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For the past three years, Interactive Brokers individual clients averaged 24.3% annually beating the S&P 500. Lower costs and access to 170 plus global markets matter. Visit ibkr.com performance.
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B
Welcome to Chitchat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is a CCM Me Media Group podcast. Anything discussed on Chitchat Stocks by Ryan, Brett or any other podcast guest is not formal advice or recommendation. Now please enjoy this episode.
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A
Welcome into the Chit Chat Stocks podcast, a podcast to help you find your next great investment. My name is Brett Schaefer and I am joined by my co host Ryan Henderson. Today we have an interview with a recurring guest, Dave Ahern, now of the Divide, an investing newsletter focused on making you a better dividend investor. This is a new project from Dave, so for anyone interested the link will be in the show. Notes. I believe the URL and Dave can correct me here is very nifty. It's dividend school. So Dave, that's it. Why did you start the dividend school? Take us through the inspiration here.
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C
Well, the inspiration kind of started a long time ago. So in 2013 I, I bought Microsoft. Didn't know what I was doing was my first investment. I got really, really lucky. But one of the things that I noticed not too long after I bought it was this extra money showed up on my account. All of a sudden I'm like what the heck is this? And it's this thing called a dividend. I was like, whoa. So I get free money to buy companies. Like how's that work? Anyway, I started looking into it and discovered the joys and the awesomeness that dividends can provide and how much they can your wealth and your investments. And that's really kind of started off my love affair with dividends. And I've been using dividends to invest all along. I've also branched off into other companies. We talked about Nubank a while back and I own Mercado Libre and other companies in Berkshire that are not dividend payers. But the vast majority of my portfolio is in dividend paying stocks. And so it made sense for me to start talking about it because it's something I'm interested in and I want to help people learn how to use dividends to become a better investors and to grow their wealth. And especially I'm older. You know, you two gents are young kids, but I'm, I'm younger, I'm 59. And so this is something that you need to kind of think about as you get closer to retirement is how you can, how you can build income as you get closer to retirement.
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A
Yeah, that is a great point. And there's a lot of listeners here. And maybe I'm basing this up more of what people like to read about on websites such as the Motley fool. But they toss out things like, oh, high dividend yield, or I just want to be an income investor. I want to build up this percentage of dividend income each month or each quarter, and that's how I'm going to live my life. What were the lessons you've learned along the way, I believe, over around 15 years now, of investing with dividends as a focus as, as you mentioned, someone closer to retirement than not?
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C
Well, I think there's several things. So the first thing is a lot of people, when they get into dividend investing, they make a couple of mistakes. And the first one is chasing yield. Like everybody talks about yield. And that is there is no question that having a high yield is very attractive. And I bought years ago, before it was a meme stock. I bought gamestop in large part because of the, you know, the yield that the company was paying. I didn't know that it was a trap. But that is something that could be very attractive. You see this high number, you think, hey, that's, you know, those are, that's easy money. A lot of times, unfortunately it's not. And I think so combining the chasing the yield and ignoring the business, I think those two things, you see that, you see that in, you know, air quote, regular investing that you guys talk so much about. But you also see it in dividend investing. So many people focus only on the dividend and they don't focus on what is feeding the dividend, that they don't look at the fundamentals of the business. They have zero idea if the company has a moat or not or what's going to keep driving the business so they can keep paying the dividend. It just doesn't happen just because a lot of times it's because they have a great business and they have a great moat. Johnson and Johnson is always the company that everybody kind of throws out there as an example. And it's because it's a great example. It's one of the only two AAA rated businesses in the United States. They've been growing free cash flow for, you know, longer than I've been alive. And it's a strong business. And yes, it's boring it's not going to grow as fast as, you know, Nvidia is, but it is, you know, a strong free cash flow growing business that pays a strong dividend and they've been doing it for a very long time. The yield is not, you know, outrageously high like you'll sometimes see when stocks get beaten down. I think I remember GameStop's yield at the time I bought it was around 9%. So that, you know, was really, really high. But I didn't understand that it was because the company sucked. And so that's why, you know, the market was beating it down and that's why the yield was so high. So thank you, Vanna, for that picture of Johnson and Johnson's yield. But it, yeah, that's, that's a big reason why I think those are the two things I see most investors when they get into dividends fail to recognize. High yield doesn't always signal good and ignoring the, the, the fundamentals of the business.
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D
Yeah, I think just to touch on what you just said there, the high yield, there's the element of can this sustainably be paid? So like, you know, can the company even continue to pay out what it's currently paying? And that's part of the yield trap, but the other part is, should they be paying it out? Because if it's sacrificing investment that's needed in the business, then it even can also impair the business long term. But let's talk about your framework. I believe you've got a six step dividend investing framework. Let's go through that. What are the steps?
