It’s Nestlé Dividend Day for American Stockholders!
Good morning, fellow Nestlé stockholders! It’s that magical day of the year when the annual dividend gets paid out to American owners (or, technically, those who have opted to buy the ADR). While those of you who hold your shares of Nestlé through Switzerland directly got your 2.15 CHF per share dividend on April 17th, those of you who opt for the Nestlé ADR traded here in the United States (which is likely most of you) get your dividends today!
The final currency conversion amount worked out to $2.029756 per ADR. You should be as excited as Mr. Burns when the deposit shows up for your cut of the coffee, tea, cocoa, chocolate, frozen pizza, sparkling water, candy, powdered milk, infant formula, baby food, fruit juice, pet food, kitty litter, ice cream, creamer, and cosmetics. Of course, you’ll have the withholding taxes for the Swiss government, but that’s just part of the deal.
This means the glorious Nestlé dividend chart for the past few decades remains on its current trajectory. The company seems to be hitting a bit of a headwind lately with profits down slightly – 2% or so to be more precise – as global consumers continue to struggle with the rising cost of food. That sort of thing will work itself out in the free market as supply and demand reach equilibrium, management adjusts offerings, and costs are cut. I don’t think it will have much of an effect on a 10-25 year investment horizon. The executives know how to allocate capital. As a matter of fact, within the last 24 hours, the firm announced a $1.4 billion cash acquisition of the skincare business that belonged to Valeant Pharmaceutical International. The distribution chain is still unrivaled by all but a handful of competitors. The brand portfolio is diversified.
This is one of those cases where treating your stocks like private businesses is the best way to behave, which is especially easy if you study the history of a firm. Is Nestlé the most attractive buy in the stock market at the moment? Not particularly. Is it going to have an exciting next 2-3 years? Probably not. But the underlying economics are so good, and the long-term inflation hedge so strong, who cares? If the purchase price was rational, you have the luxury of ignoring the stock market. Sit back, collect your dividends, and go about life. Endeavor to behave like the investor in our case study.
In fact, I am of the strong opinion that the average investor could improve his or her results dramatically if informed that any stock purchases had to be held for 10 years, without exception. Doing so would change behavior in a lot of folks so that they looked out and tried to identify which companies, at which prices, offered the best potential for solid compounding based on earnings, dividends, and valuation.
I should expand on that. You know what? I’m going to sit down and write a demonstration of why this approach could result in better outcomes and publish it over at About.com. I’ll update this post with the link to the new piece when it is finished. I’ll use a classic blue chip like General Mills to demonstrate the mathematics since almost everyone in the country knows and uses the products.
Update: I finished it and it is now live on Investing for Beginners.
You can read it here.
Update II: Link to http://beginnersinvest.about.com/od/bluechipstocks/fl/How-a-Long-Term-Investor-Might-Think-About-Investing-In-a-Blue-Chip-Stock.htm in the previous update was removed on 05/06/2019 when this post was re-released from the Private Archive. The link was removed because it is no longer live and now re-directs to non-related content. Back in 2017, I resigned as the Investing for Beginners Guide, capping nearly seventeen years at About.com, which had transformed itself into a network of different sites. The financial content was migrated to a new website called The Balance. During that transition and subsequent to my resignation, large portions of my body of work licensed to that company were, or have been, de-indexed. Over the next few years, I expect more and more will be deleted, edited, and/or effectively disappear as they work their way through the enormous collection of articles and essays I published from 2001 onward.