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Looking Beyond Apple and Microsoft

As the 1970s came to a close, six of the world’s ten largest companies were in the oil exploration, drilling, and services business. Just a few years earlier, on April 1, 1976, Steven Jobs and Steven Wozniak, two college dropouts working out of a garage, formed Apple Computers, Inc. In April 1975, Bill Gates and Paul Allen formed a company called Micro-Soft.

Four decades later, these two technology startups are the world’s largest companies, far surpassing the largest oil companies of the 1970s. In fact, the combined market capitalization of Microsoft and Apple is larger than the aggregate market cap of the domestic oil industry. Even more astounding, the combined market cap of Microsoft and Apple just surpassed the total market cap of the entire German stock market.

The table below shows the rotation of the world’s largest publically traded companies over the last fifty years. Of the companies shown below only five have been in the top ten for more than one decade.

Throughout history, most of the world’s largest companies are routinely supplanted by new and different companies from decade to decade. Furthermore, different industries tend to dominate each decade and then fade into the next decade as new industries dominate. For instance, in the 1970’s big oil accounted for six of the top ten largest companies. In the 1980’s, Japanese companies held eight of the top ten spots. In the 1990s it was telecom, the 2000s were controlled by banks and commodities, and this past decade was dominated by technology and social media companies.  

Throughout history, most of the world’s largest companies are routinely supplanted by new and different companies from decade to decade. Furthermore, different industries tend to dominate each decade and then fade into the next decade as new industries dominate. For instance, in the 1970’s big oil accounted for six of the top ten largest companies. In the 1980’s, Japanese companies held eight of the top ten spots. In the 1990s it was telecom, the 2000s were controlled by banks and commodities, and this past decade was dominated by technology and social media companies.  

While table offers several insights, we believe the most important lesson is that our investment strategies must focus on the future and our dependence on past strategies must be carefully considered. Today, two college dropouts in their parent’s basement fooling around with artificial intelligence, block chain, or robotics may prove to be worth more than Apple, Microsoft, or Amazon in just a few decades. The table also emphasizes the importance of selling high and rotating to that which has “value”.

To emphasize that point, we constructed the following graph. Although simple, it effectively illustrates the theme by comparing one stock looking backward and one stock looking forward as an investment strategy. The backward-looking strategy (blue line) buys the largest company at the end of each decade and holds it through the following decade. The forward-looking strategy (orange line), with the gift of 20/20 foresight, buys the company that will be the largest company at the end of the new decade and holds it for that decade.  For example, on January 1, 2010, the forward-looking strategy bought Microsoft and held it until December 31, 2019, while the backward-looking strategy bought Exxon and held it over the same period.

Due to the split-up of AT&T and poor price data, we used GM data which had the second largest market capitalization in 1969. For similar reasons, we also replaced Nippon Telephone and Telegraph (NTT) with The Bank of Tokyo. The graph is based on share price returns and is not inclusive of dividends.

The forward strategy beat the S&P 500 by over 12% a year, while the backward-looking strategy grossly underperformed with a negative cumulative annualized price return over the last 50 years. As startling as the differences are, they fail to provide proper context for the value of 50 years of compounding at the annualized rates of return as shown. If all three portfolios started with $100,000, the backward-looking portfolio would be worth $59,000 today, the S&P 500 worth $3,500,000 today, and the forward-looking portfolio would be worth $791,000,000 today.

Summary

Although no one knows what the top ten list will look like on December 31, 2029, we do know that the next ten years will not be like the last ten. The 2000’s brought two recessions and for the first time in recorded history, the 2010s brought NO recessions. Investors need to be opportunistic, flexible, creative and forward-looking in choosing investments. Investing in today’s winners is not likely to yield us the results of yesterday. It is difficult to fathom as Apple and Microsoft drive the entire market higher, but history warns that their breath-taking returns of the last decade should not be expected in the 2020’s. In fact, history and prudence argue one should sell high.

UNLOCKED: 3 Quality Blue Chip Stocks For Rising Dividends

This is a guest contribution by Bob Ciura with Sure Dividend.  Sure Dividend helps individual investors build and maintain their high quality dividend growth portfolios rising passive income over the long run.

