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anything. You're tuned in

2:00

to the Investing for

2:02

Beginners podcast. Led by

2:04

Andrew Sather and Dave

2:06

Ahern. Step-by-step premium investing

2:09

guidance for beginners.

2:11

Your path to

2:13

financial freedom starts

2:15

now. Start now. Welcome

2:17

to Investing for Beginners podcast. Today

2:20

we got a fun show. I

2:22

have a new friend joining us

2:24

today. We have T.J. Terwilliger. to

2:42

our chat today. Dave, thanks for having

2:45

me. I'm excited to be here.

2:47

I'm excited to talk about dividends,

2:49

and I'm looking forward to it. I

2:51

think it's going to be fun. Awesome.

2:53

Why stocks? Why do you

2:56

choose to invest in stocks

2:58

when you could pick real

3:01

estate, crypto, any other asset

3:03

class? Why stocks for

3:05

you? Yeah, that is an

3:08

easy one. Thanks for starting

3:10

it off with a softball.

3:13

Answer one, I'm lazy. So

3:15

I don't want to... run real

3:17

estate. I don't want tenants. I don't

3:19

want to manage the property management company.

3:21

You know, it's popular right now to

3:23

kind of invest in the boring businesses.

3:25

Cody Sanchez talks a lot about that.

3:27

I don't want to stock vending machines.

3:29

I don't want to manage people. I

3:32

kind of want to invest and be

3:34

hands off. And I think stocks are

3:36

the best place to do that. Bonds are

3:38

an option, but you know, historically

3:40

the returns haven't been great. Recently

3:42

with the Fed raising interest rates,

3:45

they're getting a little bit more

3:47

interesting. Some of the high-yield

3:49

bonds are interesting. They're

3:51

getting close to stock-like

3:53

returns historically, but in

3:56

the long run, stocks have been the

3:58

place to be crypto. I don't... understand.

4:00

I don't know how to value Bitcoin.

4:03

I don't know what it's worth. It

4:05

could be worth a dollar coin. It

4:07

could be worth a million dollars of

4:10

coin. But if I don't understand it,

4:12

I can't invest in it. I'm not

4:14

a person that can say, you know,

4:16

things are going up. This is the

4:19

place to be. So stocks are something

4:21

that I can understand. There's something I

4:23

can be pretty passive in. Once you

4:26

find the right company and buy it,

4:28

hopefully you can just leave it in

4:30

your portfolio. All right, that makes a

4:33

lot of sense. I kind of feel

4:35

the same way. I don't know if

4:37

I would have described it as lazy,

4:39

but that's probably a good way of

4:42

putting it. I'm letting the companies do

4:44

all the heavy lifting. I just have

4:46

to choose which ones to do the

4:49

heavy lifting. I just have to choose

4:51

which ones to do the heavy lifting.

4:53

Yeah, I'm more than willing to do

4:56

the work up front to find the

4:58

right company, but once I find it,

5:00

I don't want to manage it. All

5:02

right, so do you remember your first

5:05

investment? Yes, my first investment, I started

5:07

the way that most people do and

5:09

probably should. My first investment was an

5:12

index fund in a 401k, you know,

5:14

for the employer match. That was that

5:16

was the first one to tell you

5:19

my first individual stock that I bought.

5:21

Honestly, I don't remember it. Okay. Mine,

5:23

mine, ironically, Andrew and I both bought

5:25

Microsoft in 2014. Okay. Yeah, well, kind

5:28

of funny. I mean, you know, I

5:30

backed up the truck. I bought one

5:32

whole, one whole share of 34 bucks

5:35

a share. So I still own it.

5:37

So that's, I mean, that's awesome. But,

5:39

you know, hindsight is 2020. I should

5:42

have dropped a cool 10,000 into it.

5:44

But, you know, hey. Yes. Yeah. One

5:46

of Google was one of my early

5:48

ones. I don't. I don't think it

5:51

was number one, but it was early

5:53

and it was on one of the

5:55

regulatory scares, you know, Google's going to

5:58

get broken up as a monopoly. Free

6:00

split, I do still hold it, same

6:02

mistake, I should have. I should have

6:05

bought a lot more, but there's definitely

6:07

some early ones that I remember that

6:09

weren't winners. Yeah, I had a few

6:11

of those too. For sure. So I

6:14

guess what, why dividends? Like we have

6:16

this wide universe of things that we

6:18

can invest in. What about dividends as

6:21

attractive to you? Yeah. So I didn't

6:23

start that way. I didn't start as

6:25

a dividend investor. my beginnings were kind

6:28

of in the classic Ben Graham Warren

6:30

Buffett value style. So I remember reading

6:32

the red 2006 version of the intelligent

6:34

investors sitting on the bed in a

6:37

hospital room after my son was born.

