Name that company

I began in the late 1800s as a U.S. branch of the German company Schering. Today, based in New Jersey, I’m an American health care and pharmaceutical company. I employ some 30,000 people globally and rake in more than $8 billion in sales annually. My brands include Dr. Scholl, Tinactin, Afrin, Chlor-Trimetron, Correctol, Drixoral, Coppertone, Bain de Soleil, Claritin, Cipro, Coricidin, Levitra, Lotrimin and Remicade. Animal health products are a major interest of mine, especially after I bought the animal health operations of Mallinckrodt Inc. in 1997. Who am I?

Last week’s question and answer

Born as a knitting mill in Alexander City, Ala., in 1902, today I’m a major sporting goods company, with brands including Spalding, Huffy Sports, American Athletic, Jerzees, Mossy Oak, Bike, Moving Comfort and Cross Creek. I recently bought the Brooks running gear company. I was one of the first to make sweatshirts, introducing fleece-lined ones in 1930. I rake in about $1.3 billion per year. I’m a top supplier of U.S. athletic team uniforms and the world’s largest provider of basketball equipment. I produce enough yarn each week to make more than 100 trips to the moon. Who am I?

(Answer: Russell Corp.)

First Data’s moat

Moats are great – ask anyone who lives in a castle. Modern corporate moats, like the kind that electronic commerce giant First Data (NYSE: FDC) has built around itself, are no less valuable, and First Data’s recent second-quarter results give investors an inkling why.

Revenue, at $2.6 billion, was up only 3 percent over last year, and reported operating profit was down 7 percent. While the payment services business (i.e., Western Union) was pretty solid, merchant services and card-issuing services were weaker, on a year-over-year basis.

But these aren’t major red flags, since First Data still has a leading position in many lucrative lines of business. That’s the moat that will keep this company afloat.

Sure, First Data may very well see competition in the money-transfer market in Asia from the likes of Citigroup and Bank of America. But it’s already seeing double-digit growth in its business there and has formed many solid relationships in the region.

With a price-to-earnings (P/E) ratio around 20, First Data is sitting on the lower end of its historical valuation range. This may well be a period of transition for the company before it resumes an upward march. Investors looking for a solid blue chip company for their portfolio may want to take a look at First Data while it’s still in the midst of refueling.

Dividend growth power

Venerable blue chip companies such as General Mills, Altria Group, Verizon, Sara Lee and Heinz deserve your attention – for their dividends.

If you buy General Mills when its dividend yield (annual dividend divided by share price) is 2.7 percent, you’re likely to get that 2.7 percent payout every year, regardless of what happens to the stock price. Couple dividends with stock appreciation and you have an appealing combination.

Here’s something investors rarely consider. Imagine you bought 10 shares of Stained Glass Windshield Co. (ticker: STAIN) for $100 each, and they pay a respectable 2.5 percent dividend. With a $1,000 investment, that’s an annual payout of $25. Not bad.

But dividends aren’t static and permanent. Healthy companies raise them over time. A few years down the line, perhaps STAIN is trading at $220 per share. Imagine that its dividend yield is 3 percent, as it’s paying out $6.60 per share. Note: $6.60 is a 3 percent yield for anyone buying the stock at $220, but since you bought it at $100, to you it’s effectively a 6.6 percent yield.

Decades pass. Your initial 10 shares have split into 80 shares, each worth $120 now. Your initial $1,000 investment is now valued at $9,600. The yield is still 3 percent, paying $3.60 per share, so your 80 shares deliver a whopping $288 per year. Think about this. You’re earning $288 on a $1,000 investment. That’s 29 percent per year (and growing) – without even counting any stock price appreciation. The yield for you has gone from 2.5 percent to 29 percent all because you just hung on to those shares of a growing company. Even if the stock price drops, you’re still likely to get that 29 percent payout – unless the firm falls on really hard times.

By holding on to many great dividend-paying companies, you can enjoy rising dividend yields over time.

Consider this: One share of Coca-Cola bought in 1919 has become 4,608 shares through stock splits, and together they kick out $5,161 in dividends annually. If dividends had been reinvested in more stock, the totals would be much more.

Dividend strength

I bought 100 shares of South Carolina Gas and Electric about 25 years ago, paying about $1,700. At that time, it was (and still is) an operator of nuclear power plants, among other things. Thanks to participating in its dividend reinvestment program, today I have more than 1,400 shares, with a total value of more than $60,000. The dividends buy about 50 additional shares a year, worth about $2,000. The company is now called SCANA, and it’s one of the most efficient utilities in the country. My only wish is that I had made more investments like these. – John W. Donaldson, Centennial, Colo.

The Fool Responds: You did well indeed. SCANA shares have roughly tripled over the past decade alone, not counting dividends. Your story shows the power of buying and hanging onto healthy, dividend-paying companies for the long haul. Such firms will keep increasing their dividends over time, rewarding shareholders handsomely. Dividend reinvestment plans (DRIPs) also are good ways to invest. Learn about promising dividend-paying firms via a free trial of our Motley Fool Income Investor newsletter at www.incomeinvestor.fool.com, or the DRIP Investor newsletter at www.dripinvestor.com.

Ticker tizzy

I have noticed that some companies have more than one stock symbol. For example, Delta Airlines has DAL and DNT. General Motors has a lot of issues, too. What are the differences, and why do companies do this? – S.C., Bloomington, Ind.

Sometimes companies have different classes of stock, with different characteristics. Warren Buffett’s Berkshire Hathaway company, for example, has class A shares worth around $84,000 each and class B shares valued at a 30th of that, roughly $2,800. The B shares were issued when class A shares grew out of reach of many would-be investors. Class A shares have greater voting rights.

Sometimes the multiple ticker symbols represent preferred stock, bonds or other securities issued by a company. Delta, for example, has preferred stock and bonds trading under the tickers DNT, CDC and CYA.

I recently attended annual shareholder meetings of Maytag and Level 3 Communications. At both, a “poison pill” strategy was mentioned. What is it? – Robert Fisher, Bellevue, Neb.

Some companies employ a poison-pill strategy to avoid being taken over. It generally takes one of two forms. In one, shareholders (but not a would-be acquirer) are permitted to buy more shares of company stock at a discount. This dilutes the value of the stock, including those shares held by the acquirer, making a buyout more difficult and expensive. Another poison-pill option is to permit shareholders to buy the would-be acquirer’s stock at a discount in the event of a merger.

Shareholders have protested poison pills on occasion because they dilute the voting power of shares and because sometimes a takeover would be good for the company and shareholders. Both Maytag and Level 3 have moved to terminate their poison-pill plans.