There is no exact definition of what constitutes a “blue-chip” stock, but at Sure Dividend we generally define a blue chip as a stock that belongs to one of three lists. In our view, a blue chip is a dividend stock that is either a Dividend Achiever (10+ consecutive years of dividend increases); Dividend Aristocrat (25+ years); or Dividend King (50+ years).

We have compiled a list of companies that currently qualify as blue chip stocks, as well as our top-ranked blue chip stocks. The following 3 stocks are among our favorite blue chip stocks for dividend growth investors interested in rising dividend income over the long term. These 3 stocks combine strong business models with future growth potential, as well as high current yields.

Blue Chip Stock #3: Exxon Mobil (XOM)

Exxon Mobil is an integrated oil and gas supermajor. It is the largest U.S. energy company, with a market capitalization above $300 billion. It has also increased its dividend for over 30 years in a row, making it a member of the Dividend Aristocrats. The stock has a current yield of 4.9%, which is significantly above the ~2% dividend yield of the broader S&P 500 Index.

Exxon Mobil continues to struggle with weak oil prices, but thanks to its diversified business model, the company still generates impressive cash flows. In the most recent quarter, Exxon Mobil grew its upstream liquids production by 5% over last year’s quarter mostly thanks to impressive growth in the Permian Basin, where output grew 4% for the quarter. Exxon Mobil generated over $9 billion in operating cash flow last quarter, as the company is highly profitable across its large upstream, downstream, and refining businesses.

Despite the difficult short-term conditions, investors should remain confident of Exxon Mobil’s long-term prospects. Production growth will fuel higher profits going forward, as Exxon Mobil expects production to increase 25% by 2025, to 5.0 million barrels per day. The Permian Basin will be a major growth driver, which Exxon Mobil expects to account for more than 1.0 million barrels per day of its production by 2024.

Exxon Mobil continues to generate strong cash flow, which it uses to reward shareholders with annual dividend increases, including the 6% increase in April 2019. It also has the best balance sheet of all the integrated oil and gas majors, which further boosts its dividend sustainability. With a nearly 5% dividend yield, Exxon Mobil is among the safest dividend stocks in the energy sector.

Blue Chip Stock #2: Walgreens Boots Alliance (WBA)

Next up is pharmacy retail giant Walgreens Boots Alliance, which like Exxon Mobil is on the list of Dividend Aristocrats. Walgreens has a global presence with over 18,000 stores in 11 countries, and a market capitalization of approximately $50 billion. Walgreens has increased its dividend for 44 consecutive years, which makes it a member of the Dividend Aristocrats.

Walgreens faces heightened competition, both from established retailers as well as the looming threat of Amazon (AMZN) which purchased online pharmacy PillPack for nearly $1 billion. But Walgreens continues to generate sales growth, including 2.6% comparable revenue growth in the most recent quarter. Pharmacy sales increased 5.4% on a comparable basis, primarily due to higher brand inflation, and prescription volume growth. Pharmacy sales should continue to provide growth for Walgreens, particularly because of the aging U.S. population. Walgreens is also a highly recession-resistant company, as consumers are unlikely to cut spending on prescriptions and other healthcare products even during a recession. Walgreens is one of the most recognized brands in retail, and its huge store count serves as a competitive advantage.

Walgreens is also working aggressively to cut costs to improve its profitability. The company recently raised its cost-cutting target from $1.5 billion, to over $1.8 billion by fiscal 2022. Walgreens returns a significant portion of its profits to shareholders in the form of dividends. The company has a current dividend yield of 3%, and has increased its dividend each year for more than 40 consecutive years.

Blue Chip Stock #1: Altria Group (MO)

Altria Group is a consumer staples giant. Its main product is the Marlboro cigarette brand, but Altria has a diversified product portfolio that also includes smokeless tobacco, wine, and a 10% equity stake in global beer giant Anheuser Busch Inbev (BUD).

Altria stock has performed poorly this year, with a year-to-date decline of 7% versus a 23% gain for the S&P 500 Index. The company is struggling with the persistent trend of declining smoking rates in the United States. Altria expects cigarette volumes will decline at a 4% to 6% annual rate through 2023.

