Wednesday, July 23, 2008

Brands Grow Dividends

I previously wrote about my dividend growth philosophy. This is my investing plan that I employ through good times and bad, no matter what the market throws at me. One factor in the last point within my investment philosophy, and a factor that I consider crucial when selecting and analyzing investments, is brands.

A brand is the most valuable asset that many companies own. This product or company identity captures a corner of the consumer's mind, which is the most valuable real estate that they can own for future growth and stability. In simple terms, a strong brand offers the benefit of repeatability of sales through loyalty and trust. These factors are perfect traits for us to look for in a company that we might be considering for a long term dividend growth investment. Brands are a piece of the puzzle that can go a long way towards creating consistency, which is another key feature of a dividend growth company.

Brands are one of the factors that allow the company's customers to continue to buy their products or services as the years go by. In some ways, brands can contribute in creating a 'moat' around the company that inhibits other entrants from taking market share or gaining confidence in the market.

If you ever doubt the power of brands consider the following: Some brands are confused with actual item names: Examples include Kleenex®, Band-Aid®, iPod®, and Ziploc®. Some brand names are actual words for items in different languages than they originated in. For example, 'Gillette' is the word for shaver in some developing countries. Some brand names pervade vocabulary in other ways, as an example consider the saying "That is a Band-Aid solution".

In summary, brands are a key factor that I consider when analyzing a potential dividend growth investment. Due to the loyalty, trust, and the competitive advantages that brands build, they create moats and allow companies to build consistency of sales.

This article was written by the moneygardener. You may email questions or comments to me at [themoneygardener(at)gmail(dot)com].

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