Tale of Three Once and Future Dividend Providers, April 1996 to present

Investor return can come from appreciation, or dividends.  Microsoft (MSFT 31) announced this week the quarterly dividend will be raised to .23/quarter, going ex-dividend November 13.  It yields 3%.

I thought this would be interesting to compare to GE as classic growth stock, and Altria as a “high dividend payer” from the same approximate time.

If you’re even vaguely familiar with the market you’ll know MO & its descendants are going to come out ahead on total dividends, but what about total appreciation as well?

MSFT:

Microsoft paid a $3 special dividend in 2004, and has paid a dividend since 2003, starting at a humble .08 for the year.   In the fiscal 4th quarter of 2004, the dividend went quarterly at .08.   The dividend is unlikely to triple in the next eight years — for one thing the payout ratio has gone up.

It will have paid a total of $7.02 in dividends.  For those long term holders, this means if you bought in April 1996 congratulations you’ve just (before taxes) recouped your investment — of then a maturing company ten years after its IPO.   (This was a full two years after I made the worst investing decision of my life, selling the little America Online because Microsoft was coming to get it.)

Chart forMicrosoft Corporation (MSFT)

The classically safe large cap growth stock, GE, traded at 14.4 in April 1996 (now a humble 22, but probably a touch undervalued.)

GE has had their ups and downs of dividends, cutting it notably to .10/quarter in the financial crisis.  From the summer of 1996 you would have had $11.57 of dividends from GE (Genworth shares appear not to have been spun out to GE shareholders, but had some dividends they did.)

Chart forGeneral Electric Company (GE)

MO:

Phillip Morris a.k.a. Altria is the classic dividend stand out.  You would have made your $34.6 investment back in Altria dividends alone, $35.06 since the summer of 1996, but there is also Kraft and Phillip Morris International which were spun out in 2007 and 2008 respectively.

Each MO share got .692 of a share of KFT which has generated $6.51 of dividends, for $4.51/share.

Each MO share got 1 Phillip Morris International PMI share, which has delivered $11.35 of dividends.

$50.92 in total dividends of MO and its two major spin offs in the same time.

Chart forAltria Group Inc. (MO)

Chart  for Kraft Foods Inc. (KFT)

Chart forPhilip Morris International, Inc. (PM)

For total return calculation purposes you’re still ahead with Microsoft, but barely.

You’d have approximately $150 per share from that $34 investment, 440% price appreciation that is nearly identical to Microsoft’s, with higher dividend return!

I did hold MO, PM and KFT in a retirement account — to avoid the dividend taxation for a number of years, and reluctantly (and foolishly) sold to go into TBT instead.  Is the next MO…MO and its heirs?  Buy and hold is tough for me to stomach but when the right stock is found the results are spectacular.  MO was the classic poster boy for Jeremy Siegel’s The Future for Investors and it has held since the books’ publication.

Yield-hungry investors have piled into stocks like MO and PM and I think I will wait for a drop to get back in.

 

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