You can get the complete list (headed by MO!) in "Stocks for the Long Run" by Jeremy Siegel. What is notable about that list is that "mundane" stocks like MO, KO, MCD etc. proved to be hugely profitable in the longer run, while the technology darlings of the day, i.e. December 1972 (Xerox, Burroughs, DEC, TI etc.) proved to be mighty disappointments going forward.
Talking of big MO, here is an article that I read and re-read from time to time :
FOOL ON THE HILL
An Investment Opinion by Randy Befumo
Income Rising
Income-oriented investors prefer bonds. For a fixed
initial price, a bond will spit out regular, set
payments. By focusing on the bonds of the government and
large, blue-chip companies, investors can get a
guaranteed stream of income to fund their lives.
Retirement accounts chock full o' bonds dot the
investment landscape, managed by investors who have been
taught once or twice in their lives that stocks are an
inherently speculative endeavor. These same investors,
however, give up millions of dollars in income every
year, while another sort of conservative, staid investor
invests in rising income and leaves a chunk of equity
behind to pass on to their heirs.
What are these investors buying? A newfangled derivative
that gives you all the income of a bond but also allows
you to participate in any changes in the value of the
bond? Some new hundred year bond from a large
corporation? Try plain ol' common stock. We are talking
about the stock of the so-called "blue-chip" companies,
companies that have managed to increase their dividend
payout year-after-year for decades, through market
crashes in the early '70s to market manias here in the
'90s. While bond investors have been relegated to a
fixed payout, investors who purchased common stocks back
in the '70s are now receiving amounts close to their
initial investment as their quarterly dividend payouts.
The problem here is one of investment mindset. Through
the capital appreciation crazed '80s and '90s, investors
have been conditioned to ignore the dividend component
of common stocks. Whereas 20 years ago many investors
would not have purchased a security unless it paid a
dividend, today the dividend is de minimus -- it is the
last thing anyone thinks about. Even as inflation eroded
the value of the dollars bond investors have been
getting paid, leaving them to desperately search for
higher and higher yields, common stock investors have
seen their payouts increase dramatically over the past
decade. While income investors have taken a bath in
once-conservative utility stocks since 1994, common
stock investors have seen their relative payouts
increase sizably over the same period.
Imagine two investors on January 2, 1987. Investor A
purchases a ten-year bond from the U.S. government for
$1,000 yielding 10%. Investor B purchases 166.7 shares
of PHILIP MORRIS (NYSE: MO) (N) (S) for $1,000, or $6
per share. At the time of purchase, Philip Morris is
yielding 4% and has a history of raising its dividend
payout roughly 15% per year. Based on dividends alone,
which investor would have received more income from
their investment over the next ten years? For the
purposes of simplicity, we will assume that both
investors put their dividends under the mattress upon
receipt. This does not account at all for the fact that
Philip Morris stock has risen almost seven-fold over
this ten-year period, but rather simply focuses on the
growing dividend yield paid out by the company.
Calculating Investor A's take is pretty straightforward
given that there is no reinvestment of dividends. A 10%
return each year on a $1,000 investment is $100. Over
ten years, an investor would have received $1,000 ($100
per year) back in come -- an amount equal to his initial
investment in the bond. Not a bad return, 10% per year
roughly approximates the 10.6% average return equities
have produced, including dividends, since 1926. Investor
B, on the other hand, would have received $7.51 per
share in dividends, or $1,251.91. Based on income alone,
the Philip Morris investor would have received 25% more
over the ten-year period. In the last year, the
effective yield a Philip Morris investor would have been
earning based on his initial investment at $6 a share
would have been 24.4%, more than twice what a 10% bond
would have given him.
Lest investors allow their hearts to palpitate wildly at
the thought of owning Philip Morris, the same dividend
effect occurs in dozens of blue-chip stocks with
histories of raising their dividend payouts over time.
Although in the first few years the bond whoops up on
the stock's dividends, over time the steadily rising
dividend overtakes the bond and, in fact, begins to
generate income relative to the initial investment that
would be impossible to find elsewhere. An investor who
bought Philip Morris in 1981 for a split-adjusted $1.75
would have been raking in $1.46 in dividends per share
in 1996, an 84% yield on the initial stock price. You
don't even see this kind of yield on D-rated junk bonds
in danger of bankruptcy. On top of getting 81% of their
investment back every year, these investors will also
have something substantial to pass on to their heirs
should they choose to, rather than spending down their
precious capital in times when yields are too low, like
the last three years.
If an investor can look beyond the fact that the actual
stock prices have a tendency to change and focus on
strong businesses that can deliver regular dividend
increases, over periods of 10 years or more stocks will
beat bonds in terms of income hands down. The longer the
time period, the more significant the outperformance
will be. Given the choice of tying up your money for 30
years to get 7.25% on a Treasury bond or parking an
equal amount in a company like Chase Manhattan or
Citicorp, an income-oriented investor might want to
think twice before committing their money forever to
bonds. |
