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G&G Associates
Tax & Financial Consulting Services
e-Newsletter
A Common Sense Guide to Buying DRIPs
Karibu (Welcome) G&G Readers,
As I've been expecting for years, the world is now flocking toward World Dominating stocks.
Right now, investors are fleeing bank stocks and mining stocks… the kind that tend to be very speculative. But most every "World Dominating Dividend Grower" (WDDG) stock is holding up just fine these days. While the market is sinking, stocks like Microsoft and Wal-Mart are near yearly highs… no surprise there.
As I've been saying for years, these stocks are different from typical stocks. They are different from "the market." WDDGs are vastly better.
If I could teach investors just one thing, it would be how to identify and value a World Dominating Dividend Grower business. It's the single-best way to get rich in stocks.
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"CASE STUDY"… Let's analyze Microsoft.
Microsoft is the World Dominator of personal computer software. Its Microsoft Windows and Microsoft Office products enjoy enormous market shares of approximately 90% worldwide. So all over the world, whenever someone buys a PC and needs an operating system and office productivity software, they buy Microsoft 9 times out of 10.
Nothing dominates its market the way Microsoft dominates PC software. Even Intel's share of the global microprocessor market is "only" 80%.
In other words, it has an extraordinary brand, and it is No. 1 in its industry. Those are "on the surface" clues to finding these stocks. But we also need to look inside the company… to find the financial clues of a WDDG business.
To say Microsoft has all the financial clues of a World Dominating Dividend Grower is the understatement of the year.
One of the hallmarks of a WDDG stock is consistently thick profit margins. This is the amount of money a company earns from each dollar of sales. A great business should have thick profit margins, so it can pay you plenty of dividends… but that company should also have a sustainable long-term competitive advantage so it can consistently earn those thick margins.
Well, Microsoft doesn't merely have consistently thick profit margins. It has the thickest margins of any business I know of, with gross margins (the margin earned before deducting the basic costs of doing business) consistently around 80% and net margins (the margin earned after deducting all expenses) consistently around 25% – after taxes.
That's huge. Most businesses are ecstatic to earn net margins of 5% or 10%.
Another hallmark of a World Dominating Dividend Grower is huge free cash flow. Free cash flow is the final "cash in hand" number that a business owner has after deducting expenses. It's a vital number for investors.
Microsoft gushes free cash flow like no other business. On sales of just over $73 billion, Microsoft generated just under $27.5 billion in free cash flow the last four quarters.
A third sign of a World Dominating Dividend Grower stock is a strong balance sheet. As shareholders of a business, we want to see lots of valuable assets and low debt. We want a strong balance sheet so we don't have to worry about tough times causing a bankruptcy.
Microsoft's balance sheet isn't merely strong. It's a financial fortress. The company has $59.5 billion in cash and short-term investments and less than $12 billion in debt. It could afford to pay off its debts nearly five times over. Microsoft has zero interest net expense because it earns more interest on its cash and investments than it pays on its debt. Sales could go to zero, and this company wouldn't go bankrupt. It doesn't get much safer than that.
Finally, for a company to qualify as a WDDG, we need to see a history of dividend growth. Microsoft is a relatively young dividend-payer. But what it lacks in history, it makes up for in growth.
The dividend has grown 150% since Microsoft initiated it in 2003. So the dividend has grown at about 10.9% per year for nine years… That number jumps to an even more impressive 12.4% if you look at the last five years alone. And it's accelerating recently, with a 25% increase last fall.
Microsoft pays out less than 30% of its earnings per share. So there's plenty of room for big dividend growth in the coming years. Right now, Microsoft yields 2.6%. Even if it merely maintains its growth of 12.4% per year, you'd be making 27% over your original cost in 20 years.
To sum up, there are obvious things to look for when you're after the world's safest, best dividend-paying stocks… the kind you can hold for decades and become wealthy. This includes a dominant brand and the top position in an industry.
But today's newsletter shows you some vital "financial clues" for finding these stocks… and why Microsoft is a great example.
If you want to know how to protect yourself and learn how to take advantage of this news then you need to become a GGIS Subscriber. I will share many of these ideas here in the weekly G&G e-newsletter but if you want the meat, you need to become a paid GGIS Subscriber. Sign up today!!!
Remember … "if you fail to plan, then you have planned to fail."
As always…feel free to pass this information on to anyone you think is interested in increasing their tax & financial IQ.
If you need a one-on-one consultation to learn how to implement these investments or any other on the GGIS portfolio, feel free to contact me to setup an appointment.
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Meda Ase p (Thank You Very Much),
Asar Maa Ra Gray
Tax & Financial Consultant, RFC
G&G Associates
757-251-3757 office
866-361-3872 toll free fax
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LEGAL NOTICE: This work is based on what I've learned as a financial researcher and analyst based SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. It may contain errors and you should not base investment decisions solely on what you read here. It's your money and your responsibility. Nothing herein should be considered personalized investment advice.
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