I call it the 9th Wonder. I refer to the wonder of a particular investment style.
I would call it the 1st Wonder, but the first eight were spoken for: The seven wonders of the world and the eighth wonder, Einstein’s alleged observation on compound interest.
So, nine it must be. The number is immaterial, the investing results are anything but.
Dividend growth investing is the 9th Wonder. I know of no other investing style more repeatedly successful at generating income and wealth. It is a true wonder of investing.
I’ll illustrate with two High Yield Wealth open recommendations: Cisco Systems (NASDAQ: CSCO) – an internet routing and cloud company – and Interpublic Group of Companies (NYSE: IPG) – an advertising company.
Cisco Systems and Interpublic Group of Companies declared their respective quarterly dividends last week. Both also announced significant dividend increases.
Cisco Systems increased its quarterly dividend 13.8%. The next Cisco dividend will be $0.33 per share. It will be paid on April 25. (The ex-dividend date is April 4.)
Interpublic Group shaded Cisco Systems a couple percentage points better. Interpublic Group increased its quarterly dividend 16.7%. The next Interpublic Group dividend will be $0.21 per share. The Interpublic Group dividend will be paid on March 15. (The ex-dividend date is Feb. 28.)
As the dividend goes, so goes the share price. Cisco Systems and Interpublic Group prove my point on dividend growth investing.
Cisco Systems shares spiked $3 last week to hit $45, a price unseen in 17 years. Persistent dividend growth has been a contributing factor, to be sure. A double-digit dividend increase is the most tangible evidence of an improving business.
I’ll concede that Cisco Systems is no longer the growth company that dazzled investors two decades ago, but it grows enough. Revenue shuffles ahead at a low-single-digit pace. Thanks to continual share buybacks, EPS rose 11% for the year, posting at $0.63.
Interpublic Group grows, but like Cisco Systems, it grows at a pedestrian rate.
Interpublic Group posted 3.5% year-over-year revenue growth for the fourth quarter. Operating income posted up 6.7%.
Interpublic Group targets annual organic revenue growth in the range of 2% to 3% and operating margin expansion of 20 basis points. Like Cisco Systems shares, Interpublic shares trade at a multi-year high.
Cisco Systems and Interpublic Group prove a phenomenon I’ve seen repeated time and time again with dividend-growth stocks: Exceptional wealth can be created without exceptional growth.
Run an efficient operation, continually generate cash, promote a shareholder-first culture and a higher share price will materialize.
Cisco Systems and Interpublic Group are low-growth companies, but they run efficient operations. The operations generate sufficient cash to run the business and enrich shareholders.
Annual dividend increases offer one avenue to shareholder enrichment. Share buybacks offer another.
Cisco Systems and Interpublic Group not only increased their respective dividends, they increased their respective share-buyback programs. Cisco Systems increased its share buyback authorization by $25 billion. Interpublic Group authorized a new buyback program. It will buy $300 million of its shares.
And where have Cisco Systems and Interpublic Group shares gone since their introduction to High Yield Wealth? Up.
Cisco Systems shares have nearly doubled since our initial recommendation in April 2014. Interpublic Group shares are up nearly 20% since our August 2017 recommendation.
Let’s not forget the income dynamic. If you’re an inveterate income investor, you have to appreciate the rising income stream on your cost basis.
Cisco Systems’ latest dividend increase lifts the yield on our cost basis to 5.8% compared to the 3% market yield. Interpublic Group’s dividend increase lifts our cost-basis yield to 4% compared to the 3.3% market yield.
I know of no other strategy that beats dividend growth investing for accumulating income and building wealth over time. Cisco Systems and Interpublic Group are just one of many.
We’ve run numerous dividend growers through our High Yield Wealth recommendation over the years. Nearly all performed as Cisco Systems and Interpublic Group. They might have performed with less immediacy, but they performed in time.
So, get a solid dividend grower, preferably with at least five years of annual increases to its name (though we have exceptions). Get a good starting yield: 3% has served me well. Watch your income stream rise and your broker account swell. It’s that simple, and that wondrous.