In response, Altria has invested heavily in expanding its product portfolio beyond traditional cigarettes. Its most recent investments include a $1.8 billion investment for 45% of Canadian marijuana producer Cronos Group (CRON). Separately, Altria invested $12.8 billion in e-vapor manufacturer JUUL Labs for a 35% equity stake in the company. In June, Altria announced that it took control of Burger Söhne, a Swiss company that makes oral nicotine pouches. The 80% stake was purchased for $372 million.  

These investments have allowed Altria to continue generating growth in its core metrics this year. In late October, Altria reported strong third-quarter earnings. Revenue (net of excise taxes) increased 2.3% year-over-year to $5.4 billion. Adjusted earnings-per-share came of $1.19 increased 10% over the year-ago period. Revenue and earnings-per-share both beat analyst expectations. Altria said it was on track to achieve $575 million in annual cost savings this year as it combats lower smoking rates in its markets.

Altria took a non-cash impairment charge of $4.5 billion related to its investment in Juul. But its investments in Juul, Cronos Group, and Burger Söhne represent major growth opportunities and the company’s best chance to diversify away from cigarettes. These investments will fuel Altria’s long-term growth. Altria expects 5% to 7% growth in adjusted earnings-per-share in 2019, as well as 5% to 8% adjusted EPS growth from 2020-2022. This growth will allow Altria to continue increasing its dividend to shareholders, as it has done for 50 consecutive years, making Altria a member of the Dividend Kings list.

Final Thoughts

Dividend growth investors are generally interested in a strong current yield that is well above the market average, and a sustainable dividend with room for growth over the long term. Blue chip stocks are a great place to look for stocks that combine both qualities. The three stocks in this article have dividend yields that significantly exceed the S&P 500 Index average. And, thanks to their steady profitability, durable competitive advantages, and future growth potential, they are likely to continue increasing their dividends each year for the foreseeable future.

3 Quality Blue Chip Stocks For Rising Dividends

This is a guest contribution by Bob Ciura with Sure Dividend.  Sure Dividend helps individual investors build and maintain their high quality dividend growth portfolios rising passive income over the long run.

There is no exact definition of what constitutes a “blue-chip” stock, but at Sure Dividend we generally define a blue chip as a stock that belongs to one of three lists. In our view, a blue chip is a dividend stock that is either a Dividend Achiever (10+ consecutive years of dividend increases); Dividend Aristocrat (25+ years); or Dividend King (50+ years).

We have compiled a list of companies that currently qualify as blue chip stocks, as well as our top-ranked blue chip stocks. The following 3 stocks are among our favorite blue chip stocks for dividend growth investors interested in rising dividend income over the long term. These 3 stocks combine strong business models with future growth potential, as well as high current yields.

Blue Chip Stock #3: Exxon Mobil (XOM)

Exxon Mobil is an integrated oil and gas super-major. It is the largest U.S. energy company, with a market capitalization above $300 billion. It has also increased its dividend for over 30 years in a row, making it a member of the Dividend Aristocrats. The stock has a current yield of 4.9%, which is significantly above the ~2% dividend yield of the broader S&P 500 Index.

Exxon Mobil continues to struggle with weak oil prices, but thanks to its diversified business model, the company still generates impressive cash flows. In the most recent quarter, Exxon Mobil grew its upstream liquids production by 5% over last year’s quarter mostly thanks to impressive growth in the Permian Basin, where output grew 4% for the quarter. Exxon Mobil generated over $9 billion in operating cash flow last quarter, as the company is highly profitable across its large upstream, downstream, and refining businesses.

Despite the difficult short-term conditions, investors should remain confident of Exxon Mobil’s long-term prospects. Production growth will fuel higher profits going forward, as Exxon Mobil expects production to increase 25% by 2025, to 5.0 million barrels per day. The Permian Basin will be a major growth driver, which Exxon Mobil expects to account for more than 1.0 million barrels per day of its production by 2024.