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C
Yeah, so nothing here is revolutionary or is groundbreaking. These are just things that I have picked up along the way that helped me analyze businesses and help me analyze dividend businesses. So obviously the first one is what is the business like? What do they do? How do they make money? If you can't explain that, if you can't articulate that or figure that out in a couple sentences, then you probably don't really understand what the business is. So that's the first thing. The second thing is the moat. So most people are like, what's the big deal about a moat? The big deal is that's what protects the earnings and the free cash flow. If the company doesn't have a moat, eventually it's going to come under attack because capitalism does work and people will figure out that, hey, Nvidia is making a buttload of money. We need to figure out how to start to steal some of that share. And so having a moat is Very, very important, even in dividend stocks, management. So management is the one who drives the bus. They're the ones who make the capital allocation decisions and paying a dividend is part of that decision. And you mentioned companies, should they or should they not pay? Meta decided to start paying a dividend not too long ago, about a year or so ago. And now people are asking, was that a really good decision? With all the money that they're trying to allocate for AI and everything that they're trying to build out with their, with the data centers and everything they're trying to build, is it really a good idea to pay a dividend right now? And would people be surprised if it got cut? Probably not. But understanding management and what they're trying to do and are they shareholder friendly? Because a company that pays a dividend or buys back a lot of stock generally have a better attitude, if you will, towards shareholders. And we want to find that number four, this is where the rubber starts to beat the road is growth. So one of the things that when you look at dividend paying stocks, there is a mis, a conception or a misconception, if you will, that they're boring, that these are boring companies. And for a large part, yeah, they are boring, but that's the beauty of them is that they are boring. And it kind of depends on what you're trying to do. But I want to see companies that are growing organically 5 to 8% a year or better, and because those are strong companies are going to continue to pay a dividend going into the future. And Brett and I had a really great conversation a while ago about Nubank. And nubank does not pay a dividend, but it's a very profitable business and at some point in their evolution they probably will. And that is what you want to see if I, you know, now it's growing at what, 45, 50%? Maybe not investing at a dividend is the best decision for new bank at this point, but 10, 15 years from now it may be. And you want to see the company still growing because that's what's going to continue to fund the dividend. Step number five is risk. Obviously we got to figure out what's going to break this. We need to figure out if the company's investment grade, we want to make sure that they have manageable debt. We want to see the ratios, the payout or the earnings ratio, the free cash flow or the earnings ratios, you know, reasonable. And we want to see if they can survive a recession or any sort of regulatory Stuff that may be happening, Visa, MasterCard are a perfect example of that. And then the second to last step is valuation. So just like anything else, we want to make sure that we're finding a company that has a decent price. If you overpay for a dividend stock, you're going to pay for that as well. So understanding what the company is worth and trying to find at least a fair value for that or less than that is ideal. And then the last thing is dividend. So the last thing I'll look at is the dividend. I want to see the yield above the index. The S P 500 right now is only yielding 1.3%. So that is why. And if you want to invest in dividends, maybe, and you, you're, you're looking at doing the, the ETF route, maybe something tracking the S&P 500 is not ideal because they don't pay super high. You can find much better options that, that way. But, you know, I want to find companies that have payout ratios lower than 75%. I want to see the companies that can grow through receptions, and I want to see the dividend growing above the rate of inflation. If it's not growing above the rate of inflation, what's the point? So that's kind of my framework.
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A
Yeah, it's a good point. On growing above the rate of inflation. That really depends on what inflation has been. The last few years turned into a more important topic than historically. Yeah, the 2010-2022 period, that was something I think a lot investors didn't really think about. We're going to go into some case studies, but first I want to ask, all else equal, do you like a stock that pays just a dividend, just repurchases shares? Because I know repurchases are included in kind of your total return framework here, or one that does both.
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C
If I had, you know, if I put my feet to the fire, I would love both. You know, I would love to find a company that's paying me a dividend that's also going to buy back shares. Because the blunt fact of the matter is that buying back shares kind of does two jobs. Number one is it saves you money on taxes because it's a better tax. It impacts your taxes more favorably than dividends do. Number two is if it's buying back shares, it's also increasing your dividends per share at the same time. So that's also a bonus. And so companies that I follow that do do that, they're some of my favorite investments. You know, Visa and MasterCard, which we're going to talk about a little bit. They do both. And I think that's, to me, is the best of both worlds. So that's what I would, that's what I would choose. But I also amused before and I'll say It Again, I'm 59 years old. I probably have a little more risk on appetite than some dividend investors would do. And so if you're 64 and you're, you know, looking retirement straight in the face, I would probably want something that pays me more income than I would look about, worry about the returns that I would get on something like a buyback. So a lot of it will depend on where you are in your evolution and what you're looking to get out of your portfolio. But, you know, if you put my feet to the fire, I, I want both.
