Lumbard & Kellner, LLC

Sound investing is about steady appreciation.

Lumbard Investment Counseling is a traditional investment advisory firm. located in Hollis, New Hampshire.

Click here to see every newsletter we’ve written since 2002.

 

 

 

 

 

 

 Lumbard Investment Counseling has one mission and a single focus - excellent investment performance and financial counseling.

 

It’s about steady appreciation that’s built on steadily growing dividends, over long time periods.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


LONG TERM INVESTING

Since the earliest days of the stock market—through boom, bust, war, and depression—common stocks were always bought for their dividends. Investors started to toy with the idea of buying stocks for “appreciation only” during the first technology-stock bubble in the late 60s, but the last 15 years stand alone as the only time when dividends were shunned by the majority of investors and the majority of corporations.

Think about that.  If you owned half of a hardware store, you would expect to get half the profits each year. If your partner wanted to invest all those profits in expansion you might be willing to go along for two or even three years, but you’d be looking forward eagerly to the day when your dividends started to flow again.

Young, rapidly-growing companies rarely pay dividends, because they have a constant need to invest their cash to maintain their rapid growth.  However, all companies reach maturity, and growth always slows as size increases. The notion that large, mature companies such as Cisco and Google would refuse to share their profits with shareholders would have seemed incredible to the investors of the 1920s, the 40s, the 60s, or the 80s.  Are these companies run for the benefit of shareholders, or are they run for the benefit of management?

We think that dividends are evidence of a company's concern for its shareholders, and in fact the long-term record shows that large dividend-paying companies tend to outperform other large companies. The chart below shows that—despite the stock-market crash of 2008—the average S&P 500 stock provided a total return of 6.2% per year from January of 1972 to April of 2009. If you select just the dividend-paying companies in the S&P 500 the return—dividends plus appreciation—jumps to 7.8%, multiplying the initial investment 16 times over.  The companies that didn't pay dividends hardly grew at all, in 37 years.

 

 

 

 

 


Sound investing isn’t about buying stocks that double overnight. It’s about real companies with real earnings that put cash in your pocket every single year. The dividends grow over time, compounding with reinvestment and causing a similar rate of growth in the value of the shares. That’s three different kinds of growth.  Most investors find it difficult to get their minds around anything beyond growth in the price of the shares, and that's why there is opportunity here for those who can appreciate it.
 

 

 

____________

Passion is a great motivator, but it's the dispassionate investors who tend to outperform the markets over time.

 

 

 

 

 

 

© 2017 LLumbard & Kellner, LLC • PO Box 749, Hollis, NH 03049 • 603-465-7700 • www.lumbard.com