The Power of Dividend Investing
If you start talking about dividend investing at your next cocktail event, it’s possible that other patrons may not see you as the life of the party.
But that’s okay – because while dividends are not necessarily sexy, they are a foolproof way to reel in consistent, predictable returns in the market. And for decades, seasoned investors have leaned on dividends to help power their portfolios through both good and bad times in the market.
What is a Dividend?
When a company earns a profit, it essentially has two options.
1. Re-invest in the business
This is the option chosen by many high-growth companies. They pay down debt, or expand their operations to make more profit in the future.
2. Issue a dividend to shareholders
A dividend is a share of after-tax profit of a company, distributed to its shareholders according to the number and class of shares held by them.
How and when is a dividend issued?
- Both the amount and timing of dividends is determined by the Board of Directors
- Usually for public companies, dividends happen on a quarterly or annual basis
- Most dividends are declared by large and established “blue chip” companies (i.e. P&G, McDonald’s)
- Dividends are often paid if a company is unable to reinvest its cash at a higher rate than shareholders
Most importantly for investors, dividends from good companies should be predictable and sustainable. Some companies like Coca-Cola have been paying out uninterrupted dividends on common stock for over a century.
The History of Dividends
The first company to ever pay a dividend was likely a French bank called Société des Moulins du Bazacle, which was formed in 1250.
The Dutch East India Company was the first company to offer shares of stock. It famously paid a dividend that averaged around 18% of capital over the course of the company’s 200-year existence.
The Hudson Bay Company was likely the first North American company to have paid a dividend. The first dividend went to shareholders 14 years after the company’s formation in 1670, and was worth 50% of the par value of the stock.
In the early 20th century, most investors only cared about dividends. At the time, stocks were expected to have a higher dividend yield than bonds to compensate investors for the extra risk carried by equities.
Microsoft declares its first dividend after 28 years of rapid growth.
Today, roughly 422 of the 500 stocks on the S&P 500 pay a dividend, including companies like 3M, Chevron, Walmart, and McDonald’s.
Why is Dividend Investing Powerful?
Most investors are aware of the power of compound interest – and dividends work in a similar way, especially when dividends get reinvested back into the company.
That’s why investing $10,000 in Coca-Cola in 1962 would have yielded more than $2 million by 2012, which is 50 years later. Dividends get reinvested to buy more stock, which produces more dividends, and so on.
The advantages of dividend investing are as follows:
- Companies can increase dividends over time. (P&G, for example, has increased their dividend every year for 60 years)
- Companies can’t fake dividends – a company either declares a dividend, or it doesn’t
- Dividends protect against inflation. (Dividends have increased 4.2% since 1912, and inflation has increased 3.3%)
- Dividends create intrinsic value, as they generate cash flow for investors
- Dividends can help combat volatility – that’s because dividend yield increases as the market price of a stock falls, making the stock more attractive
Dividends are a key way for companies to give back to shareholders, and in the right situation, dividend stocks can be a powerful component in an investor’s portfolio.
The $300 Billion Counterfeit Goods Problem, and How It Hurts Brands
Every year, the global economy loses over $300 billion from the sale of counterfeit goods. Here are the problems created by this, and why they matter.
When you are walking along the boardwalk on vacation, you know it’s a “buyer beware” type of situation when you buy directly from a street vendor.
Those Cuban cigars are probably not Cubans, the Louis Vuitton bag is a cheap replica, and the Versace sunglasses too cheap to be the real thing.
But what if you placed an order for something you thought was truly legitimate, and the fake brand had you fooled? What if this imitation product fell apart in a week, short-circuited, or even caused you direct harm?
Can you Spot a Fake?
Today’s infographic comes to us from Best Choice Reviews, and it highlights facts and figures around counterfeit goods that are passed off as quality brands, and how this type of activity damages consumers, businesses, and the wider economy.
In 2018, counterfeit goods caused roughly $323 billion of damage to the global economy.
These fake products, which pretend to by genuine by using similar design and packaging elements, are not only damaging to the reputations of real brands – they also lead to massive issues for consumers, including the possibility of injury or death.
A Surprisingly Widespread Issue
While it’s easy to downplay the issue of fake goods, it turns out that the data is pretty clear on the subject – and counterfeit goods are finding their way into consumer hands in all sorts of ways.