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All right, let's talk Pepsi. I look at their numbers. It looks good. Their dividend per share has grown at a 7% rate, give or take, over the last decade. I'm seeing a 4% dividend yield, 4.1% on our friends at Fiscal AI as of this writing, I will mention, use our link fiscal AI chitchat. Get 10% or 15% off any paid plan. So I'm gonna kick things off with a broad question because you're the one that brought this up when we were conversing on what to talk about before the show. Why is Pepsi a potential value trap?
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C
Well, there's several reasons, I think, you know, let's, let's cover, I guess, the good, and then we can spend some time talking about it like the business is definitely good. Like. Right. People understand what Pepsi is. Frito Lay. It's a boring, durable business. The moat, very strong, Very, very strong management. You know, we'll see how that. We'll see whether that's a pass or not. But their ROIC is 12.2% over the last five years. That's, you know, above their cost of capital. So that's great. The s and P500 gives the or S and P Global gives them an A plus rating. And so it's very, very strong. It's investment grade, kind of upper middle of the, of the pack. And so you look at all that. That's awesome. Right? It, it's when we start to look at the growth and when we start to look at the profitability of the business that it starts to get a little bit scary. So if you look at, if you look at the growth of the business, they've been Growing less than inflation, you know, keeping out the last few years. And those really high numbers, they're growing 1, 2% revenue growth over the last year, couple years. And the last couple quarters haven't been stellar either. And so if you look at those numbers, you see that they're not growing very fast. And if you look at the volume that they're putting out, that has actually been falling. So what's been happening is that they've been raising prices on their products, so their potato chips and their sodas. So any increases that you see for the business have actually come from price increases, not volume increases. And that works as long as it does, until it doesn't. And so that can be a problem where the company starts to kind of go off the rails. Where you start to look at dividends in particular is if you look at the earnings payout ratio. One of the things that you'll see that. And for people who aren't familiar with that, it's basically you're comparing the dividends to the earnings of the business. And the lower the number, the more room they have to spend on other things. And there's also another ratio that a lot of. A lot of people don't aren't familiar with. It's called the free cash flow payout ratio. You're basically replacing earnings with free cash flow. And so you want to compare both of those ratios because earnings sometimes can be misleading. They're an accounting measure where free cash flow is actual money in the bank. And so sometimes earnings can look great and free cash flow can look not so great. And so, Ryan, if you could do me a favor, could you look at the free cash flow and the dividends? And so we can just kind of compare those.
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D
I've got that pulled up here, Dave. Okay, so we've got. This is since 2005, the blue bars are the annual free cash flow, and the orange is common dividends paid.
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C
All right, perfect. Thank you. So this illustrates my. My point here exactly is if you look at the business, the free cash flow payout ratios for this company have breached 100% many, many times. And it has an incredibly strong balance sheet for the business. But the free cash flow payout ratio is well above the dividend. And the company in not this earnings call, but the earnings call before, the projections that they were giving basically were telling people that they're going to be between dividends paid out and buybacks. They were going to spend more than 100% of their cash flow to do this. And just like raising prices, that works until it doesn't. And as a dividend investor, when you start seeing consistent numbers like that, it starts to get very, very scary. And so I'm not predicting that the company's going out of business. I don't think that's anywhere near the conversation. The bigger question is how much is the dividend going to continue to grow and how much is there opportunity for a cut? And one of the things, if you look at the growth of the dividend over the last three years, it's gone from 7% to 5% to 4%. And as that continues to slow down, those are classic signs of either a pause, which is what UPS just did. UPS just paused their dividend, they kept slowing the raises, and then they put a pause on it. And it wouldn't surprise me if Pepsi at some point does that. And this all filters back into when the, when the company's revenues are growing that slowly less than the rate of inflation and their volumes are not increasing, then the profitability of the business starts to come under pressure. And because they've been a dividend payer for, I don't know, 50, 60 years now they have pressure that they have to stay on that because Wall street hates nothing more than a dividend cut. Like they hate it, hate it, hate it. And that will just destroy the returns for people that are in Pepsi. And so you know, if you're, if your guys age, I would say Pepsi might not be a bad opportunity to get into a company that's trading at record lows for their forward multiples, for their pes. It's the highest yield they've had in forever. And so it could be a great opportunity. But if you're 65 and looking at retirement, I would run for the hills. There are way better income opportunities than Pepsi is right now. And so when I look at the company, it's exhibiting the classic signs of a dividend cut at some point in the future, unless something changes.