6:39

So, you know, holding the newborn baby

6:41

in one hand and Ben Graham and

6:44

the other. And went through that whole

6:46

kind of classical canon, you know, the

6:48

most important thing and the PDF of

6:51

margin of safety. you know, the dondo

6:53

investor by Manich Graberai and Joel Greenblatt's

6:55

books. So that's, that's where I started.

6:57

And the cape ratio at the time

7:00

was, you know, probably 20. We were

7:02

coming out of the great financial crisis.

7:04

It was, you know, 2010, 11, somewhere

7:07

in there. And so that style made

7:09

total sense to me that you find

7:11

something that's priced for less than it's

7:14

worse than you buy it on sale.

7:16

I grew up. both a mother that

7:18

loved a good sale, you know, she

7:20

was one of those people that she

7:23

would take the receipt back in and

7:25

say, hey, you would overcharge me by

7:27

a dollar and she'd get her dollar

7:30

back. So that was instilled in me

7:32

from childhood. So it made total sense.

7:34

And when I went off to look

7:37

for bargains, the market pretty much has

7:39

gone up since to where we are

7:41

today. And as that happened, it started

7:43

to make not Not value investing, but

7:46

the market itself started to make less

7:48

and less sense to me. So one

7:50

of the other ideas that came from

7:53

Carly Munger is the idea of finding

7:55

the one-foot bar. to step over and

7:57

not the six-foot hurdle. And as values

8:00

kept climbing, the one-foot bars became harder

8:02

and harder to find. And each comprise

8:04

talked about no-brainer investments, the ones that

8:06

don't have a lot of downside. You

8:09

look at it and you go, yeah,

8:11

that's obviously cheap. And there's been a

8:13

few of those along the way, but

8:16

you're not going to get that many

8:18

of those in a year. So if

8:20

you get one or two a year,

8:23

And you want a really concentrated portfolio

8:25

of, say, 10 stocks, that's five to

8:27

10 years to get fully invested. That's

8:29

a lot of time to not be

8:32

compounding. We know, you know, time is

8:34

the most powerful component in that compounding

8:36

formula. That's the exponent, right? That's what

8:39

does most of the work. So not

8:41

being invested wasn't really a great choice,

8:43

but I was having trouble finding things

8:46

that were interesting. What really led me

8:48

towards the dividend path I was I

8:50

was looking this direction to start with

8:52

you know I'd started looking at some

8:55

some cannibal companies at buybacks that sort

8:57

of thing But what really got me

8:59

on that path was David Einhorn wrote

9:02

some letters He came out with his

9:04

theory that the passive investments broke in

9:06

the markets. I don't know that that's

9:09

necessarily the case. We can talk about

9:11

that if you want to but his

9:13

answer made sense to me and his

9:15

answer was to buy companies that directly

9:18

gave you your return. So shareholder yield,

9:20

you know, either buybacks, paying down debt,

9:22

or dividends. And that that really also

9:25

kind of clicked with me, just like

9:27

the the finding, the no brainers, the

9:29

value investing, that idea made total sense

9:32

that the market doesn't make sense to

9:34

me. Why not try and cut it

9:36

out and get the return directly from

9:38

the company? And the more I thought

9:41

about it, the more I thought this

9:43

is the most fundamental. implementation of the

9:45

idea that stocks or shares of the

9:48

company that there is. Right? If I

9:50

buy a stock and I become a

9:52

part owner, why would I not want

9:55

that company to share? share some of

9:57

the profits. Why would I not want

9:59

to benefit from the growth than the

10:01

profit? So that's that's kind of the

10:04

journey of how I got there. I

10:06

mean, I totally agree. The company is,

10:08

you know, creating cash from its profits

10:11

and it has choices to what it

10:13

wants to do with those with that

10:15

cash and part of the choice is

10:18

paying a dividend. And I think a

10:20

lot of people, especially. with the markets

10:22

being the way they have been the

10:24

last few years, is that everybody's focused

10:27

on growth, but they don't realize that

10:29

that 8 to 10, 7 to 9,

10:31

whatever number you want to put on

10:34

the market returns over the last 100

10:36

years, you know, 2 to 3% of

10:38

that is dividends. You know, you take

10:41

those away and that's the market hasn't

10:43

returned that great. I think dividends should

10:45

