How You Can Harness The Power of The Snowball Effect
You can harness the power of the snowball effect by investing in the same type of businesses that have made Warren Buffett so wealthy over time.
Take a look at Warren Buffett’s portfolio. His top 5 stocks make up 67% of his portfolio:
– 19.8% is invested in Wells Fargo & Co (NYSE:WFC)
– 18.0% is invested in Kraft Heinz Co (NASDAQ:KHC)
– 13.0% is invested in The Coca-Cola Co (NYSE:KO)
– 8.5% is invested in International Business Machines Corp. (NYSE:IBM)
– 8.0% is invested in American Express Company (NYSE:AXP)
These 5 businesses are the core of Warren Buffett’s current compounding machine. Do you know what’s interesting about these 5 businesses?
All 5 are well established businesses that pay dividends.
– Wells Fargo & Co (NYSE:WFC) was founded in 1852 and has a 3.2% dividend yield
– Kraft Heinz Co (NASDAQ:KHC) traces its history back to 1865 and has a 3.0% dividend yield
– The Coca-Cola Co (NYSE:KO) was founded in 1892 and has a 3.0% dividend yield
– International Business Machines Corp. (NYSE:IBM) was founded in 1911 and has a 3.5% dividend yield
– American Express Company (NYSE:AXP) was founded in 1850 and has a 2.0% dividend yield
The weighted average dividend yield and founding date of Warren Buffett’s top 5 stocks is 3.0% and 1870, respectively. Warren Buffett holds a concentrated portfolio of businesses with above-average dividend yields and long histories of success.
Investing in this type of business is the surest way to benefit from the snowball effect.
The good news is you don’t even have to search for these businesses.
There is a list of 17 businesses with 50+ years of consecutive dividend increases called the Dividend Kings list.
Nothing says long-term success like 50 or more years of paying rising dividends in a row.
Coca-Cola (one of Buffett’s biggest investments) is a Dividend King. There are many other well-known stocks in the Dividend Kings list, including:
– Procter & Gamble Co (NYSE:PG)
– 3M Co (NYSE:MMM)
– Johnson & Johnson (NYSE:JNJ)
You may read this and think: “these businesses may have a history of success, but isn’t their run over”.
Investors have wasted tremendous sums of money chasing ‘the new hot stock’. You cannot benefit from the snowball effect by investing in businesses that are unproven. Steady dependable results lead to wealth multiplication.
What would happen if you had invested in some of the most well-known Dividend Kings in 1990?
The 7 examples businesses below all had 25+ years of consecutive dividend increases by the end of 1990. They were well-known, well established blue chip stocks in 1990.
It didn’t take a genius to buy and hold them…
But the results speak for themselves. 7 examples of the snowball effect in action are below. All examples assume dividends were reinvested.
Example #1: The Coca-Cola Co (NYSE:KO)
Every $1 invested in Coca-Cola at the beginning of 1990 was worth $15.25 by the end of 2015. Coca-Cola compounded investor wealth at 11.5% a year (including dividends) over the last 25 years.
The Coca-Cola Co (NYSE:KO) was the largest soda brand in the United States in 1990… And had a 98 year operating history at the time. It was not a start-up.
While not all of them will stick with their investments for the next 25 years, some of the 51 investors in Insider Monkey’s database which were long KO at the start of 2016 will surely be banking on some of the same returns long-term. Those investors held over $20 billion worth of the company’s shares, topped by Mr. Buffett’s position of 400 million shares.
