A Different Dividend Streak

28 Apr 2018 22:30

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As a passive income investor there are two major threats that can hurt your long term passive income. The first is the dreaded dividend freeze or cut. However, most (if not all) investors are constantly monitoring for this threat and resolving the issue before it does any harm. You can see this in action on countless blogs as investors document their investing journeys.

The second major threat is the one less talked about and probably could use a little more attention is inflation, that long term killer that slowly eats away at our gains. In a low inflation period, like we have been in for the last 10 years, it is easy to forget about factoring in inflation to your investing portfolio.

Things can and will change especially if your investing horizon is more than 20 years. Me personally I’d rather have a portfolio prepared and diversified enough to adapt to that change than waiting to react. Unfortunately we do not have crystal balls and cannot predict when and how much inflation will change. Historical performance does not guarantee future performance but it can provide insights as to how a company and its management typically react during high or low inflationary years. Using that as a basis I plan on incorporating historical dividend growth to inflation as part of my analysis for stock selection.

A Different Kind of Dividend Aristocrat

We have all heard of Dividend Aristocrats or Champions where companies have increased their annual dividend payouts consecutively for 25 or more years. But how big would that list be if it was how many companies have increased their dividends more than inflation consecutively for 25 or more years?

The proper way would be to analyze every component year by year but for the purpose of this post I will use the average inflation rate over 1, 3, 5, and 10 years and compare them to the current 118 Dividend Champions compiled by David Fish and available at the DRIP Investing Resource Center. When you over lay the inflation rates 19 companies failed the test and reduced the list to 99 companies.

The chart at the end of this post is a summary of the analysis. The color coding is as follows:

  • Red =Failed to Match or Beat Inflation
  • Yellow = Matched or exceeded inflation up 0.9%
  • White = Beat Inflation from 1 to 3.9%
  • Green = Beat Inflation 4% or higher.

Johnson & Johnson is a True Dividend King

Johnson and Johnson (JNJ) recently announced a 7.1% dividend hike marking 56 years of consecutive growth. JNJ has long been a favorite among dividend growth investors but what few are aware is it has one of the longest streaks for increasing dividends that exceed inflation. The last year JNJ did not perform this feat was 1980! That is a 38 year streak! The most impressive thing is that they did not just beat inflation each year they thoroughly spanked it consistently over all 38 years!

I did an similar analysis in a 2015 blog post on a ½ dozen companies with JNJ as one of the companies and had year by year data available to make this more detailed claim including this follow up JNJ blog post. Back then Walmart held the title with a streak that started in 1974 but that streak came to an end last year when they failed to beat inflation. 42 years was an impressive run but I think JNJ has a much better business model and will eclipse that streak.

If you prefer to view in Google Sheets here is the link

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