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D
say, because you mentioned pausing the dividend, you're saying keeping the dividend per share flat, not okay, Correct. I guess let's stay on Pepsi for a second here. We're sharing the charts there. You can see that organic growth has slowed. What do you think is causing it? I think I have a guess what you're going to say. And then do you think the concern of weight loss drugs is something that could really impair the business long term?
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C
Well, you know, so a couple caveats. Number one, I actually just started taking Ozempic about three weeks ago for, to help control my diabetes. Not because I'm overweight or cosmetically because, I mean, look at me, let's be honest. So I started taking it because my doctor needed help with my diabetes. And I can tell you from firsthand knowledge, it, it definitely decreases your appetite. Like I literally haven't eaten today and it's almost 4 o' clock here and I'm not hungry. And it's the weirdest thing. Like my brain tells me I need to eat, but my stomach is like, dude, you had food like 20 some hours ago, you're not hungry. And so it does work. So I will say that. So I think I read that, I think it's 21% of households in the United States are now on some sort of GLP type of drug. Whether it's Ozembic, Wegovy, Farsiga, any of those kinds of things. Around 11 or 12% of adults are on some sort of, I guess, what would you say, hunger reducing medication. And if that continues to accelerate, I think it will have, it will unquestionably have an impact on these types of businesses. Coca Cola included, Celsius, you know, any of these, you know, beverage companies or snack companies, Mondelez, you know, any of those kinds of companies. It will have an impact. And how big of an impact? You know, I don't know. I think, I think that's definitely, I definitely, I definitely think it is something that needs to be considered. I wouldn't say it's the, you know, 100% driver of what's going on with Pepsi, but I think it's definitely, definitely having an impact. You know, I, I freely admit I am a Coke user. I'm a Coke drinker, not Coke user. Coke Zero is my drug of choice and let me rephrase that. And I don't like Pepsi. And so I know through the years that, you know, the companies have had a lot of competition. I just feel like Coca Cola is a better product personally. But I don't know, you know. Do you guys have an opinion on why you think Pepsi has struggled or has been struggling?
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A
Definitely. GLP wants, I think the majority of profit now comes from Frito Lay. And that feels like the type of business along with the other brands with. Under Frito Lay, you're just going to stop with that snacking. The chips are going to go away, and that has to be the headwind, in my opinion. Nothing else has changed, right?
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C
No.
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A
Right. The economy is doing great. Consumer spending is still. Still fantastic. Right.
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C
Yeah. I was gonna say, to illustrate your point, my wife and I went to Costco on Friday. And normally I'm like, all about, I want this snack, I want this snack. I want this snack, I want this snack. I didn't get any snacks. And so it's not great for Costco, but yeah, it was perfect example. I just, I don't want them. I don't.
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A
They can pivot their magic. They find a way to like their Costco. All right, I want hot take. Does Pepsi cut their dividend before 2030?
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C
Before 2030, yeah.
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Yes, we got it. We got it in recording. If you're right, we'll bring it back up. And if, like, as we say with our predictions on the show, if we're wrong, no one's going to remember except for that one crazy listing.
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C
Don't put any money on Kalshi or Polymarket on what I just said, please.
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Yeah, I hope, I hope those type of odds aren't on those things.
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C
Me too.
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A
All right, before we move to the positive case study, I want to ask what, in regards to a company like Pepsi, what would you. What type of stuff would you be covering at the dividend school for someone that's a reader with a company like that, would you be going through just exactly what you talked about, business analysis, what type of things?
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C
I would. I would do exactly what we just, what we just did. I would, I would try to look at the business as a whole. A lot of people will just focus on the dividend aspect of it, and I think that's fine. But I want to. I want to understand the business of what's driving the dividend. Just like you want to draw, you want to understand what's driving the return for Nelnet, right? Like, what's driving this company to, to improve and where are returns coming from? The exact same thing I'd want to understand with Pepsi. And, you know, it's nothing personal, and I'm not trying to bash the company. But I want to, you know, my job, I feel like, is to try to head, head people's, head people off at the pass on making a mistake. And if they choose to ignore me and I'm wrong, okay, fine, so be it. But if I'm right, then I could possibly save people a lot of money. And like I said earlier, if you're looking at income investing and you need to generate an income, there's, you know, there's so many other companies, even Coca Cola, which is facing the same pressures. That's the interesting thing about all this, is that Pepsi is getting hammered and Coke isn't. But they're facing the same pressures. And so if you're looking for income, there's plenty of other companies that you could look at that would be potentially better income investments. Johnson and Johnson, we mentioned earlier, Home Depot, a company I'm super bullish on, Accenture, they got their own anchor to try to carry, but there's, I think there's just better options than Pepsi right now.