be a definite part of somebody's portfolio,

10:47

absolutely. Yeah, I mean the other the

10:50

other interesting point there is that if

10:52

you look at total return and You

10:54

look at reinvesting your dividends and you

10:57

take a good period, you know, like

10:59

20 years You'll find that around half

11:01

of the total return comes from the

11:04

dividends in the reinvestment. So if you

11:06

ignore that component You potentially leave, you

11:08

know, a lot of a lot of

11:10

return on the table, especially when you're

11:13

looking at it from a market perspective

11:15

Right, exactly. So can you explain that

11:17

concept of a drip of reinvesting the

11:20

dividends and how that works? Yeah, absolutely.

11:22

So when you get paid a dividend,

11:24

it's just a cash payment typically, right

11:27

from the company. So they take part

11:29

of the profits and they share it

11:31

with you as a shareholder. And then

11:33

you have choices on what you want

11:36

to do with your cash. So one,

11:38

you can just take it and spend

11:40

it on whatever you want. you can

11:43

let it accumulate in whatever your sweep

11:45

account is in your brokerage account or

11:47

you can reinvest it and some companies

11:50

do have a direct reinvestment plan that

11:52

you can enroll in. The advantage to

11:54

those is that you don't actually get

11:56

the cash. They reinvest it for you

11:59

and that depending on the drip plan,

12:01

depending on where you live, can save

12:03

you on taxes. If the company won't

12:06

do it directly, most brokers will give

12:08

you the option that once that cash

12:10

rolls in, they'll go ahead and reinvest

12:13

it for you and buy whatever, you

12:15

know, it's usually a partial share unless

12:17

you own a lot. Over time, you

12:19

basically reinvest those dividends into the company

12:22

and you own more and more. And

12:24

you can think of that compounding the

12:26

same way that a company reinvesting in

12:29

itself does. You own more of the

12:31

company, the next dividend, you get a

12:33

little bit more because you own more

12:36

of the company and you reinvest that

12:38

back in. And over a good period,

12:40

like you said, 10, 20 years, you

12:42

can end up owning significantly more of

12:45

the company and having a pretty nice

12:47

dividend payment. Yeah, yeah, for sure. I

12:49

use Fidelity and I know that they

12:52

allow to automatically reinvest the money. I've

12:54

had a few times where I bought

12:56

a new company, the paid a dividend,

12:59

and I missed that little trick. And

13:01

then I started noticing like these little

13:03

incremental amounts of cash building up in

13:05

my account. What's this company? And I

13:08

missed the automatic drip, which is, you

13:10

know, yeah. It's a modern marvel that

13:12

I don't think it's talked about enough.

13:15

Yeah, it's really nice. It's a really

13:17

nice speech. You have to think about

13:19

it. Now some some investors do turn

13:22

that off and you know, if you're

13:24

really tracking your dividends and paying attention

13:26

to when they come in, what some

13:28

people like to do is to let

13:31

the payments build up for the quarter

13:33

or the year or whatever. And then,

13:35

you know, they want to pick the

13:38

company that they think is the most

13:40

of your value to invest there. If

13:42

you're really on top of things and

13:45

you're really paying those dividends, that can

13:47

work. but I think for most investors

13:49

honestly just letting your brokerage or letting

13:51

the company do it for you. is

13:54

probably the way to go. You know,

13:56

whatever, whatever you sacrifice in return, because

13:58

you bought a little more expensive share,

14:01

probably comes out in the wash, you

14:03

know, whenever you look at the compounding

14:05

over decades. Right, yeah, totally agree. So

14:08

if you are a newer investor and

14:10

somebody, you know, if a newer investor

14:12

came to you and said, I would

14:14

like to start investing in dividends, where

14:17

would they start? So the easiest place

14:19

to be, especially if you're a U.

14:21

is there are ETFs that are focused

14:24

on dividends. So you can look, you

14:26

know, if you don't want to do

14:28

the work of figuring out individual companies,

14:31

you can look right at an ETF.

14:33

So Vanguard has a high yield ETF.

14:35

They've got one that focuses on dividend

14:37

yield plus stability. You can buy ETS

14:40

that track some of the dividend indexes.

