The wealth-building power of compound interest will never cease to amaze me. It’s a story of patience and attention to detail, where small, short-term differences add up to massive divergence over decades. And in the end, the biggest winners don’t always deliver the fattest share-price returns.
Today, we’ll take a closer look at one of the least generous dividend policies on the Dow Jones Industrial Average (Dow Jones Indices:.DJI). I’m talking about chemicals giant E I Du Pont De Nemours And Co (NYSE:DD).
E I Du Pont De Nemours And Co (NYSE:DD)’s current dividend yield is a fairly generous 3.2% — just north of the Dow’s average number. But DuPont’s admirable performance in the yield column is not the result of muscular dividend boosts. Instead, you could pin the high yield on disappointing share-price gains.
If you bought E I Du Pont De Nemours And Co (NYSE:DD) shares a decade ago, you locked in a yield somewhere around 3.4%. The company has increased its payouts on a fairly regular basis since then, but not by large amounts. When all is said and done, E I Du Pont De Nemours And Co (NYSE:DD) has boosted its dividends by just 29% in 10 years for an annual increase of 2.1%. But the yield remains generous anyhow, because share prices only climbed 28% over the same span. That’s far behind the Dow’s 66% gain. The picture doesn’t change much if you assumed that every dividend check from DuPont and a Dow index fund were reinvested in more shares along the way.
The company just approved another 5% dividend hike. That’s an improvement over recent history, but it’s still weak in the context of the Dow. Only seven of the other 29 Dow components increased their dividends less than E I Du Pont De Nemours And Co (NYSE:DD) did in the last year. That includes Bank of America Corp (NYSE:BAC), which cannot juice up its payouts until the government says it’s OK — and the bank didn’t even ask for permission in this spring’s evaluation. Investors in the megabank keep hoping for a richer yield, but mum’s the word so far.
Other weak hands include telecom giants AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ), which already boast the fattest yields on the blue-chip index and operate in an increasingly mature industry. Nobody expects big dividend boosts out of that sector, and the telecoms deliver on that non-promise in spades. Both Ma Bell and Big Red have increased their payouts by less than 6% per year in the last decade — a feat matched by just five other Dow members (including, of course, DuPont).