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D
Yeah, I think something before we move on to the Visa and MasterCard case study something that I have always appreciated about dividends is it's harder for a management team to flip flop on. When they say, all right, We've got a $2 billion repurchase authorization,
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they can
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allocate that as aggressively or non aggressively as they want. They could just say, I got nervous about this business, let's not buy back as much stock as we wanted. If you've got a dividend and you've declared it for investors, you've now attracted probably investors that that was a big motivator for them. It's a lot harder to say we're backing out of it or we're cutting it anyways. Let's Talk Visa and MasterCard. Why are these such great dividend paying investments? Talk through some of the growth numbers and maybe what is a good early sign of. Because we look at Visa and MasterCard, these have been growth businesses for a long time. What's a good sign of a dividend grower?
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C
Well, I think probably the first thing is you want to see a company that's growing. And I'm not talking about the dividend itself, talking about the actual core business of whatever the company is. If you look at Visa and MasterCard, they're growing at 14, 15, 16% depending on which quarter you look at. Annually they're growing 8 to 10, 12% a year and they have been for decades. And over the last three or four years, everybody's been saying that the, you know, the, the, the end is, is nigh and it's, it's coming soon and it hasn't happened yet, and I'm not saying it won't, but when you're looking at businesses, you want to, if you're looking for companies that are growing a dividend quickly, you also want to find a company that's growing quickly because they have to have the profitability to be able to pay the dividend. You can only pay a dividend for so long off of debt. You can only pay a divide long off of selling equity. At some point it has to come from the operations of the business. And so companies like a visa to MasterCard because they have such low payout ratios, both the earning and, and the free cash flow, that they have lots and lots of room to continue to grow the dividend over a very, very long period of time. So can you, I can't see. So you want to explain what you're showing to people there because that, I think that can be really important, Beneficial.
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D
Yeah. Just illustrating your point here. The top, top chart is Visa and MasterCard's free cash flow since 2009. Both have grown significantly, directionally, very, very much the same. Visa has grown a little bit faster. Dividend per share has basically followed suit. It actually, it's kind of flip flopped here, but I'd say the averages come out to about a similar growth rate on the dividend per share as opposed to the free cash flow. Maybe dividend per share has outgrown it just a little bit quicker.
- [29:51]
C
Yeah, that illustrates exactly the thing that you'd like to look for when you're looking at any company that's growing a dividend that you want to see a company that's growing a dividend, it's growing its free cash flow and those generally will fall in line with each other because what's happening is as the company is generating profits and they got to put it somewhere, most companies don't want to be Berkshire Hathaway and have their cash balance grow and grow and grow and grow and everybody's screaming about what are they going to do with all that money. And so Visa and MasterCard are arguably two of the more profitable businesses in the markets today. Their operating incomes are in the high 50s to mid 60s, give or take. And so that is a lot of money that they have to play with. And because of the nature of their businesses, they don't also they're very capital light. They don't have to spend a lot of money to reinvest in the business per se. And so they do acquisitions, they do invest some in upkeep of the business, but the vast majority of the money they make goes in dividends and buybacks. And so because they got to put it somewhere and they might as well give it to us. And so when you're looking at companies like that, you want to try to find companies that have good profit ratios, especially for their particular industry, whatever it may be, whether it's consumer goods, whether it's, you know, utilities, whether it's REITs, you know, any of those kinds of companies. You want to find companies that have good profitability and you also want to have, you want to find companies that are willing to pay out those dividends and grow them consistently. And that is how people, that's how people you know, generate wealth, is by growing dividends. Because that piece of your pie keeps getting bigger and bigger and bigger. And if you use something called the DRIP or the dividend reinvestment program, which you can get through any brokerage, I'm sure IBKR does it. And you can use this to grow the share of Visa, MasterCard's dividend. And it just becomes a snowball as it rolls down the hill. And so that's. But make a long story short, you want to find very profitable companies that are growing well in their industry and that have a history of paying out a dividend. If you can find those, then you can find really good dividend paying companies. Companies. And that's why I was, that's kind of why I was mentioning nubank, because I could see that happening. David Velez seems like the kind of guy that would do that. Well, at some point, I think that
- [32:18]
A
highlights as well the importance or maybe the advantage for individual investors through the dividend reinvestment programs and the fact that you can have a longer term time horizon with dividend growth stocks. You can turn where you know, Wall street analysts, they care about the next quarter, next few quarters, inflection points, things like that. If you do that dividend reinvestment program for something like Visa, and this isn't even including the reinvestment here, but in say the 2010 period, you know, there's a low point for many stocks out there, but still the stock was at about $20 per share, paid a negligible amount of dividend for that time. But up through to today, the dividend per share is above $3. The yield's not that high today, but on your cost basis it could be significantly lower. What made Visa and MasterCard the ultimate dividend growth stocks outside of you already mentioned some things, but anything else there because Visa, I was even shocked to see the number 28 CAGR on that dividend since. Yeah, like 2005 or 2006, say the last 20 years.
