T’is the season for giving and CAIM has always advocated the gift that keeps on giving, namely high quality companies that consistently pay and increase their dividends. This is a gift that will be treasured for many years. It’s also a great way to introduce younger generations to sound investment principles, while setting up a foundation for their financial independence.
When making company selections we look for both financial stability and the ability to generate strong cash flow. Instead of simply focusing on how companies perform within the next year, we also take a long-term point of view of over 3 to 5 years. We want companies that have the backbone to withstand the ups and downs of the economic cycle, as well as the difficult times that may lie ahead.
Schlumberger (SLB $95.28, 1.7% dividend yield). Simply speaking, Schlumberger is the company that helps get the oil out of the ground. This is a timely suggestion as oil prices have dropped over 20% in the past three months. It is very difficult to find companies in the energy sector with positive free cash flow and SLB has $3.27 a share in free cash. The company has grown its dividend 14% over the past 5 years.
Tyco International (TYC $41.95, 1.7$ dividend yield). TYC is the global leader in fire and security systems. Over the past 12 years, the company has been through many changes. They are now on a clear path of growth as they have divested many non productive assets. This leads the way to consistent improvement in margins. As margins improve cash flow grows and ultimately more money to increase dividends.
Disney (DIS $90.28, 1.0% dividend yield). We all know Disney. It is the best run diversified media company and a great long term holding. The stock itself is reasonably priced. The company is a strong cash generator but pays a modest dividend. Disney’s biggest project right now is building Disneyland in Shanghai. It takes a lot of cash to do that! While the dividend is on the low side, it has an annualized growth rate of 24% over the past 5 years. If you start young and compound that over many years it makes for an attractive investment.