Guru investor Warren Buffett is well known for employing dividends to boost his phenomenal returns.
This is especially true, over the long term, as witness by dividend returns on stocks such as The Washington Post. Buffett now collects an annual dividend payment of over 140% on his initial outlay on Washington Post stock!
Time is a great friend of the dividend investor.
An interesting exercise would be to compare two dividend stalwarts from opposite sides of the pond. Both of which are classic Buffett holdings.
Johnson and Johnson ( NYSE:JNJ ) is a member of the S&P 500 Dividend Aristocrat list having increased its annual dividend 48 years in a row. From the year 2000 its dividend history is as follows:
Over this time Johnson & Johnson’s dividend increased by 240%.
To put this in perspective, if the dividend increased by the same rate after buying the shares today at $60, then you’d be looking at a 9.44% annual dividend in the same time frame.
The average annual dividend increase was just over 13% with growth slowing in the last few years.
London listed Tesco (TSCO.L, Financial) is a member of the S&P Euro 350 Dividend Aristocrat list. The company’s dividend record since the year 2000 is as follows:
Tesco managed to increase its dividend by 191% over the period with an average annual increase of 11.29%. Again we see a slight slowing down in the rate of increase in the last two years.
Interestingly enough Johnson and Johnson’s highest dividend yield over the last five years was 3.1% yet the forecasted estimate for the next 12 months gives us a yield of around 3.84%.
Similarly the lowest year end multiple of the last five years was 12.7. Today, with a closing price of $61.44 the shares are trading on a similar multiple of around 12.67 based on current forecasts.
For Tesco the lowest yield over the last five years of 3.6% compares to a forecasted yield for year ending February, 2012 of 3.9%. While the five year lowest multiple of 11.5 compares to a forecasted 11.2.
Both companies seem slightly undervalued on this basis.
Disclosure: Long JNJ and TSCO
This is especially true, over the long term, as witness by dividend returns on stocks such as The Washington Post. Buffett now collects an annual dividend payment of over 140% on his initial outlay on Washington Post stock!
Time is a great friend of the dividend investor.
An interesting exercise would be to compare two dividend stalwarts from opposite sides of the pond. Both of which are classic Buffett holdings.
Johnson and Johnson ( NYSE:JNJ ) is a member of the S&P 500 Dividend Aristocrat list having increased its annual dividend 48 years in a row. From the year 2000 its dividend history is as follows:
Year | Dividend Payout ( US$ ) | Annual Increase |
2000 | 0.62 | |
2001 | 0.70 | + 12.90% |
2002 | 0.80 | + 14.29% |
2003 | 0.93 | + 16.25% |
2004 | 1.10 | + 18.28% |
2005 | 1.27 | + 15.45% |
2006 | 1.46 | + 14.96% |
2007 | 1.62 | + 10.96% |
2008 | 1.79 | + 10.49% |
2009 | 1.93 | + 7.82% |
2010 | 2.11 | + 9.33% |
Over this time Johnson & Johnson’s dividend increased by 240%.
To put this in perspective, if the dividend increased by the same rate after buying the shares today at $60, then you’d be looking at a 9.44% annual dividend in the same time frame.
The average annual dividend increase was just over 13% with growth slowing in the last few years.
London listed Tesco (TSCO.L, Financial) is a member of the S&P Euro 350 Dividend Aristocrat list. The company’s dividend record since the year 2000 is as follows:
Year | Dividend Payout ( Pence ) | Annual Increase |
2000 | 4.48 | |
2001 | 4.98 | + 11.16% |
2002 | 5.60 | + 12.45% |
2003 | 6.20 | + 10.71% |
2004 | 6.84 | + 10.32% |
2005 | 7.56 | + 10.53% |
2006 | 8.63 | + 14.15% |
2007 | 9.64 | + 11.70% |
2008 | 10.90 | + 13.07% |
2009 | 11.96 | + 9.72% |
2010 | 13.05 | + 9.11% |
Tesco managed to increase its dividend by 191% over the period with an average annual increase of 11.29%. Again we see a slight slowing down in the rate of increase in the last two years.
Interestingly enough Johnson and Johnson’s highest dividend yield over the last five years was 3.1% yet the forecasted estimate for the next 12 months gives us a yield of around 3.84%.
Similarly the lowest year end multiple of the last five years was 12.7. Today, with a closing price of $61.44 the shares are trading on a similar multiple of around 12.67 based on current forecasts.
For Tesco the lowest yield over the last five years of 3.6% compares to a forecasted yield for year ending February, 2012 of 3.9%. While the five year lowest multiple of 11.5 compares to a forecasted 11.2.
Both companies seem slightly undervalued on this basis.
Disclosure: Long JNJ and TSCO