14:42

So there's dividend aristocrats that have paid

14:44

25 years of dividends, or it's 25

14:47

years of dividend raises in a row.

14:49

There's ETS that track that. One of

14:51

the more popular ones is the Schwab

14:54

dividend fund. It's a CED, is the

14:56

ticker. That one runs on an algorithm.

14:58

It rebalaces every, I don't know. Honestly,

15:00

the schedule is quarterly or yearly. but

15:03

it's got a pretty good track record.

15:05

I mean, it's over a 3% yield

15:07

and I think it's grown the dividend

15:10

about 10% a year. So looking into

15:12

ETS is the easiest place to start

15:14

if you want to add some dividends

15:17

to your portfolio. Yeah, that's great advice.

15:19

Now, let's say I want to be

15:21

I want to be different. I want

15:23

to pick my own companies. I don't

15:26

want some algorithm picking them for me.

15:28

Then where do you go? Yeah. So

15:30

I think you need. Picking a dividend

15:33

paying company is no different than picking

15:35

any other company assuming you're a fundamental

15:37

investor. So what I mean by that

15:40

is you're going to look at the

15:42

financials, you're going to look at the

15:44

profits, and you're going to say what's

15:46

this company worth? You know, if you're

15:49

going to if you're going to do

15:51

it based on technicals and look at

15:53

charts. I'm not your guy to answer

15:56

that. But like I said, not my

15:58

expertise. I know some of it, but

16:00

I don't invest that way. So I

16:03

can't help you. But I think, honestly,

16:05

because when you buy a dividend paying

16:07

company, I think it's the most fundamental

16:09

application of you're an owner, right? Buffett

16:12

and Ben Graham have told us for

16:14

years that shares aren't. ticker symbols, they're

16:16

not lines that go up and down,

16:19

they're not there to be traded, their

16:21

ownership shares the company. And when you

16:23

buy a company that pays your dividend,

16:26

that really does make you an owner,

16:28

you're going to get a payment out

16:30

of the profits. So that's number one,

16:32

you want to make sure it's profitable.

16:35

So I think about honestly buying a

16:37

dividend paying company the same way I'd

16:39

buy about, thinking about buying a company

16:42

down the street, you know, the local

16:44

coffee shop or or whatever, pick your

16:46

business that has the line out the

16:49

door that you know does a bunch

16:51

of cash and you'd love to own

16:53

a piece of, you know, your dentist's

16:55

office. I think about buying a dividend

16:58

company in the same way. So it's

17:00

something that's been profitable in the past.

17:02

We want to own it for a

17:05

long time. So it's something that's going

17:07

to be profitable in the future. We

17:09

want some kind of, some kind of

17:12

advantage that they have. I don't want

17:14

to go in there and make decisions.

17:16

And we want that management to be

17:18

shareholder friendly. So we want to look

17:21

at the dividend history. So basically, you

17:23

know, kind of what that means is

17:25

I'm going to go in, I'm going

17:28

to look at the financial statements, I

17:30

want to see some growth in revenue,

17:32

I want to see some growth in

17:35

profits, I want to see good decisions

17:37

by management, I don't want to see

17:39

terrible acquisitions or, you know, attempts to

17:41

grow into areas that they have no

17:44

business being in, and I want to

17:46

see a consistent dividend history. I want

17:48

to see that they paid one for

17:51

a while. Preferably it goes up on

17:53

a reasonable basis. I don't necessarily need

17:55

an increase every single year, but I

17:58

want that line to generally be trimming

18:00

up. a balance sheet that's going to

18:02

let them continue to pay out a

18:04

dividend. I don't want so much debt

18:07

that that's going to squeeze the extra

18:09

profits. And I want to see that

18:11

the dividend payout ratio is sustainable. So

18:14

that's a metric that is pretty easy

18:16

to calculate. Generally, it's just your dividend

18:18

per share divided by your earnings per

18:21

share. And what that's going to tell

18:23

you is how much of their profits

18:25

are they paying you as a dividend?

18:27

as a company that's paying you 30

18:30

or 40% so that's that's kind of

18:32

the basics of how I would look

18:34

at it. Yeah and those are those

18:37

are all great frameworks to buy any

18:39

company but you know also dividend paying

18:41

companies. You mentioned payout ratio let's let's

18:44

maybe talk about a few ratios or

18:46

metrics that people could use to kind

18:48

of measure dividends and I guess what

18:50

would be the first couple that you

18:53

would look at? So payout ratio is

18:55

definitely going to be one of them.

