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A Commonsense Guide To 'World Dominating' Dividend Stocks

June 12, 2012 by  

A Commonsense Guide To 'World Dominating' Dividend Stocks
UPI
Right now, investors are fleeing bank stocks and mining stocks -- the kind that tend to be very speculative.

As I’ve been expecting for years, the world is now flocking toward World Dominating stocks.

Right now, investors are fleeing bank stocks and mining stocks — the kind that tend to be very speculative. But almost every “World Dominating Dividend Grower” (WDDG) stock is holding up just fine these days. While the market is sinking, stocks like Coca-Cola and Wal-Mart are near yearly highs. I’m not surprised.

As I’ve been saying for years, these stocks are different from typical stocks. They are different from “the market.” WDDGs are vastly better.

If I could teach investors just one thing, it would be how to identify and value a World Dominating Dividend Grower business. It’s the single best way to get rich in stocks.

Let’s use Microsoft as a “case study.”

Microsoft is the World Dominator of personal computer software. Its Microsoft Windows and Microsoft Office products enjoy enormous market shares of approximately 90 percent worldwide. So all over the world, whenever someone buys a PC and needs an operating system and office productivity software, he buys Microsoft nine times out of 10.

Nothing dominates its market the way Microsoft dominates PC software. Even Intel’s share of the global microprocessor market is “only” 80 percent.

In other words, it has an extraordinary brand, and it is No. 1 in its industry. Those are “on the surface” clues to finding these stocks. But we also need to look inside the company to find the financial clues of a WDDG business.

To say Microsoft has all the financial clues of a World Dominating Dividend Grower is the understatement of the year.

One of the hallmarks of a WDDG stock is consistently thick profit margins. This is the amount of money a company earns from each dollar of sales. A great business should have thick profit margins so it can pay you plenty of dividends, but that company should also have a sustainable long-term competitive advantage so it can consistently earn those thick margins.

Well, Microsoft doesn’t merely have consistently thick profit margins. It has the thickest margins of any business I know of, with gross margins (the margin earned before deducting the basic costs of doing business) consistently around 80 percent and net margins (the margin earned after deducting all expenses) consistently around 25 percent – after taxes.

That’s huge. Most businesses are ecstatic to earn net margins of 5 percent or 10 percent.

Another hallmark of a World Dominating Dividend Grower is huge free cash flow. Free cash flow is the final “cash in hand” number that a business owner has after deducting expenses. It’s a vital number for investors.

Microsoft gushes free cash flow like no other business. On sales of just over $73 billion, Microsoft generated just under $27.5 billion in free cash flow the past four quarters.

A third sign of a World Dominating Dividend Grower stock is a strong balance sheet. As shareholders of a business, we want to see lots of valuable assets and low debt. We want a strong balance sheet so we don’t have to worry about tough times causing a bankruptcy.

Microsoft’s balance sheet isn’t merely strong. It’s a financial fortress. The company has $59.5 billion in cash and short-term investments and less than $12 billion in debt. It could afford to pay off its debts nearly five times over. Microsoft has zero interest net expense because it earns more interest on its cash and investments than it pays on its debt. Sales could go to zero, and this company wouldn’t go bankrupt. It doesn’t get much safer than that.

Finally, for a company to qualify as a WDDG, we need to see a history of dividend growth. Microsoft is a relatively young dividend-payer. But what it lacks in history, it makes up for in growth.

The dividend has grown 150 percent since Microsoft initiated it in 2003. So the dividend has grown at about 10.9 percent per year for nine years. That number jumps to an even more impressive 12.4 percent if you look at the last five years alone. And it’s accelerating recently, with a 25 percent increase last fall.

Microsoft Dividend Growth

Microsoft pays out less than 30 percent of its earnings per share. So there’s plenty of room for big dividend growth in the coming years. Right now, Microsoft yields 2.6 percent. Even if it merely maintains its growth of 12.4 percent per year, you’d be making 27 percent over your original cost in 20 years.

To sum up, there are obvious things to look for when you’re after the world’s safest, best dividend-paying stocks — the kind you can hold for decades and get rich. This includes a dominant brand and the top position in an industry.

But today’s essay shows you some vital “financial clues” for finding these stocks and why Microsoft is a great example.