More than 25% of consumers have unwillingly purchased non-genuine goods online – and according to a test by the U.S. Government Accountability Office, it was found that two of every five brand name products they bought online (through 3rd party retailers) were counterfeits.
Some of the most common knockoff goods were as follows:
- Makeup – 32%
- Skincare – 25%
- Supplements – 22%
- Medication – 16%
- Economic Impact
On a macro scale, the sale of counterfeit goods can snowball into other issues. For example, U.S. accusations of Chinese manufacturers for stealing and reproducing intellectual property has been a major driver of tariff action.
- Unsecure Information
Counterfeit merchants present higher risks for credit card fraud or identity theft, while illegal download sites can host malware that steals personal information
- Criminal Activity
Funds from illicit goods can also be used to help bankroll other illegal activities, such as extortion or terrorism.
- Unsafe Problems
It was found that 99% of all fake iPhone chargers failed to pass critical safety tests – and 10% of medical products are counterfeits in developing countries, which can raise the risk of illness or even death.
Aside from the direct impact on consumers and brands themselves, why does this matter?
The Importance of Spotting Fakes
Outside of the obvious implications, counterfeit activity can open up the door to bigger challenges as well.
The issue of fake goods is not only surprisingly widespread in the online era, but the imitation of legitimate brands can also be a catalyst for more serious problems.
As a consumer, there are several things you can do to increase the confidence in your purchases, and it all adds up to make a difference.
The Beginning of a Bitcoin Bull Run?
After 15 months of losses and stagnation, Bitcoin has made a miraculous recovery — going on a 150% bull run since its lows in December 2018.
The Beginning of a Bitcoin Bull Run?
After 15 months of losses and stagnation, Bitcoin has made a miraculous recovery — rising more than 150% from its lowest point in December 2018.
In its heyday, Bitcoin had surpassed $10,000 in early December 2017, before briefly crossing the $20,000 mark for a single day on December 17th. A year later, the digital currency had fallen back to Earth, dropping below $3,200.
Now that the dust of that wild speculative frenzy has settled, Bitcoin is back on the upswing. What could be causing this most recent surge in growth?
We look at four possible explanations for the Bitcoin bull run, as originally outlined by Aaron Hankin at MarketWatch:
Bitcoin has seen several technical milestones this year, such as surpassing the psychological barrier of $5,000 in early 2019, breaking the 200-day moving average, and scoring the golden cross (when the 50-day moving average crosses above the 200-day moving average).
Bitcoin is experiencing a steady increase in adoption across several markets. The term Bitcoin has become a household name — even if people don’t understand what it does, they know what it is.
Companies such as Starbucks, Microsoft, and Amazon, and Nordstrom are looking for ways to integrate cryptocurrencies into daily transactions for faster payment clearance, innovative rewards programs, and efficient customer service interactions.
Bitcoin has possibly seen a shift in public perception. There have been fewer negative articles about Bitcoin and cryptocurrencies, and the news stories that are negative no longer have as big of an impact as they once did.
When Binance announced hackers stole $40 million in bitcoin and when accusations of an $850-million cover-up were leveled against Bitfinex and Tether, the Bitcoin bull run barely flinched and continued to climb.
Wavering Gold Investment
Investor confidence in gold has been more stagnant in recent times. To capitalize on this, Grayscale Investments (of Digital Currency Group) posted a campaign in May 2019 promoting Bitcoin as an ideal alternative to gold because it is borderless, secure, and more efficient for storing value.
Despite the World Gold Council’s response denying those claims, the Grayscale Bitcoin Trust saw OTC Markets Group’s highest trading volumes five days later.
Where to from here?
After a long skid, it appears Bitcoin is showing signs of life again. Bitcoin’s price can be highly volatile, so it remains to be seen whether this is the beginning of a bull run, or whether this is just another bump in the roller coaster ride.
Editor’s note: The price of Bitcoin has fallen to $7,100 at time of publishing and will likely continue to experience extreme volatility. However, even at a price of $7,100, this is still a 120% increase from lows in Dec 2018. As well, an earlier version of this graphic had incorrect dates on the timeline. That has now been corrected.
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