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Invest in Xiaohongshu-Issue 205

We are covered in dust and scars, but we still have to believe in time.

Whenever the dividend asset market falls back or rises, there are always people asking, when will this track switch?

Buffett has held Coca-Cola for 37 years, American Express for 30 years, See's Candies for 52 years, and Moody's Ratings for 23 years. These companies are essentially dividend assets, and they pay huge dividends to Berkshire every year. In fact, dividend assets are not a race track, but they contain the essence of investment and the investment secret of getting rich slowly.

Back to A-shares, if investors bought Kweichow Moutai 10 years ago, the dividend yield corresponding to the stock price at that time was only 2.72%. However, as the company's profits grew, dividends grew at the same or higher rate. The dividend per share of Kweichow Moutai distributed in 2023 was 31% of the stock price 10 years ago. Similarly, if investors bought Supor 10 years ago, the dividend yield corresponding to the stock price at that time was 3%. The dividend per share of Supor distributed in 2023 was 20% of the stock price 10 years ago.

Although the stock market has its ups and downs, the profits of excellent companies continue to increase over time. Buffett now receives $75 million in dividends from Coca-Cola every year, accounting for 50% of his purchase cost that year. Dividend assets bring investors not only the current visible dividend rate, but also a dividend rate that follows the company's profit growth.

"With each passing year, the rate of return on his initial investment will increase, and these figures will pile up like a pyramid." As Mary Buffett said in the book "Buffett Teaches You How to Read Financial Statements". To this day, Wang Wen of Ridou Investment still remembers the shock he felt when he heard Zhang Shuangwang, the founder of Yitai Group, say that "investment is about sharing money". The essence of investment is hidden in dividend assets. Don't just understand dividend assets from the perspective of investment style or track.

Review of the ten-year value of dividend assets

For the dividend asset sector, its dividend rate ten years ago was not as attractive as it is now, because ten years ago the real estate sector attracted money and the annualized returns of real estate trust products were all above 10%. However, from a long-term perspective, the value of these assets has undergone amazing changes in the past decade. Not only have they recovered the original purchase cost through dividends, but their stock prices have also increased significantly. The returns brought to investors by excellent listed companies have greatly outperformed other major asset classes.

If investors bought Guangdong Expressway 10 years ago, the dividend yield corresponding to the stock price at that time was only 3.03%. However, as the company's profits grow, the dividend is growing at the same or higher rate. The dividend per share of Guangdong Expressway in 2023 is 16.6% of the stock price 10 years ago. Not to mention that Guangdong Expressway's stock price has risen by 435.44% in the past decade.

If investors bought Chongqing Brewery 10 years ago, the dividend yield corresponding to the stock price at that time was only 1.32%. However, as the company's profits grow, the dividend is growing at the same or higher rate. The dividend per share of Chongqing Brewery in 2023 is 18.49% of the stock price 10 years ago. Not to mention that Chongqing Brewery's stock price has risen by 407.89% in the past decade.

If investors bought China Shenhua 10 years ago, the dividend yield corresponding to the stock price at that time was 4.81%. However, as the company's profits grow, the dividend is growing at the same or higher rate. The dividend per share of China Shenhua in 2023 is 14.7% of the stock price 10 years ago. Not to mention that China Shenhua's stock price has risen by 417.95% in the past decade.

If investors bought Fuyao Glass 10 years ago, the dividend yield corresponding to the stock price at that time was 7.7%. However, as the company's profits grow, the dividend is growing at the same or higher rate. The dividend per share of Fuyao Glass in 2023 will be 13.35% of the stock price 10 years ago. Not to mention that China Shenhua's stock price has risen 583% in the past decade.

Although some high-quality companies in the dividend asset sector have also experienced a deep correction along with the market since the beginning of 2021, the value of these companies is still amazing if placed on a 10-year timeline. It is particularly noteworthy that for long-term shareholders, although stock prices fluctuate with changes in people's hearts, the steadily growing dividend rate and corporate profits are more meaningful.

Keep an eye on the rising “coupon rate”

Mary Buffett said that for Buffett, the stock of a company with sustainable competitive advantages is equivalent to an equity bond, and the company's pre-tax profit is equivalent to the coupon or interest paid by ordinary bonds. However, unlike ordinary bonds, the coupon rate paid by equity bonds is not fixed, but increases year after year, and the value of equity bonds naturally continues to rise.

Take Coca-Cola as an example. In the late 1980s, Buffett began to buy Coca-Cola shares at an average price of $6.5 per share. The company's pre-tax profit was $0.7. According to past data, Coca-Cola has maintained an annual growth rate of 15%. Therefore, Buffett believes that he bought Coca-Cola's equity bonds, which can bring a 10.7% pre-tax return on his initial investment of $6.5 per share. At the same time, he believes that the rate of return will grow at a rate of 15% per year in the future.

Stocks are just bonds in the form of stocks, except that the interest rate on these bonds is not fixed. If investors keep this idea in mind, they will shift their attention from stock price changes to research on company fundamentals. Companies with huge competitive advantages will allow their coupon rates to continue to grow over time, and will also make their shareholders slowly richer.

Mary Buffett also said that Coca-Cola's pre-tax profit grew at a rate of 9.35%, and as of 2007, its earnings per share were $3.96, equivalent to $2.57 per share in after-tax profit, which means that Buffett's initial investment of $6.5 per share in Coca-Cola's equity bonds paid him a pre-tax return of $3.96 in 2007, which is equivalent to a 60% pre-tax annual return and a 40% after-tax annual return.

Editor: Tactical Heng

Proofreading: Liu Xingying

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