Funding Future Needs With Everyday Dividend Dynamos
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Of the many attributes that reality television star Alana "Honey Boo Boo" Thompson has as a seven-year old beauty pageant contestant, her most important asset as an investor is the luxury to buy for the long term to finance future needs such as purchasing a home, providing for a comfortable retirement, and paying for college. Towards these life goals, Honey Boo Boo should adhere to the advice of investing legend Peter Lynch and "buy what you know." Lynch, who guided the Fidelity Magellan fund to annualized returns of 29.2% from 1977 to 1990, has always contended that individual investors like Honey Boo Boo have an advantage over Wall Street professionals in that they can see what is actually selling at the local mall rather than having to rely on computer programs.
Honey Boo Boo lives in McIntyre, Georgia. There are three nearby Wal-Mart Stores (NYSE: WMT). Several McDonald's (NYSE: MCD) are also located in the area. A plethora of gas stations close to McIntyre sell the products of ExxonMobil (NYSE: XOM). Headquartered in Atlanta, about a two-hour drive from McIntyre, Home Depot (NYSE: HD) has three stores nearby. Also based in Atlanta, Coca-Cola (NYSE: KO), is offered by many places of business in greater McIntyre. Each of these stocks is ideal for serving the long term goals of Honey Boo Boo and other investors.
These companies not only profit from sales to consumers in Georgia, but around the world. Coca-Cola is poured in every nation on the planet, except for Cuba and North Korea. Home Depot has stores in five countries, including China. At times the world's most valuable publicly traded company depending on where Apple is trading at, ExxonMobil operates around the globe. The golden arches of McDonald's tower over the streets in about 120 countries. There are approximately 8,500 Wal-Mart stores in 15 nations.
In addition to each being leaders in the sector and having a global franchise, all of these companies have a strong dividend framework. Historically, dividend income has provided about 40% of the total return for an equity. In addition, research has proven that "over the past 10 years, companies with the highest dividend growth within the broad S&P1500 index outperformed those with the highest dividend yield but the lowest dividend growth by more than 120 percentage points, a gain of 159% for the former compared to a gain of 36% for the latter."
MCD Dividend Yield data by YCharts
Coupled with the healthy dividend income, the profit margin is robust for each, too. For comparative purposes, Coca-Cola has a profit margin of 21.31% with rival PepsiCo only having one of 9.02%. While the profit margin at McDonald's is 19.48%, it is a negative 0.85% for the Wendy's hamburger chain.
MCD Profit Margin data by YCharts
What also makes these companies so appealing for long term investing is that each has demonstrated the ability to adapt and prosper throughout changing times. That is obviously what leads to the strong profit margins and dividend yields. Wal-Mart created the super center stores, starting selling groceries in 1988, and has now targeted health and wellness as a growth area. McDonald's revamped its restaurants and menus to take the stock from around $11 to over $100 a share in less than decade. ExxonMobil is investing heavily in alternative energies, including $600 million in a biofuel effort to convert algae into oil.
From a base not that far from McIntyre, both Coca-Cola and Home Depot have evolved to profit and reward shareholders, too. Coca-Cola was one of the first American companies to recently move into Myanmar when it finally opened up to Western business after 60 years of socialism. ExxonMobil is also staking out claims in the former Burma. Home Depot entered Mexico in 2001 and China in 2006. Now one of the largest retailers in Mexico, Home Depot is revamping operations in China to appeal more to the local tastes in the People's Republic.
Critical for long term investing is that each has a wide economic moat and a formidable brand name presence. Coca-Cola has the most valuable brand name in the world. About this, legendary investor Warren Buffett remarked, “If you gave me $100 billion and said, ‘Take away the soft drink leadership of Coca-Cola in the world,’ I’d give it back to you and say it can’t be done.” It is certainly no surprise that Coca-Cola is the biggest holding in the portfolio of Berkshire Hathaway.
McDonald's, Home Depot, Wal-Mart and ExxonMobil are in similar positions. Wal-Mart is the world's biggest retailer. In terms of overall revenue, Home Deport is the largest home improvement retailer in the United States. McDonald's is the world's largest chain of hamburger fast food restaurants and second biggest fast food chain overall. Before the recent run-up in the share price of Apple ahead of the introduction of the iPhone 5, ExxonMobil had the largest market capitalization of any publicly traded corporation.
All members of the Dow Jones Industrial Average, Honey Boo Boo and other investors can watch the returns on their investing in these stocks at businesses very close to home. In addition to selling well near McIntyre, Georgia, Wal-Mart, McDonald's, Coca-Cola and Home Depot all operate successfully abroad, too. The profit margins and dividend yields of each result in a total return that satisfies the long term financial needs of paying for college, saving to buy a house, or financing retirement.
Fool blogger Jonathan Yates does not own any of the stocks mentioned in this article. The Motley Fool owns shares of The Coca-Cola Company, McDonald's, and ExxonMobil. Motley Fool newsletter services recommend McDonald's, The Coca-Cola Company, and The Home Depot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
