DEAR MR. BERKO: I’ve spent a fortune on stock market charts and advisory services during the last 10 years and have little to show for it. I’ve used brokers who told me they could make me 20 percent to 40 percent per year, and all have failed. And in the process, I’ve paid brokers tens of thousands of dollars in commissions and probably lost $225,000 in the last 10 years. I’m 37 and need to learn how to invest wisely for my family’s future. Are there any suggestions you can give a “been there, done that” know-it-all like me? – L.P., Waukegan, Ill.
Dear L.P.: Since you’ve been reading my column over the last few years, you know that I’m first an income investor — second a growth investor. I discuss issues that don’t pay dividends, but when shove comes to push, I’m a dyed-in-the-wool dividend enthusiast.
It’s infinitely easier to predict what a company’s dividend will be next year or in five years than to predict a company’s share price. During the last two market crashes (2000 to 2001 and 2008 to 2009), the stock market fell like thunderbolts, destroying the values of non-dividend issues as well as dividend issues. But the good dividend issues continued to pay good dividends every quarter and continued to raise them even as the stock market punished their share values. Meanwhile, some of the non-dividend issues recovered and some didn’t.
There are hundreds of stocks that have paid dividends every year for years. And many of them have increased their dividends annually for 20-40 years. Standard & Poor’s publishes a list of dividend growers that have raised their dividend for a minimum of 25 consecutive years.
You’re 37 and have made a few costly mistakes in the market, which should be worth a Harvard MBA. And that’s good, because the trouble with doing something right the first time is that you won’t be able to appreciate how difficult it is. So forget about that buy-low, sell-high foolishness. Burn your expensive charts, stop trading and cancel those cockamamie subscriptions promising to make you rich with their crack-brained advice. I’ll tell you how easy it is to invest for your future that it will put all those cockeyed stock market tout sheet and stockbrokers to shame.
I like Clorox (CLX-$63), which pays a $3.20 dividend and yields 3.5 percent. Some analysts think CLX could trade at $75 next year; others believe it could trade at $85 by 2013; and a few think it could be $100 in 2014. All this depends on the following: if the market continues to rise, if interest rates stay low, if the EU remains stable, if oil prices don’t explode, if Detroit doesn’t burn and if bubblegum prices don’t change. There are many more “ifs” to contend with, but you get the picture … I hope.
While I can’t, with a satisfactory degree of accuracy, predict the price of CLX between now and 2014, I can with a high degree of certainty tell that the $2.20 dividend may rise to $2.42 in 2011, to $2.67 in 2012, to $2.93 in 2013 and $3.22 by 2014. I can tell you this because CLX has raised its dividend an average of 10 percent annually during the last 20 years. So if you buy 100 CLX today, I can tell you that in 30 years, when you’re 67, the CLX dividend will have grown to $38 per share. So if the price of CLX never changed, and if you reinvested these dividends, you would own more than 2,500 shares worth $160,000. Those shares would pay you $85,000 in dividend income on a cost basis of $6,300.
Meanwhile, the following stocks have decades of annual dividend increases: Johnson & Johnson (l3.5 percent), PepsiCo (12.7 percent), McDonald’s (22 percent), Colgate (11 percent), Coca-Cola (10 percent), Procter & Gamble (10.7 percent) and Abbott Labs (9 percent). Your broker can give you a long list of other good dividend issues.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at email@example.com.