Companies, just like human beings, follow a life-cycle. When boiled down to a rudimentary level, we can think of companies going through the phases of being born, growing through periods of childhood and adolescence, maturity after reaching adulthood and finally death.
A look at history
I recently looked up the oldest companies in the world. The oldest company on record is Kongo Gumi, a Japanese construction company that was founded in 578 CE (that’s over 14 centuries ago!). The company was absorbed by a larger construction corporation (Takamatsu Corporation) just seven years ago after staying in the family for 40 generations!! The name, Kongo Gumi, however, survives as a subsidiary of this construction group. Interestingly, a majority of the oldest surviving companies are Japanese – and 89.4% of all companies with more than 100 years of history are businesses employ fewer than 300 people.
The Dutch East India Company, or Verenigde Oostindische Compagnie, was one of the largest companies in the world founded in 1602. This was the first company in the world to trade shares in a public exchange, which eventually led to the creation of Amsterdam Stock Exchange. The company eventually went bankrupt in 1800.
The first company to trade on the New York Stock Exchange in 1792 was The Bank of New York, founded in 1784 and still exists and publicly trades today. The company merged with Mellon Corp in 2007 and is now called The Bank of New York Mellon Corp (BK).
The first ever dividend paid in the US was by a company called Citigroup (C), founded in 1812 and paid its first dividend in 1813. Unfortunately, Citigroup has lost its dividend paying streak and the title for the longest consecutive dividend paying streak goes to York Water (YORW), which has been paying dividends since 1816 (a 198-year streak!).
The oldest consecutive dividend paying company in Canada is Bank of Montreal (BMO), which has paid dividends since 1829, with The Bank of Nova Scotia (BNS) a close second that started paying dividends in 1832.
The banking sector was hot and lucrative business in the 19th century and still continues to be. However, investors should be vigilant and monitor their investments while staying invested – as large corporations with a long history can go bankrupt and dissolve. The recent financial crisis provides us with plenty of examples of such events:
- Bear Stearns (1923-2008) was a global investment bank and securities trading and brokerage firm, which was absorbed by JPMorgan Chase (JPM).
- Lehman Brothers (1850-2008) was the fourth largest investment bank in the US that went bankrupt in 2008.
- Wachovia (1879-2008) was the fourth largest bank holding by total assets in the US, was absorbed by Wells Fargo (WFC).
- Washington Mutual (1889-2008) was the largest savings and loan association in US that collapsed in 2008.
Companies go through a life cycle of birth, growth, sustained maturity and death. Even if a company has had a great history and performed well in the past, investors should always stay vigilant on the future outlook and consider if the business model of a company is sustainable. The old adage buy and hold forever really should say buy and closely monitor. The new global economy, current environment and the connected world has made it easier than ever to start a new company. Whether a company will survive and thrive is a whole other story.
Disclosure: Long BNS, WFC. My full list of holdings can be found here.