The 1% Are Not Like You and Me
The 1% are not like you and me and Agnes Plumb. So, I know that is not the actual quote by F. Scott Fitzgerald. He actually said the famous quote a few years before the Great Depression in a short story, “Let me tell you about the very rich. They are different from you and me.” The quote has been changed and retold with time. In any case, the very rich at present times are people like Warren Buffett, Jeff Bezos, Bill Gates, Michael Bloomberg, and others. They are worth at least billions of dollars and in many cases tens of billions of dollars. Most of them started companies that grew into market leaders. The very rich have far more wealth than ordinary people will likely ever attain.
The interesting part is that some of these people earn a fairly small sum for a salary relative to their overall wealth. Warren Buffett has famously earned $100,000 annually for decades. Jeff Bezos reportedly has earned $81,840 per year since 1998. Bill Gates received a salary. For the amount of wealth that he created for the shareholders of Microsoft he was arguably underpaid, at least compared to some other CEOs in present times.
Some Statistics on the 1%
What about the top 1% as a group? Well, the top 1% earn much more income than the rest of us. The actual dollar value varies with location in the U.S. It takes more income on the coasts in Silicon Valley and New York City to be in the top 1% than in other locations based on data from 2018. This data is for the ten largest cities.
But on average it takes about $515,000 in annual income to be in the top 1% based on 2017 income tax data. The dollar values for the next brackets are a steep drop from there. To be in the top 5% you need to earn $208,000. You need to earn roughly $145,000 to be in the top 10% of income earners, and almost $87,000 to be in the top 25%.
The table below from the Tax Foundation shows some statistics about the different groups. The top 1% as a group earned more in adjusted gross income or ‘AGI’ than the bottom 50%. That’s a pretty amazing statistic. The top 1,432,952 income earners had greater aggregate income than the bottom 71,647,580 income earners. The top 1% also paid much more in income taxes at 38.5% of the total than the bottom 50% at only 3.1% of the total.
Final Thoughts on The 1% Are Not Like You And Me
It is unlikely that most of us will ever get into the top 1%. The income level is more than most high-income earning professions make. This includes many doctors, lawyers, engineers, scientists, financial advisors, managers, etc. It likely takes starting a business to get into the top 1%. This makes sense though from the perspective of risk versus reward trade off. Starting a business is much riskier than a traditional career path. There is a much higher risk of failure. Hence, there should be a greater reward if successful.
Coronavirus Dividend Cuts and Suspensions List in 2020
I updated my coronavirus dividend cuts and suspensions list this past Wednesday. The number of companies on the list has risen to 285. We are now at over roughly 9% of companies that pay dividends having cut or suspended them since the start of the COVID-19 pandemic. Only three companies were added to the list this past week. This past week I added Urstadt Biddle Properties (UBA), Taubman Centers (TCO), and Panhandle Oil and Gas (PHX). The first two are REITs, which have not done well during the COVID-19 pandemic shutdowns.
I will have an article out on Urstadt Biddle Properties’ dividend cut on Monday. I know, most of you have probably not heard of this REIT. But Urstadt Biddle is a Dividend Champion. The REIT raised the dividend for 26 consecutive years. Remember there are only 108 Dividend Champions, and 29 Dividend Kings. This put Urstadt Biddle in a select group. But COVID-19 has hit shopping mall REITs pretty hard. Some tenants are not paying or deferring rent. This has probably reduced cash flow. Check my blog on Monday for my article on Urstadt Biddle’s dividend cut and some discussion on when the dividend will be increased again.
Stock Market Volatility – CBOE VIX
The CBOE VIX popped this week and is now at approximately 36. This is not surprising as the stock market had its worst day since March this past week. What is driving renewed volatility. It is arguably the possibility of a so-called ‘second wave’ of infections. The fear is that this will lead to a rollback or a at least a slowdown of openings in some states. Is it a valid fear? Well, the number of new infections has increased to new highs in some states that have not had controlled easing of restrictions or have low rates of ‘social distancing’ or those wearing masks.
The second item driving volatility is likely the Fed’s weak outlook for the U.S. economy who sees the GDP shrinking about 6.5% this year with about 9.3% unemployment by year end. These are not good values. On a positive note, the Fed is not expecting to raise interest rates for the next couple of years. So those low mortgage rates should be around for some time.
Fear & Greed Index – The 1% Are Not Like You and Me
I have also been tracking the Fear & Greed Index. Last week it was full in Greed at a reading of 66. But as a I pointed out last week this index is rarely over 60 for an extended period of time. A value over 80 usually occurs for only a very short time period. Well, the reading dropped to 54 as volatility spiked. The put-to-call ratio and yield also popped. Valuation have come down, but they are not screaming bargains right now. The S&P 500 trading at a price-to-earnings ratio of 21.8X and the Schiller P/E Ratio at about 28.5X. These are down more than a full point each since last week. I used the decline in stock prices as an opportunity to do some selective buying. Specifically, I added to shares in a regional bank due to the yield. I also added to UnitedHealth Group (UNH) due to the high dividend growth rate.
Secret Dividend Millionaires – Agnes Plumb
In this installment of Secret Dividend Millionaires, I want to talk about Agnes Plumb. She is not your typical Secret Dividend Millionaire. Further, her dividend growth stock portfolio was extremely concentrated. She owned one stock, Kellogg Company (K). She just owned a lot of it. By the time of her death in 1995 at age 88, her Kellogg stock was generating several hundred thousand annually in dividends. In this way her story was a lot like that of Grace Groner who also had a concentrated portfolio. How did Agnes Plumb become so wealthy?
Agnes Plumb’s wealth was probably not planned. She inherited her Kellogg stock from her father, Henry Plumb, a lawyer. It is not really clear when he acquired the stock. One story states that he knew the founder of Kellogg who convinced Henry to buy shares. In any case, Agnes Plumb inherited the stock upon his death and held onto it for decades. It is likely that Henry and Agnes owned the stock for over 50 years.
During that time the stock split many times and the dividend continued to grow. By the time of her death, Agnes Plumb owned over 1.3 million shares of Kellogg worth about $98 million. Since she never married and had no children. She donated her fortune to four charities and four couples who were her friends. The Crippled Children’s Society, the Orthopaedic Hospital in Los Angeles, UCLA School of Medicine and the St. Jude Children’s Research Hospital in Memphis each got $22.5 million. The four couples each received $2 million.
What can we learn from the story of Agnes Plumb? She owned a dividend growth stock. Kellogg is not the most exciting stock to own. It makes breakfast food and other consumer staples. But it is not that volatile and has fairly consistent earnings over time. Next, revenue and earnings grow with time albeit slowly. This leads us to the concept of leveraging the power of compounding over long periods of time. She held her stock for decades through many recessions. One thing to note is that almost all of Agnes’ wealth was in the Kellogg stock. This led to concentration risk. If Kellogg had stumbled, then Agnes’ wealth would have taken a large hit. Such concentration in a single holding is probably not the best idea. Lastly, Agnes Plumb was frugal and lived simply. She obviously spent far less than she earned from her dividends.
Overall, Agnes Plumb demonstrated that the 1% are not like you and me. She was very different than most other Secret Dividend Millionaires.
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.