Capitalism's Greatest Dividend is Solving Problems

Robert Johnson was on his way to a vacation and struck up a conversation with a railroad doctor on the train. Johnson was told about the frequent injuries from the grueling work of railroad workers. Those doctors had to be everything from the general practitioner to occasional surgeons (nowhere near medical facilities), with no sterilization.

The conversation led to a brainstorming session about packaging sterile surgical gauze and dressings into boxes to keep on the trains.

Robert went back home and wrote personal letters to railway doctors across the country, asking for their opinions on what supplies would be most helpful to put in that first box he planned to make.

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Johnson & Johnson’ first-aid kit that we still buy today, was born 133 years ago.

We keep solving bigger problems with better solutions. Too often it takes a crisis to remember how good we have it, and temporarily forget how much better we will make it.

Consider the last terrible flu strain outbreak called H1N1, over a decade ago. As a result of that crisis, hand sanitizers are now installed on the walls of almost every building you walk into, doing incalculable good all around us, every single day since.

“Man’s mind once stretched by a new idea, never regains its original dimensions.” -- Oliver Wendell Holmes

As a result of Covid-19’s bigger crisis to solve, there will be exponentially better solutions now targeting multiple problems going forward. Better than vaccines built from the viruses they wanted to defeat, we are now programming genetic codes with technology’s greatest precision to defeat this virus. Many more infectious diseases will now have the most specifically engineered crosshairs aiming right at them.

Capitalism is not without its own problems, of greed. But those few companies and people do not stand the test of time. Because if you’re not humble, the markets can take care of that for you also. Any isolated bad is completely overwhelmed by more good. Capitalism’s unmatched track record anywhere in this planet’s history, solves the biggest problems for the largest number of people, for good.

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( Johnson & Johnson’s vaccine delivery to Africa pictured above)

Of the Top 20 Research and Development budgets among U.S. companies, half are in healthcare. In the twelve months prior to the pandemic in 2020, just those few healthcare companies alone, combined to invest $75 billion FOR us, to do more good.

For some perspective on that kind of risk being taken on innovation, 400 stocks that make up the S&P 500 are smaller than that one-year R&D expense. Each one of those entire companies is worth less than that healthcare R&D risked in one year.

Problem solving is the best business, in every sector. And yes, that means a lot of profits should be made. It is not a conflict of interest; it is the purest incentive. Companies that stand the test of time reward stakeholders, by reinvesting capital better than others. They increase their advantages for the right reason – to go solve more problems. Only after that, are the best operators able to share excess free cash as a dividend. Dividends don’t lie, aren’t an accounting trick, and are not anybody’s opinion of what should happen next. A dividend can only be paid from what is happening. You know a dividend is real because you can hold it in your hand, unlike any other investment metric.

Rising dividends reward patient stakeholders, with incredible math. The annual dividend from Johnson & Johnson during the pandemic in 2020, was 8% yield on cost for shares purchased in March 2009, at the time of that previous outbreak (and rising).

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The highest quality dividends can help solve investor’s biggest looming problem of “sustainable withdrawal rates.” I would much rather find increasing free cash flows I know are real, instead of withdrawals of principal hoping for appreciation.

There will be many more problems to come. It will always be different this time. None of us will ever forget this time how much scarier it felt.

To quote the leading health authority of the day:

Disease germs hiding in neglected places about the homes and surroundings are ready to attack.”

That message was printed in this health bulletin from Johnson & Johnson, and that day was in 1915.

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That little company’s earliest health care solution started from an idea to solve a previous crisis.

My only prediction of the long-term result of this latest crisis?

The world will get a little bit better, once again.