Editor's note: Two of 12% Letter editor Dan Ferris' World Dominating Dividend Growers are officially in "buy" range today.
You don't often have a chance to buy these types of businesses (think Coca-Cola) for great prices. And when you do, you should load up... Simply buying and holding great businesses that gush cash and constantly raise their dividends is the single best way to get rich in the markets.
To celebrate Dan's announcement, we've decided to run a slightly edited version of one of the most popular essays he's ever written on World Dominating Dividend Growers. We originally published this essay in the May 8, 2012 S&A Digest. We hope you enjoy. More important, we hope you internalize the concepts he discusses...
Saturday, August 24, 2013
A sign of an impending market rally was delivered to my door this morning.
This week, I've been staying at the Omaha (Nebraska) Hilton while attending the Berkshire Hathaway shareholder meeting and subsequent Value Investing Congress (more on this in a moment)...
Like a lot of hotels, the Hilton delivers a complimentary copy of the USA Today to the guests' doors each morning. On the front page of today's edition reads the headline "Invest in stocks? Forget about it." The article says essentially that individual investors are still worn out by the 2008-2009 crisis. Last year's 20% market drop didn't help, either.
Ever since late 2008, I have been pounding the table extra hard on my World Dominating Dividend Grower (WDDG) stocks... repeatedly extolling the virtues of highly competitive, cash-rich businesses with growing dividends. Investing in these stocks allows you to compound your money at high rates over long periods of time.
Part of the message I'm trying to get across to investors is that these stocks are indeed different than all the speculative biotech and mining stocks (some of which are admittedly attractive today). WDDGs are cash-gushing businesses, and competing with them is insanely difficult.
Think of it this way. Add up Coca-Cola's debt and tangible equity, and you get about $36 billion. Do you really think if you had $36 billion, you could create a business that could dethrone Coca-Cola not only as the world's No. 1 beverage brand, but also (according to global brand consultants InterBrand) as the world's single most valuable brand of any kind for the last 10 years?
I doubt it. THAT is a stock you can buy, no matter what's happening in the world. THAT is a stock you buy when you're scared about what's going to happen over the next several years. If Coca-Cola's share price dips in the near term (as long as you haven't overpaid for the stock), you're still going to do really well over the long term, thanks to that growing dividend.
I recently raised the maximum buy price on Coca-Cola, giving 12% Letter readers a chance to buy the stock if they'd missed it the first time the previous editor, Tom Dyson, recommended it. The stock rose about 10% above my maximum price relatively quickly.
Aside from the opportunity to make a lot of money over the next several years... think about the safety of a stock like Coca-Cola. It's got the biggest beverage distribution capability in the world. No matter what type of new nonalcoholic beverage comes into existence, the best way to get it to the maximum number of new customers as quickly as possible is for Coke to take it over and distribute it.
Every now and then, you might hear someone say he thinks Pepsi is a better business than Coke. I heard a decent presentation on Pepsi yesterday at the Value Investing Congress here in Omaha. And after all, Pepsi is always right on Coke's heels, isn't it? Well... not really... not from an investor's point of view.
Check this out... From 2009 to 2011, for every $1 of earnings it retained and reinvested in the business, Pepsi added $2 of market value. For every $1 Coke retained during the same period, it added $4 of market value.
There's a reason for that. Coke is a better business. It's No. 1. Being the biggest is much more valuable than most investors realize. By definition, it means this business is the most successful in its industry. Odds are excellent it'll continue being No. 1.
Coke isn't the only such business (though it's one of the best)...
There are lots of No. 1 companies in the world. And lots of companies grow their dividends. But you can't count on a lot of companies to both crush their competition and grow their dividends for decades on end. That's what WDDGs do.
It's no accident that Coca-Cola is the largest stock holding of the world's greatest investor, Warren Buffett. He knows the business isn't going to change much over the next several decades. It's just going to keep growing...
Think about it another way, too. Warren Buffett is 81 years old. He just bought a railroad. He owns a huge electric utility. His largest business is the sleepy, steady, inflation-beating business of insurance. He's building an endowment... an investment that will stay safe and continue to perform for decades after he's dead. That's why Coke is still his biggest stock holding, at more than $15 billion.
So if you're like those folks in the USA Today's front-page article and you're still scared of the stock market, please consider putting some money into the World Dominating Dividend Growers. That way, you'll beat inflation, compound your money at high rates for many years, and sleep well at night. If the market drops, you'll have little to worry about. And you'll keep making more money – in cash dividends – year after year.
WDDGs ought to be the core of your stock holdings. They're great long-term investments... You can always count on them to pay you higher cash dividends every year. And they keep your money safe, no matter what happens in the stock market.
WDDGs beat the heck out of inflation, too. Last year, WDDGs in the 12% Letter portfolio raised their dividends by an average of 11.6%! A few additional years of that will be more than enough to convince you that holding shares of these companies is the wisest stock-market investment you can make for the long term.
Right now, The 12% Letter only costs $39 for a year. I'm really grateful, too, to S&A for selling The 12% Letter at a low price. I truly believe every individual investor ought to own WDDG stocks. Selling the letter at a low price can help it reach as many people as possible. Anyone can afford it, even a high school student. Come to think of it, it wouldn't make a bad graduation present for a child or grandchild...
So if you want to get past the fear of stocks that's so widespread today and set you, your children, or your grandchildren up for decades of safe compounding, click here to sign up for The 12% Letter (without watching a long promotional video). If you don't like it after four months, you can always get your money back.
Date Range:8/15/2013 to 8/22/2013
Date Range:8/15/2013 to 8/22/2013