Good investing,

–Dan Ferris

P.S. In my latest issue of The 12% Letter (published a few days ago), I told readers about my two favorite WDDG buys right now. With a subscription to The 12% Letter, you can access this issue and my materials on how to find WDDG stocks. You’ll also find my proprietary list of these elite companies and the right price to pay. If you decide this information is not for you, we’ll refund 100 percent of your subscription. You can take us up on our offer, here, without watching a long promotional video.

Dan Ferris

is the editor of The 12% Letter, an income-focused research advisory which looks for the market's best dividend-growth stocks. He is also the editor of Extreme Value, a monthly investment advisory which focuses on the safest stocks in the market: great businesses trading at steep discounts. As a result of his work in Extreme Value and The 12% Letter, Dan has been featured several times in Barron's, the Value Investing Letter, and numerous financial radio programs around the country.

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  • http://gravatar.com/dawgbisquit1 Tom W.

    “Go to now, ye rich men, weep and howl for your miseries that shall come upon you. Your riches are corrupted, and your garments are motheaten. Your gold and silver is cankered; and the rust of them shall be a witness against you, and shall eat your flesh as it were fire. Ye have heaped treasure together for the last days. Behold, the hire of the labourers who have reaped down your fields, which is of you kept back by fraud, crieth: and the cries of them which have reaped are entered into the ears of the Lord of sabaoth. Ye have lived in pleasure on the earth, and been wanton; ye have nourished your hearts, as in a day of slaughter. Ye have condemned and killed the just; and he doth not resist you. Be patient therefore, brethren, unto the coming of the Lord. Behold, the husbandman waiteth for the precious fruit of the earth, and hath long patience for it, until he receive the early and latter rain. Be ye also patient; stablish your hearts: for the coming of the Lord draweth nigh.” – James 5:1-8 (KJV)

    What part don’t you understand?!!

    • nc

      Tom, how many millions of people have read those words of doom only to see the next generations continue to prosper and live in spite of the words that their way fo life was their doom! How many times can you cry WOLF on the same dime??
      The answer to what part do I not “understand” is what can I do about it if I’m wrong and what will YOU do about it if you’re wrong! LOVE YOUR NEIGHBOR ONLY IF HE BELIEVES LIKE YOU?? Is that from the BIBLE?

      • http://gravatar.com/dawgbisquit1 Tom W.

        nc, you yourself are a fulfillment of Bible prophecy!

        2 Peter 3
        King James Version (KJV)

        1 This second epistle, beloved, I now write unto you; in both which I stir up your pure minds by way of remembrance:
        2 That ye may be mindful of the words which were spoken before by the holy prophets, and of the commandment of us the apostles of the Lord and Saviour:
        3 Knowing this first, that there shall come in the last days scoffers, walking after their own lusts,
        4 And saying, Where is the promise of his coming? for since the fathers fell asleep, all things continue as they were from the beginning of the creation.
        5 For this they willingly are ignorant of, that by the word of God the heavens were of old, and the earth standing out of the water and in the water:
        6 Whereby the world that then was, being overflowed with water, perished:
        7 But the heavens and the earth, which are now, by the same word are kept in store, reserved unto fire against the day of judgment and perdition of ungodly men.
        8 But, beloved, be not ignorant of this one thing, that one day is with the Lord as a thousand years, and a thousand years as one day.
        9 The Lord is not slack concerning his promise, as some men count slackness; but is longsuffering to us-ward, not willing that any should perish, but that all should come to repentance.
        10 But the day of the Lord will come as a thief in the night; in the which the heavens shall pass away with a great noise, and the elements shall melt with fervent heat, the earth also and the works that are therein shall be burned up.
        11 Seeing then that all these things shall be dissolved, what manner of persons ought ye to be in all holy conversation and godliness,
        12 Looking for and hasting unto the coming of the day of God, wherein the heavens being on fire shall be dissolved, and the elements shall melt with fervent heat?
        13 Nevertheless we, according to his promise, look for new heavens and a new earth, wherein dwelleth righteousness.
        14 Wherefore, beloved, seeing that ye look for such things, be diligent that ye may be found of him in peace, without spot, and blameless.
        15 And account that the longsuffering of our Lord is salvation; even as our beloved brother Paul also according to the wisdom given unto him hath written unto you;
        16 As also in all his epistles, speaking in them of these things; in which are some things hard to be understood, which they that are unlearned and unstable wrest, as they do also the other scriptures, unto their own destruction.
        17 Ye therefore, beloved, seeing ye know these things before, beware lest ye also, being led away with the error of the wicked, fall from your own stedfastness.
        18 But grow in grace, and in the knowledge of our Lord and Saviour Jesus Christ. To him be glory both now and for ever. Amen.

