Track Records Count

One of the easiest ways to classify companies or stocks in general is to separate them into groupings based on their track records. My preferred method is to focus on companies who have consistently increased their dividend for a minimum of ten years in a row. The reason I demand a track record of dividend increases over at least a decade is because it demonstrates consistency.

When a company is able to show that it can continue to maintain its profitability through stable cash-flow and earnings patterns over a period of a decade or more, this demonstrates that management has a handle on how to weather adverse market conditions. Over any period of a decade, the general economic tide is sure to have risen and fallen at least once in marked fashion. Economies naturally ebb and flow over time, contracting and expanding through the simple market dynamics of supply and demand.

Companies that can continue to increase their dividend payouts for ten years or more consecutively typically produce a product that consumers need and don’t cut back on during rough patches. I’ve absolutely never heard someone say they cut back on tooth paste to weather a recession or loss of a job. Not surprisingly, companies that supply these recession proof or at least recession resistant products tend to have long, prestigious track records. Household names like Johnson & Johnson, Procter and Gamble, Colgate Palmolive, and others are among the most consistently profitable corporate engines in the world for just this reason.

Whenever I hear someone say they were burned in the stock market, the story tends to be the same. They either got their pocket picked on a fast-moving stock in a fast-moving industry with “lots of potential” but no track record, or oftentimes they really didn’t even know what they were invested in to begin with. Know what you own if for no other reason than the companies producing the simplest products tend to make the best investments.

Focus on the track records of the companies you invest in and happy investing.

Full Disclosure: Long JNJ