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A Cow for Milk, a Hen for Eggs, and Stocks for Dividends

Last week was a good one on the dividend growth front.  Three of our portfolio holdings announced handsome increases in their payouts.  What’s striking to us about the dividend payout increases is that they all represent accelerations of growth rates, and all come from very mature, stable and conservative companies.  When we think about the interest rate and economic environment, and then consider that these franchises have decided to give us as share-owners annual raises of this amount, it’s a reminder of the essence of long term investing.

Company Recent 5 Year Dividend Dividends

Dividend Increase Growth Rate Paid Since

Texas Instruments (TXN) 33%* 15% 1962

Wal-Mart (WMT) 18% 14% 1973

Coca-Cola (KO) 10% 8% 1893

*this takes TXN’s 12 month total increase to 65%

“Earnings are only a means to an end, and the means should not be mistaken for the end. Therefore we must say that a stock derives its value from its dividends, not its earnings.  In short, a stock is worth only what you can get out of it.  Even so spoke the old farmer to his son:  A cow for her milk, a hen for her eggs, and a stock, by heck for her dividends. An orchard for fruit, bees for their honey, and stocks, besides for their dividends…” John Burr Williams, The Theory of Investment Value, 1938.


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