        Yeah we’ve always had wars, earthquakes, starvation, pestilences, ect., but this is the FIRST time in the history of the world that ALL these things are happening at the same time in conjunction with the Jews being in their ancient homeland AND in comtrol of Jerusalem!!!

        “And say unto them, Thus saith the Lord God; Behold, I will take the children of Israel from among the heathen, whither they be gone, and will gather them on every side, and bring them into their own land:” – Ezekiel 37:21 (KJV)

        “And they shall fall by the edge of the sword, and shall be led away captive into all nations: and Jerusalem shall be trodden down of the Gentiles, until the times of the Gentiles be fulfilled.” – Luke 21:24 (KJV)

        “And when these things begin to come to pass, then look up, and lift up your heads; for your redemption draweth nigh.” – Luke 21:28 (KJV)

        So I ask you nc, would I be showin’ you love by letting you go ignorantly to hell, or by tryin’ to save your poor wretched a$$ from the WORMS and FLAMES?!!

        “Where their worm dieth not, and the fire is not quenched.” – Mark 9:44 (KJV)

      • http://gravatar.com/dawgbisquit1 Tom W.

        “The Lord hath made all things for himself: yea, even the wicked for the day of evil.” Proverbs 16:4 (KJV)

    • eddie47d

      Thanks for the positive message Dan Ferris.We are inundated with negative articles about gloom and doom and know nothing else any more. It’s hard to make the right choices if everything we are told is a failure. Investing or even buying a house can be worrisome and the market manipulators sometimes have us by the tail. That ray of sunshine breaking through was welcomed.

    • RichE

      Tom W,
      The church fortune amassing part.

      • http://gravatar.com/dawgbisquit1 Tom W.

        “No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and mammon.” – Matt. 6:24 (KJV)

        “Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal: But lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal: For where your treasure is, there will your heart be also.” – Matt. 6:19-21 (KJV)

        “It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God.” – Mark 10:25 (KJV)

        • RichE

          That makes sense.

    • Void1972

      Tom

      Keep up the good fight!

      • http://gravatar.com/dawgbisquit1 Tom W.

        My VERY favorite verse in the Bible Void is one that I can TRULY attest to; “Yea doubtless, and I count all things but loss for the excellency of the knowledge of Christ Jesus my Lord: for whom I have suffered the loss of all things, and do count them but dung, that I may win Christ,” – Phil. 3:8 (KJV)

        • RichE

          Why do you use the King James translation?

      • http://gravatar.com/dawgbisquit1 Tom W.

        I was helping with a jail ministry in Louisville KY and one of the guys asked me for a study bible. I went to the bible book store and asked the girl at the counter for a KJV Study Bible, to which she smuggly replyed “I guess no other version will do?”, to which I quipped “If I could read Hebrew, Aramaic, and Greek, I wouldn’t even want it!”
        The 1611 KJV is the FIRST english translation of God’s Holy Word and although it has some words in it that are better translated in some of the newer translations, I believe that it has suffered the least corruption of ANY of the later translations! Even the NKJV has changed some of the verses referring to the deity of Christ, and the newest Wycliff translation has done away with 97 verses referring to Jesus as the Son of God, because it offends the Muslims!!!
        It’s nothing like I believe that it is the only translation that should be studied, I just TRUST it more than any other translation because it was the first, and after you get used to it, it’s actually a PLEASURE to read and QUITE Shakespearian!!!

        http://voices.yahoo.com/shakespeare-psalm-46-king-james-version-644786.html

        http://www.nowtheendbegins.com/blog/?p=8259

        • RichE

          TomW,
          Your post reminds me of the passage where Christ points to the bible hanging around the dudes nick.

          Religion is a philosophy internalized. Can you internalize Old English?

    • M

      Right on. The greed of the past, and those who wish to ‘own’ the world, it shall be their undoing. If the people they would be owning would just wise up a little and refuse to be slaves, that is. Your detractor though is blind, thinks he is one of the elite, not one of those who is a slave to them, and to money.

