigarette giant Altria, consumer goods giant Procter & Gamble, and soft drink giant Coca-Cola.
Editor in Chief Brian Hunt even calls Dan's WDDG-centered strategy the greatest stock market system ever discovered. "If you want to safely make a ton of money in stocks, use this system exclusively," he says. "But a warning: Only buy them if you're greedy..."
Market NotesNEW HIGHS OF NOTELAST WEEK
Verizon (VZ)... telecom
AOL (AOL)... Internet service provider
Colgate-Palmolive (CL)... consumer products
Darden Restaurants (DRI)... Red Lobster and Olive Garden
H.J. Heinz (HNZ)... ketchup
Hershey (HSY)... chocolate
TJX Companies (TJX)... clothing
Dick's Sporting Goods (DKS)... sporting goodsNEW LOWS OF NOTE LAST WEEK
Banco Santander (STD)... Spanish banking giant
Best Buy (BBY)... electronics
RadioShack (RSH)... electronics
China Unicom (CHU)... Chinese cell phones
Nokia (NOK)... cell phones
DeVry (DVY)... secondary education
Alcoa (AA)... aluminum
Alpha Natural Resources (ANR)... coal
Patriot Coal (PCX)... coal
CARBO Ceramics (CRR)... frack ammo
Chesapeake Energy (CHK)... natural gas
Vale (VALE)... iron ore
Petrobras (PBR)... Big Oil
Couer d'Alene Mines (CDE)... precious metals
Goldcorp (GG)... precious metals
Iamgold (IAG)... precious metals
Silver Wheaton (SLW)... precious metals
Silvercorp Metals (SVM)... precious metals
Jaguar Mining (JAG)... precious metals |
In The Daily Crux
Recent Articles
|