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C
Yeah, yeah. I think a lot of it has to do with the business model that they operate because of the way that they operate and the way that they make money and the fact that they don't have to reinvest so much. It just gives them, you know, so much cash flow to allocate and they can grow even though their yield is puny. I mean, let's, let's call it what it is. It's, you know, if you look at just the Yield of Vista MasterCard compared to Pepsi, the company we just talked about, it's anemic. But when you look at the growth of the dividend, it's massive compared to Pepsi's. And one of the things about, and so that's what makes these companies such a great company, great investment. It's because they have so much cash flow and they can keep growing it. And there's this term called yield on cost. And in essence the way it works is you talked about the cost basis and it's grown 28%. If you own a company like Avista or MasterCard, the ideal scenario for dividend investors is you're not trading in out of these companies, you're buying them and you're holding them for a very long period of time and allowing the dividends to, to massively compound. And a company like Visa and MasterCard, even though Pepsi right now is paying a much, much higher yield, in 10, 15 years, Visa and MasterCard are going to be paying roughly the same yield on cost that Pepsi is. And the dollar amount that you're earning on that is going to be better than Pepsi's because it's growing faster. And so that's where investing in a company like a Microsoft or Visa MasterCard that pay really low yields for a long period of time, growing faster is actually better investment for. And you also get the bonus of share appreciation that you wouldn't get with a company like Pepsi, for example. And so when you combine those two, it's to me, it's the best of both worlds. Now again, caveat, if you're 65 staring retirement directly in the face, you don't necessarily have 15, 20, 25 years to wait for that yield on cost to improve. So something like a Pepsi might be a better option because of the potential reliability of the dividend and the income that you could earn from. So some of this is, there's always qualifiers right in the market.
- [35:43]
D
Question for you. So I'm kind of generalizing here, but do you think it's the correct school of thought that the higher the dividend yield, the less you should feel inclined to reinvest the dividend? Like I'm kind of thinking here, you know, Altria, for example, I don't know what it's at today, but at one point it had like a near a 10% dividend yield. But I didn't think the business was going to grow, but I thought the valuation was good. So maybe I'll take the cash now and I'll invest it elsewhere. Whereas obviously, Visa, you're not investing for the current yield, but you want, you're expecting. So that sort of, that dividend growth, I guess. Do you have a different approach towards reinvesting the dividends depending on the companies, or are you always kind of automatic on the reinvestment?
- [36:38]
C
You know, honestly, for the most part, I, I tend to be automatic. I have seen a fair amount of people in the dividend world, if you will, that are kind of, they're kind of mixed on the, that decision. There's a lot of people that feel that, you know, to your example with Altria, you know, maybe reinvesting in Altria is maybe not the best option. And while I won't disagree with that, I also would quantify. I had somebody ask me about this and I'll kind of give the same response. It depends on how much effort you really want to put into this. Right? It's like, it's like anything else. Like if you have, if you have seven companies that are kind of like that and they're paying you dividends, really high yields, but you don't want to reinvest them in the companies then. And how much work is that for you to, you have to track when the dividend comes, then you have to take that money and try to find another opportunity to invest in and hope that that grows. And so I understand the sentiment and I think it can certainly work. But I think it also adds a level of difficulty that for me personally, I would try to find companies that I think are going to grow the company as well as the dividend and not invest in companies that have a really high yield just for the yield. There's plenty of MLPs or BDCs or even REITs that pay really attractive yields, but maybe aren't the greatest business in the world. And so I know there's people out there that do that and I'm not saying there's anything wrong with it, but my quantifier would be how much work do you want to put into this? And how confident are you that you can find a better opportunity to put that into than maybe reinvesting in Altria? And I mean, I know you guys know your stuff and so you guys would have no problem finding other opportunities to put it in. But I'm thinking about somebody who's driving their lawnmower right now and they don't have a lot of time to potentially pick companies like we do, then I would, I would hesitate to, you know, recommend that as, as a strategy per se. But I'm not saying it's a bad thing to do. And I, it certainly can work. I've seen the numbers and it definitely could work, but I think it just adds more complexity. And I'm always of the mind that trying to keep things as simple as you can stupid is the best way to do it.