  • Sirian

    MS may be the “Dominator” for now but over the years to come do not be surprised if Apple catches up or in the end possibly surpass MS’s position. No way of knowing for sure since there are so many indicators and stats that are constantly changing hour by hour. But it appears that this may very well be, in a sense, “in the cards”. Needless to say of course that is IF the fiat currencies of the world can hold together well enough – don’t count on it! Once things start falling apart, which they will, it really won’t matter who’s holding the illustrious position of the “Dominator”.

    • http://gravatar.com/dawgbisquit1 Tom W.

      We’re not going to be here that long Sirian!

    • M

      Ubuntu.com . . . the only reason the other guys have such a market share is questionable business practices and the fact my computers shipped with it, even though I immediately deleted the whole thing and installed linux.

  • oldbill

    It’s time to sell those big cap dividend stocks and buy GDX and GDXJ.

  • Vigilant

    Market domination is just one factor. The advice furnished by Mr. Ferris has been around for decades. Low Price/Earnings ratio, no earnings per share drops in 5 years, consistent/growing dividends over time, and low debt/equity ratio have always been the indicators for sucess in the long run.

    Too many are in it for the technicals and not the fundamentals of a stock’s performance. These are the “get rich quick” crowd who ignore the fundamentals of a company, and more often than not “get poor quick.”

  • http://www.charter.net James Graham

    Remember all the notices we kept getting to watch Fox News on Sunday at 9PM? What Happened?

    This is the clip that got pulled due to pressure from the Administration.

    Obama Puts Heat on Fox News to Prevent Sean Hannity airing this piece.

    This is a video that Sean Hannity of FOX News has been trying to show that we are told has consistently been blocked by the Obama Administration for several weeks.

    Watch it now before it gets pulled from the Internet!

    http://www.youtube.com/watch_popup?v=tCAffMSWSzY#t=28

    • Void1972

      James

      If this video doesn’t prove to the liberal community who their demented leader is, nothing will!

      • HH

        The retards who support Obama will just say it was dubbed.

    • http://gravatar.com/dawgbisquit1 Tom W.

      Awesome video James! Check this one out! No I don’t believe that he’s the one but there’s a shot in the video of what it claims is Barack’s hand which CLEARLY displays a Masonic ring!!!

      http://www.youtube.com/watch_popup?v=tCAffMSWSzY#t=28

      It was a a related video at the end of your video! That’s a GOOD one James!!! How does the ole’ cliche’ about the duck go Bob?!! QUACK, QUACK!!! Thanx Bro!

    • MNIce

      If Mr. Obama is not a Muslim (and I’m not convinced he is), he’s making a huge effort to brown-nose Muslims. I surmise in that case, most of us would agree he’s overdoing it by a considerable amount.

    • Steve E

      Soon he will use drones to do his honor killings on Americans.

  • Pilot

    Sure, Microsoft is a solid company. Still, I’m not sure how a whopping yield of 2.6% is going to make anyone stinking rich. You would do better with the growth play than the dividend play. Just saying…..

  • MNIce

    “For we brought nothing into this world, and it is certain we can carry nothing out. And having food and clothing, with these we shall be content. But those who desire to be rich fall into temptation and a snare, and into many foolish and harmful lusts which drown men in destruction and perdition. For the love of money is a root of all kinds of evil, for which some have strayed from the faith in their greediness, and pierced themselves through with many sorrows.” I Timothy 6:7-10

    Money itself is not evil. It is merely a representation of material goods, a tool for measuring the fair exchange of goods and services. The problem is when one becomes greedy for money, or more to the point, the goods and services, and makes oneself a slave to the desires. There is nothing wrong with putting money in surplus of necessary expenses to work in profitable ventures, so long as those ventures are also beneficial to society (e. g., investing in a software company that makes life more productive for millions may be good; investing in a brothel, an enterprise intended to profit from evil, is itself evil.).

    The motivation for making the investment is the real question. Remember that the earth (including your wealth) is the Lord’s, and what you have is a portion of His property entrusted to your care. The property cannot follow you when you die, although consequences of your usage can. The Lord expects you to use it wisely, and He expects you to use it to show love for others. Whether you use money to provide for yourself and your family, provide employment for others directly, invest in beneficial and profitable enterprises, contribute to the work of the Church, or simply give to those who have no resources to exchange, depends on the opportunities before you. Choose wisely and prudently so that your choice glorifies God. That is the very first criterion of sound investment.

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