David Gardner at the Motley Fool is usually the “growth” guy — he’s the one who has most famously grabbed on to “story” stocks when they were crazy expensive but had big growth potential, and held on for gains of several thousand percent (Netflix, Priceline, etc.).
So it caught my eye that he’s recommending a stock that has paid a dividend for almost 80 years… and, well, since we looked at the teaser pitch for his brother Tom’s recent favorite last week, it only seemed fair to dig up the name of Dave’s current teaser pick.
The ad I got last week was from Eric Bleeker, all about Dave Gardner’s most recent pick that was just “revealed” to their subscribers, and it draws you in if you’re anywhere near retirement age (as a lot of Gumshoe readers probably are — “near retirees” are the target demographic for almost all investment newsletters):
“If you’re getting close to retirement (or already retired), I think you’re going to be really excited about David’s latest Stock Advisor pick.
“I wasn’t allowed to share this information with you yesterday, but I wanted to send you a quick note this morning to make sure you have a chance to act before the market opens on Monday.”
Well, too late for that — here it is the following Monday already and I’m just getting to this one. But if it’s stodgy enough to have paid a dividend since before World War II, then the stock probably hasn’t changed dramatically in the last week. In fact, given our crazy Brexit-driven tumult, it’s probably cheaper now.
So what do we hear about this one? Well, as is often the case, we get a secondary endorsement from a rich guy…
“I’ll tell you what’s so special about this stock in a second, but first let me tell you about another ‘senior citizen’ who is really excited about this same company…
“You might have heard of him, he’s the world’s richest man, his name is Bill Gates.
“Gates has so much faith in this company that he quietly acquired over 11% of this company’s stock…and he was just getting started.
“In fact, Gates is so confident in this stock that he negotiated with the company to amend its stockholder plan, so Gates would be allowed to buy EVEN MORE shares!”
“The truly remarkable thing about this obscure powerhouse is its treasure trove of intellectual property.
“These guys have over 6,700 patents locked away in their vaults …and they are using those patents to bludgeon their competitors.”
OK… that makes it sound like some kind of hot-stuff tech or biotech company, though there aren’t many of those that have long dividend histories. Can we please make it easy on the Thinkolator and get a couple more clues?
“… this company has a borderline fanatical obsession with its dividend…the company has paid cash dividends on its stock for 79 consecutive years!
“And even better, the company has increased its dividend payout every calendar year since 1986…making it a member of the elite club of ‘dividend aristocrats.'”
Pretty impressive… there are only 50 or so dividend aristocrats in the S&P 500 (those are the stocks who’ve raised their dividend annually for at least 25 years). So which one is this?
Thinkolator sez: this is Ecolab (ECL)
Ecolab has indeed been around for a long time, and has paid a dividend for decades. It has not been a high current yielder for a long time, the dividend has been below a 2% current yield for the past 20 years… but the dividend has consistently risen every year since 1986, so if you had bought way back in 1986 for about $3 a share, split adjusted, you would now be earning about a 50% yield on cost (the annual dividend right now is $1.44).
That’s why you buy dividend growth companies even if the yield is low: if you pick the right companies that can survive for decades, the long-term growth can be fantastic.
The impact of dividend growth from a low dividend base, like ECL has now, does not really show up in shorter time periods — over the past five years, ECL’s stock price has gone up by 120% and dividend reinvestment would have made the total return just 135%. But over longer periods it’s a big deal — since 1986 ECL’s share price is up 4,500%… but the total return, dividends reinvested, is 7,400%.
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But we don’t have a time machine, we cant go back and buy ECL shares in the ’80s… so how does ECL look now?
EcoLab started out as a cleaning company, developing carpet cleaning and dishwashing technologies in the 1950s, and they gradually grew and made acquisitions, including the large acquisition of Nalco about five years ago that made them a much stronger player in water treatment chemicals and technologies.
And yes, Bill Gates is a major investor in Ecolab through both Cascade Investments (his investment fund) and the Bill and Melinda Gates Foundation — and though Gates has been consistently selling Microsoft shares for years, he did just buy another $50 million worth of ECL this year at about $105 (though that’s only 500,000 shares, a small portion of his holdings — and insiders have not been buying at all). The filings I saw indicate that Gates controls about 10% of ECL, roughly 28 million shares. I have no idea whether this is Bill Gates having personal interest in the company, or if it’s his advisors and managers who like it — he doesn’t generally talk a lot about his investments.