Arnold Bernhard II

“What is an investment, anyhow, but a body of capital that produces income. The income may be current income, or it may be prospective income, but it is the magnitude of the income, current or prospective, that determines the value of the capital which produces it.” Arnold Bernhard's 1959 book Evaluation of Common Stocks, p.21

Dividend stocks provide income and the magnitude of that income grows with dividend growth. I take into account prospective income by adding yield and dividend growth to obtain total return. And as the dividend grows, so does the capital. Bernhard has many charts in his book to illustrate this with pairs of charts plotting price and dividends from 1946 to 1958. He compares, for instance, General Telephone whose dividend went from $1.50 to $2.00 over this period, and whose price rose from $15 to $50 to AT&T whose dividend was flat from 1946 to 1958 and whose price was likewise flat. Arnold Bernhard also compares General Electric to Singer, Federated Departments Stores (dividend from .50 to $1.75) to Macy's ($2.50 to $2.00) and IBM to Underwood. It is fascinating material. Too bad the book is out of print.

If your capital is in a mutual fund, most likely it is not producing much income. Funds are not noted for producing income. If you own a fund, check how much income it produces. Do not count capital appreciation as income: gains are not income. Gains disappeared with the market drop in 2008. In contrast, the income produced by the dividend stocks I follow actually went up by 9% in 2008. In 2009 our dividend income went up by 6.16%. There was one reduction: MFC. The most recent increase was Empire…up another four cents per share, per year. That's the game plan with dividend growth investing. We do not have to depend on market prices to fund our retirement. Once the dividend is deposited in your account, it is yours to keep. You can spend it, or re-invested as your needs at the time dictate. From the 1,400 BMO shares Louise bought in 1987, $980 is deposited into her account every quarter. In 2011 we expect another dividend increase from BMO common shares.

Bernhard talks about the value of your capital. That our common stocks produce income makes our capital valuable. This is the ultimate backstop for dividend investors. Regardless of what happens, investors will be drawn to stocks that produce income. Investigate dividend growth investing. It could be your cup of tea. (According to Foods That Fight Cancer on page 129, Japanese Gyokuro green tea and Japanese Sencha green tea contain the most anti-cancer compounds…catechins…about one third by weight of the tea leaf. It's the EGCG (epigallocatechin gallate) you are after. “Japanese green teas contain far more EGCG than Chinese teas”. 127 We prepare a cup of Gyokuro every day. We never let the water boil, nor use tea bags. Foods That Fight Cancer is a great book as is Cooking with Foods that Fight Cancer. (gobs+ccc+TTT is my memory key for the 11 good cancer fighting foods…GOBS = garlic, omege-3, berries, soy; 3Cs = citrus, chocolate (only dark), cabbage; 3Ts = tomato, tumeric and tea (green and Japanese)) The eleventh is red wine.

comments/arnold_bernhard_ii.txt · Last modified: 2011/03/21 13:52 by tom
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