Gold or Dividend Stocks? Charlie Munger and Warren Buffett Weigh In

Gold has gained popularity in recent weeks. The gold price is up 2% since early gold
Gold’s popularity appears fueled by asset rotation. Stocks have lost popularity. The S&P 500 is down 7.5% over the same period.
A couple of prominent investors have voiced their opinion on gold vis-a-vis stocks. They hold the former in low regard in relation to the latter.
Charlie Munger, vice chairman of Berkshire Hathaway (NYSE: BRK.a), created a minor contretemps during a CNBC interview a few years ago. Munger said, “I think civilized people don’t buy gold. They invest in productive businesses.”
I’m unsure why Munger tangled civility with gold. Perhaps he was channeling the ancient Spanish explorers – Balboa, Ponce de Leon, and Cortez.
The Spanish explorers were more obsessed with inflating the money supply (searching for gold) than in exploiting the resources of the New World. Balboa et al. were also less than civilized in their treatment of the New World denizens they encountered.  They were often downright barbarous.
Warren Buffett’s opinion on gold, as you might expect, merges with his confederate Munger’s.
Buffett, in a Fortune magazine article, stated his desire to invest in productive assets, as opposed to gold. Buffett offered a cogent, persuasive reason for his preference.
Buffett noted that a century from today 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops. Those acres will continue to produce that valuable bounty, whatever the currency might be. (Gold is viewed as money to its proponents.)
On the dividend-stock front, Buffett noted that Exxon Mobil (NYSE: XOM) will probably have delivered trillions of dollars in dividends to its shareholders. Exxon Mobil will also hold assets worth many more trillions of dollars by that point.
Exxon Mobil is an apropos contrast to gold. Exxon Mobil offers an enlightening example of the ability of a dividend-growth stock to hedge inflation while simultaneously building wealth.
Hedging monetary inflation is a primary gold draw. But is it more effective to buy gold than a dividend-paying stock like Exxon Mobil?
In 1971, when the United States officially abandoned the gold standard, you could have bought an ounce of gold for $40 an ounce and a share of Exxon Mobil for approximately $2.30 (split adjusted). Through 2018, the gold price has appreciated at a 7.5% average annual rate.
A share of Exxon Mobil has appreciated at a similar average rate. Exxon Mobil shares have appreciated  7.8%, on average, annually since 1971.
Exxon Mobil’s dividend is the great differentiator.
Exxon Mobil has increased its dividend annually for the past 45 years. This year, it increased its annual dividend 6% to $3.28 per share. Exxon Mobil’s dividend tilts the table to its favor. 
Exxon Mobil’s dividend has returned to investors the 1971 purchase price many times over. Today, Exxon Mobil returns 143% of the 1971 purchase alone in dividends.
I like dividend stocks like Munger and Buffett. That said, I’m less antithetical to gold than either gentleman.
Gold has a place in many investment portfolios as a “hard asset.” Gold is a proven store of value. Why buy gold? It is a useful portfolio diversifier. Gold reduces portfolio volatility because it correlates negatively with stocks.
That said, if wealth building is the primary goal, dividend stocks are difficult to beat.
So, buy gold to maintain wealth and purchasing power. Follow Munger’s and Buffett’s lead and buy productive assets – dividend-stocks, in particular – to maintain purchasing power and simultaneously build wealth.

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