- [39:08]
A
So is that kind of the same philosophy as someone that's looking at an index fund, say, hey, look, this is for a return on time spent going to be solid. I'm going to attract the market. But what you're saying is where and where your niche is aiming to be with the dividend school is that, hey, if you're a dividend investor, the s and P500 yield isn't, you'd rather just go in treasuries if you're an income investor at this point. So is that what you're trying to target, return on time spent, get those nice dividend growers and then you have the Visa and mastercards in your portfolio though.
- [39:40]
C
Yes, that's, that's exactly, that's exactly it. You know, if you're, if you're looking for dividend yield and you want, you know, to get a good share return, then maybe The S&P 500 is not the place to put the money. There's plenty of dividend focused ETFs, SCHD. The Schwab Fund in particular is the one that most people talk about and that, you know, is its Yield is like 3 1/2% ish. And it's, it's, you know, had had decent returns over the last year or 2, 8 or 8 to 8, 7, 8, 9%. It's not going to beat the market. And if that's what you're trying to do, then it's not going to beat the market. But if you're trying to fund A lifestyle and looking at income, then, yeah, that might be a really good place to park your money. Keeping in mind that some of the companies that we're talking about will not be in that fund. So you will not find companies like REITs, you will not find technology companies like a Microsoft or Google when they start paying more of a dividend. That's not going to be an schd. So those are just things to keep in mind when you're looking at those funds.
- [40:43]
A
One follow up there. I think for the listeners, this could be important topic to double down on. You mentioned beating or not beating the index. You talked about this in, I think, your introductory article for the newsletter. And Ryan and I, we have this problem as well. I think a lot of people have this issue. Or psychologically you say, well, I'm not doing good if I'm not beating the index. Can you explain to the listeners why this actually doesn't matter?
- [41:10]
C
Yeah, yeah. So for whatever reason, there's a machoism, if you will, around investing. And if you're not beating the index, whichever one it is, you're tracking, whether it's the S&P 500, the NASDAQ or MSCI or whatever, and you're not micron. Yeah, right. There you go. Yeah. Any of those kinds of things. If you're not beating those, you're a failure. And that is so far from the truth. I think the most important thing is investing, allowing you to fund your lifestyle, like whatever it is you want for your lifestyle. If investing is allowing you to be able to do that, because the options are to sock it away in Wells Fargo Savings account earning 0.03% and picking up pennies in front of steamrollers. Or you can put it in Treasuries, which, okay, great, right now, they're nice, but how long is that going to last? But there's also the fun that you get about learning about businesses, about tracking your money, having an impact on what you do with your money and how you feel about that. And it's not about beating the index. Investing is hard. If anybody's told you that it is easy or that, you know, this is free money kind of thing, they're lying to you because it is hard. And that's what makes these great investors that we all look up to so amazing, is that they've done the hard work and they've done really well with it. It's hard. It's really, really hard. And so I think, you know, for me, it's, I want to fund my lifestyle. I want to retire and I want to be able to go sit on a beach in Brazil and drink Brahma and have, you know, twice a week. And that's what I want to do. Brett and Ryan want to do different things. And so whatever investing allows them to do, I think that's what you should focus on, not focus on trying to beat the NASDAQ or some levered 16 times levered index. That's insane.
- [43:17]
D
Yeah, I think that's a good approach for those that find it intellectually stimulating. There's a lot of fun, I think, in reading and understanding businesses around you. Now, I think we've maybe got two questions to wrap things up here. One I want to ask what is one stock, one dividend paying stock that you like today? We can't let you get out of here without a little recommendation.
- [43:46]
C
Okay. A company that I'm actually quite bullish on and have been reading more and more about is Accenture. So this is the, the, what would I call it?
- [43:56]
D
The.
