Lately there's been a lot of emphasis on investing in companies that pay dividends. And that makes sense given that the market is only a few percent away from where I was back in 2000 before the tech bubble burst. A large part of investment return since that time has been dividends. In a recent article, Kiplinger's magazine demonstrated the power of investing in a growth company that also pays dividends.
They profiled the golden arches – that's right, McDonald's – from 2003 to now. McDonald's, which trades under the symbol MCD, started 2003 trading at pennies over $16. That year it paid $0.40 in dividends to shareholders. At that time, we were in the third year of a market meltdown. McDonald's like many other companies were refocusing strategy to deal with the struggling economy. They overhauled their menu selections, price strategy, and promotions. This included adding premium salads and McGriddles to their product mix.
This strategy paid off – not only for the company – but for shareholders as well. By the end of 2007, the stock was trading at over $60 a share and the company was paying a dividend of a $1.50. In 2008 the company started paying dividends quarterly rather than annually and opened their 1000th restaurant in China. But the growth continued and by 2011 they had restaurants in 119 countries. Today the stock trades at around $88 – quite an impressive run from just $16 some nine years ago.
But let's look at this from the income perspective. Today, McDonald's pays $.70 per share quarterly to its shareholders. That equates to $2.80 a year, or more importantly, about 3.2% per year on the current share price. But what if you had bought those shares back in 2003? Not only would you have made over five times your original investment, but the dividend payout equals 17% of your original investment.
That's the power of stock investing. Owning a stock is nothing more than owning a fractional piece of the company. As the company grows, so do the earnings that many times are passed along to shareholders in the form of dividends, and that is certainly what happened to McDonalds.
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Mark joined WHAM in January of 1998 when his weekly call in financial show "Money and More" first aired. The show ran for eleven years and became one of the stations highest rated programs. Recently Mark has returned to provide daily commentary and analysis on the WHAM afternoon news. His segment can be heard at 4:26pm Monday through Friday, with an extended appearance with Randy Gorbman on Thursdays.
Mark started his financial services career in 1986 with IDS/American Express. He is a Certified Fund Specialist and Certified Long Term Care Specialist with a Bachelor's Degree in Economics and Management from SUNY Geneseo. He has designed, authored, and presented retirement and long term care workshops for clients, corporations, and non-profit organizations such as Xerox, Kodak, Agway, and the United Way.
In 2007, Registered Rep magazine listed Mark among the Top 100 Independent Advisors in the country. He lives in Geneseo with his wife Susan and has four children. Mark is an avid fisherman and enjoys spending time at his family cottage in the Thousand Islands. Mark also collects Civil War and Underground Railroad memorabilia for a museum he keeps in the basement of the historic Henrietta office.
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The views expressed in Mark's commentaries are to be considered for informational and entertainment purposes only. Before making decisions based on any content in Mark's commentaries you should always consult your financial or tax professional.
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