Consistency is hard to find these days. Corporate profits as a whole are fairly strong, but due to macroeconomic and worldwide sovereign debt burdens, there is a continual sense of malaise in the markets. Even some stalwarts like Johnson and Johnson and Procter and Gamble have been rather unimpressive for long term investors in the past few years, with their sideways revenue performance due to product recalls or divestitures.
The good thing about investing for the long term in shareholder friendly companies that pay dividends is that it really doesn’t take much top line growth to get solid returns on your investment. For some, investing is thought of almost purely as “grow grow grow!”, which is key for certain businesses, but not all of them. For companies that pay dividends (or less enthusiastically, perform share buybacks), it’s all about “total shareholder returns!” as far as investors are concerned.
Total shareholder returns come from a combination of core growth and returning cash to shareholders in one way or another. If a company achieves, say, 2% actual volume growth and 2% pricing growth on that volume to keep up with inflation, then they’re looking at approximately 4% core revenue growth. If their profit margins stay static, that implies net income growth also at 4% or so. Then if they have net share repurchases of 2% of market cap per year, total EPS could grow by 6% or more per year. If the company is paying a 4% dividend yield, and the dividends are reinvested, then the investor could be looking at 10% annual returns over the long haul. (more)