Experienced Dividend Growth Investors Can Ignore Volatility

the details” to turn it into the angel is in the details. In other words, a picture is worth 1000 words towards bringing a clearer perspective to what a recession really means to investors long-term.

I tend to let the graphs speak for themselves.  However, a few tips on interpreting what the Earnings and Price Correlated graphs and performance tables are depicting should prove useful.  The orange line on the graph plots earnings, the light blue shaded area represents dividends, the dark blue line represents a calculation of how the market has normally valued the business over the time frame graphed, and the black line is monthly closing stock prices.

Therefore, as each graph is reviewed, notice what happens to earnings (the orange line), how stock prices react and look to the bottom of the graph, or the dividend cash flow table, to see how the dividend grows each year.  I have placed a red circle around the price action during the Great Recession for focus.  Notice how seeing the price action in graphic form diminishes the fear and anxiety that the price drops generated as they occurred. In other words, even though the price drops were huge, they don’t appear so frightening when a longer-term perspective is taken.

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RGA Investment AdvisorRGA Investment Advisor commentary for the second quarter ended July 2020, titled, "The Tale of Two Markets." Q2 2020 hedge fund letters, conferences and more In our Q1 2019 commentary we expressed how “COVID-19 will kick off one of the most profound reshaping of our world any of us will see in our lifetime,” accompanied Read More


Colgate-Palmolive Company (NYSE:CL)

Colgate-Palmolive Company (NYSE:CL), the business, went through the Great Recession almost as if it never occurred. Both earnings and dividend growth showed strong growth.  Price dropped, but quickly recovered.  Finally, notice that Colgate-Palmolive is routinely awarded a premium valuation by the market.

Family Dollar Stores, Inc. (NYSE:FDO)

Although Family Dollar Stores, Inc. (NYSE:FDO) experienced a slight weakness in their earnings during the Great Recession, note how profits and dividends both accelerated as the recession came to a close.

V.F. Corporation (NYSE:VFC)

V.F. Corporation (NYSE:VFC) experienced very mild stress and interruption of their earnings during and one year after the recession, but also experienced rapid acceleration as the recession ended.  Notice how stock price closely correlated to VF Corp.’s earnings.

Kimberly Clark Corp (NYSE:KMB)

Kimberly Clark Corp (NYSE:KMB) is not the fastest growing company in this group, but their record since 2007 shows that they may be the most consistent business.  Other than a temporary drop in stock price, Kimberly-Clark shareholders might not have noticed that a recession occurred.

Air Products & Chemicals Inc. (NYSE:APD)

Although Air Products & Chemicals experienced a severe price drop during the Great Recession, there are two factors that should be considered.  First of all, the company was overpriced in the early part of 2008.  Also, even though earnings did fall 22% during the Great Recession, stock price dramatically overacted.

Consolidated Edison, Inc. (NYSE:ED)

Consolidated Edison, Inc. (NYSE:ED) is a slow-growth utility that experienced a drop in earnings and stock price during the Great Recession.  However, notice the long-term correlation between price and earnings.

W.W. Grainger, Inc. (NYSE:GWW)

W.W. Grainger, Inc. (NYSE:GWW) experienced a moderated interruption in earnings during the Great Recession followed by a strong acceleration of earnings growth in 2010 and 2011.  Consequently, performance over the time frame 2007 to current has been extraordinary despite going through the recession.

Illinois Tool Works Inc. (NYSE:ITW)

Illinois Tool Works Inc. (NYSE:ITW) did experience two consecutive years of falling earnings during the throes of the Great Recession.  However, stock price and earnings both have recovered nicely, and the dividend was increased every year.

Stanley Black & Decker, Inc. (NYSE:SWK)

Stanley Black & Decker, Inc. (NYSE:SWK) also had two years of down earnings during the recession, but was still able to raise their dividend both years.

Franklin Resources, Inc. (NYSE:BEN)

Franklin Resources Inc. (NYSE:BEN) is in the financial services industry, but the company was not nearly as exposed to the credit markets like the money center banks were.  Nevertheless, they did experience a severe earnings drop in calendar year 2009.  However, the company did continue to raise their regular dividend and pay special dividends following the Great Recession.  Therefore, their shareholders’ income component was actually better-than-normal since the Great Recession.

Two Examples Where Business Results Created More Permanent Price Damage

For the sake of balance, I did want to illustrate with the following two examples that not every company was able to navigate the Great Recession with as little damage as my 10 portfolio sample companies did.  The Great Recession did have a lasting impact on many companies, especially