- [43:58]
C
Oh, I'm gonna blank on the word, of course. Very large company, been around for a very long time. It's one of the, it's a company that's been beaten down by the market over the last year or so. I think it's down 50, 60% from its highs over the last year or so. And it's a company that pays a very nice dividend and it's based out of Ireland, but it's been one of those air quote quality stocks that everybody always dreamed of owning someday because great returns on invested capital, very high profit margins, consistent revenue growth for many, many years. And it's been on the struggle bus. If you look at the financials, the financials look fine. It's a little bit like Adobe where if you look at the financials, they look okay so far. But the market thinks that AI is going to kill it. It and it's a consulting business. It just hit me. Okay, so, so they AI, everybody thinks AI is going to kill it. And I think that it's going to hurt it, but not kill it. And I'll give you an example why. So a bank, I think it was PNC bank recently needed to roll out their online banking app. So yes. Could that, could something like that be vibe coded? Absolutely. You know, any, any three of us could probably build one today. But who's going to build the infrastructure? Who's going to maintain the app? Who's going to make sure that it's compliant and that it's going to do, you know, all the things that it needs to do tracking people's money, connecting to the accounts, all that stuff, all that stuff that happens in the back end, that's what Accenture does, is they help build the app, they help manage everything that goes into managing the app, and they take the design and everything out of the bank's hands so that they can do that. And while, well, a lot of that stuff, if you are, you know, if you're a small business like myself, like, if I wanted to build something like that, I would not hire Accenture, I would do it myself. And but for enterprise level businesses, Netflix, when Netflix does something that, you know, requires compliance to receive people's money from Mexico, they're not going to rely on, you know, George in the IT room vibe, coding it on the weekend, they're going to pay somebody because it also covers their butt. So if something happens, Accenture's on the hook, not Netflix. And so all those things go into what Accenture does and how. I think, yes. Is it going to hurt it? Yes, I think it's going to hurt it. But is it going to irrevocably damage the company and destroy it? I don't think so. And so that's why I think this could be a good opportunity to get a really good business at a pretty decent price. And if I'm wrong, heads I win, tails I don't lose that much.
- [46:49]
D
I, I really like that one. I, I've talked about Accenture a couple times on chit chat stocks and I think people, like, the first line of thinking is, oh, they're doing, they're writing code on behalf of businesses. Why can't Claude do that? But you look into it and these are, for the most part, their bookings are comprised of $100 million plus contracts. These are mega deals where they are big projects. They basically become a part of these companies essentially to get these deals done. And the other part is like, there's an, there's an element of expertise there. It's like, yes, maybe you could get one of your devs, who's never worked on mobile apps before, to figure it out and work with Claude to try to do that. Or you could speed up the time and talk to Accenture, who's done this for four banks in the past, and they've got a team that can do this quickly and have a great mobile app built for you. And it just makes all the sense in the world to, I think, partner with Accenture in that case. But this isn't meant to be an Accenture podcast. So Brett I guess any, any wrap up questions here.
- [47:57]
A
I'll mention the numbers here and just. We'll have a disclosure at the end too. Not a recommendation for anyone listening, right. For anything we talk about on the podcast. Dividend yield 3.8%, 10 year dividend per share growth 11.5%. That's a good place to start, if anything. All right, I have the final question here. What is one takeaway you want any prospective or current dividend investor to have from this discussion? If anything you do to just be a better, or just maybe the opposite inverted, not a bad dividend investor. What, what should they do?
- [48:37]
C
I would say two things. Analyze the business, understand the business, and look at the free cash flow payout ratio. If you do those two things, you will protect yourself from investing in companies that will either cut or freeze the dividend at some point because those things will show up in the financials eventually. And if you do those two things which will set you above most dividend investors, don't do those things. And so that will save you a lot of heartache and will also make you a lot of money.
- [49:04]
D
Money.
- [49:05]
A
Okay, final, final question. If you had to choose between these three as dividend growth stocks, Visa, mastercard, American Express, which one tops the list?
- [49:19]
C
You gotta, you gotta pick my three favorite kids and I gotta choose between the three of them I have owned. Okay? So I'll qualify it. I'll say Visa and it's only because I've owned it longer.
- [49:29]
A
All right, beautiful. For anyone that wants to learn more as we get out of here, give listeners a 30 second pitch on the dividend school and where they can find more information on you.
- [49:40]
C
Yeah, go to, go to Substack and you can find it at Brett Said Dividend School. I also have a YouTube channel that's also the handle is Dividend School as well. So you can check out both of those and you can. I have lots of free articles. I have a lot of paid articles as well. But I try to give away as much information as I can to help everybody learn how to become a better dividend investor.
- [50:02]
A
All right, I can take us out of here. Thank you, Dave, for joining the show. Thank you everyone for listening. Thank you to our sponsors and active brokers, Fiscal AI As a reminder, we're not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan I or any podcast guests may hold securities discussed in this podcast, may have held them in the past and may buy, sell or hold them in the future. Thank you everyone, once again. And we'll see you next time. It.