Exxon Mobil continues to generate strong cash flow, which it uses to reward shareholders with annual dividend increases, including the 6% increase in April 2019. It also has the best balance sheet of all the integrated oil and gas majors, which further boosts its dividend sustainability. With a nearly 5% dividend yield, Exxon Mobil is among the safest dividend stocks in the energy sector.

Blue Chip Stock #2: Walgreens Boots Alliance (WBA)

Next up is pharmacy retail giant Walgreens Boots Alliance, which like Exxon Mobil is on the list of Dividend Aristocrats. Walgreens has a global presence with over 18,000 stores in 11 countries, and a market capitalization of approximately $50 billion. Walgreens has increased its dividend for 44 consecutive years, which makes it a member of the Dividend Aristocrats.

Walgreens faces heightened competition, both from established retailers as well as the looming threat of Amazon (AMZN) which purchased online pharmacy PillPack for nearly $1 billion. But Walgreens continues to generate sales growth, including 2.6% comparable revenue growth in the most recent quarter. Pharmacy sales increased 5.4% on a comparable basis, primarily due to higher brand inflation, and prescription volume growth. Pharmacy sales should continue to provide growth for Walgreens, particularly because of the aging U.S. population. Walgreens is also a highly recession-resistant company, as consumers are unlikely to cut spending on prescriptions and other healthcare products even during a recession. Walgreens is one of the most recognized brands in retail, and its huge store count serves as a competitive advantage.

Walgreens is also working aggressively to cut costs to improve its profitability. The company recently raised its cost-cutting target from $1.5 billion, to over $1.8 billion by fiscal 2022. Walgreens returns a significant portion of its profits to shareholders in the form of dividends. The company has a current dividend yield of 3%, and has increased its dividend each year for more than 40 consecutive years.

Blue Chip Stock #1: Altria Group (MO)

Altria Group is a consumer staples giant. Its main product is the Marlboro cigarette brand, but Altria has a diversified product portfolio that also includes smokeless tobacco, wine, and a 10% equity stake in global beer giant Anheuser Busch Inbev (BUD).

Altria stock has performed poorly this year, with a year-to-date decline of 7% versus a 23% gain for the S&P 500 Index. The company is struggling with the persistent trend of declining smoking rates in the United States. Altria expects cigarette volumes will decline at a 4% to 6% annual rate through 2023.

In response, Altria has invested heavily in expanding its product portfolio beyond traditional cigarettes. Its most recent investments include a $1.8 billion investment for 45% of Canadian marijuana producer Cronos Group (CRON). Separately, Altria invested $12.8 billion in e-vapor manufacturer JUUL Labs for a 35% equity stake in the company. In June, Altria announced that it took control of Burger Söhne, a Swiss company that makes oral nicotine pouches. The 80% stake was purchased for $372 million.  

These investments have allowed Altria to continue generating growth in its core metrics this year. In late October, Altria reported strong third-quarter earnings. Revenue (net of excise taxes) increased 2.3% year-over-year to $5.4 billion. Adjusted earnings-per-share came of $1.19 increased 10% over the year-ago period. Revenue and earnings-per-share both beat analyst expectations. Altria said it was on track to achieve $575 million in annual cost savings this year as it combats lower smoking rates in its markets.

Altria took a non-cash impairment charge of $4.5 billion related to its investment in Juul. But its investments in Juul, Cronos Group, and Burger Söhne represent major growth opportunities and the company’s best chance to diversify away from cigarettes. These investments will fuel Altria’s long-term growth. Altria expects 5% to 7% growth in adjusted earnings-per-share in 2019, as well as 5% to 8% adjusted EPS growth from 2020-2022. This growth will allow Altria to continue increasing its dividend to shareholders, as it has done for 50 consecutive years, making Altria a member of the Dividend Kings list.

Final Thoughts

Dividend growth investors are generally interested in a strong current yield that is well above the market average, and a sustainable dividend with room for growth over the long term. Blue chip stocks are a great place to look for stocks that combine both qualities. The three stocks in this article have dividend yields that significantly exceed the S&P 500 Index average. And, thanks to their steady profitability, durable competitive advantages, and future growth potential, they are likely to continue increasing their dividends each year for the foreseeable future.