18:57

I'm going to look and see how

19:00

much are they paying out in profits.

19:02

Now depending on the company, the way

19:04

you want to calculate that can vary,

19:07

so you can look at earnings for

19:09

share. That's the metric that's going to

19:11

come up on most of your brokerage

19:13

accounts, most of your financial sites. But

19:16

alternative ways to calculate that, you can

19:18

use free cash flow. So you can

19:20

use the dividend payment as a percentage

19:23

of free cash flow. Sometimes if you

19:25

have earnings that look a little funny

19:27

because of maybe, you know, one-time charges

19:30

or non-cash charges, that can be an

19:32

interesting way. You know, earnings can be

19:34

kind of manipulated by the accountants. Free

19:36

cash flows harder too. And then depending

19:39

on the company, you may want to

19:41

look at some different ratios. So like

19:43

in a reach, you're not going to

19:46

look at earnings per share. versus dividend

19:48

payments because of the structure there. They

19:50

use a different metric called FFO funds

19:53

from operations. Essentially, it's the free cash

19:55

full of a reach and that's the

19:57

payment ratio you want to look. at

19:59

for them. You want to look at

20:02

the dividend yield, so that's your dividend

20:04

per share divided by your stock price,

20:06

and that's going to tell you essentially

20:08

just like a bond field would. You

20:10

know, if you pay X dollars for

20:12

this stock, you're going to get

20:15

such and such a percentage back

20:17

of the dividend. That's your starting

20:19

dividend yield. So that's definitely an

20:21

important metric for a dividend investor.

20:24

Those are your two biggest to

20:26

start with. And then beyond that, it's

20:28

most of the financial ratios that you're

20:30

going to look at as a fundamental

20:32

investor. So you're going to look at

20:35

growth rates and, like I said, earnings.

20:37

You're going to look at the growth

20:39

rates and revenue. You probably want to

20:41

look at some of the balance sheet

20:43

ratios to make sure that, like I

20:45

said, there's enough cash flow there. So

20:47

the quick one that most of the credit

20:50

agency use is debt to equity. I

20:52

tend to some companies especially your

20:54

older dividend paying companies if they pay

20:56

out a lot to shareholders and if they

20:58

buy back a lot of shares sometimes you

21:00

get negative equity so that's not always the

21:03

best balance sheet metric I tend to look

21:05

at things like you know interest coverage ratios

21:07

how much cash flow do they have versus

21:09

their interest payments I like to look at

21:11

a free cash flow to net debt so

21:13

that tells me how long it would take

21:15

them to pay the debt off you know if they

21:17

decided to run the cash flow in those

21:19

kind of metrics can be useful. in figuring out

21:22

it, does this company have the cash flow

21:24

to keep paying the dividend or are they

21:26

going to cut it? Yeah, that's kind of

21:28

important, huh? Yeah. This podcast is brought to

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23:44

sent you. Yeah, so... Let's maybe

23:46

talk about a couple red flags.

23:48

If you are looking at the

23:50

payout ratio and a dividend yield,

23:52

for example, are there any numbers

23:54

that you come across that would

23:57

be like, okay, this is a

23:59

red flag? Yeah. So very, very

24:01

high yields can be a red

24:03

flag. They can also be an

24:05

indication. either just that the company's

24:07

very mature and pays out a

24:09

lot of dividends or occasionally that

24:11

it's a good bargain that the

24:13

company's really cheap because that's the

24:15

way to get that's one way

24:17

to get the dividend yield up

24:19

is for the price to get

24:21

down right so you know rule

24:23

of thumb anything over 8% a

24:25

lot of the time kind of

24:27

raises a red flag to me

24:29

to just look a little closer

24:31

on the payout ratio it really

24:33

depends on the yield So a

24:35

high yielding company, something like, you

24:37

know, Altria, is a good example

24:39

of a high yielding company that's

24:41

previously Philip Morris, that makes cigarettes,

24:43

that's Marlboro, Scholl, they tend to

24:45

pay about an 8% dividend, and

24:47

their dividend payout ratio is about

24:49

70%. In that case, that's barely

24:51

normal, right? That's a pretty mature

24:53

company. They don't have to reinvest

24:55

a lot into growth. They're not

24:57

building new plants. they're just going

24:59

to keep selling cigarettes and chewing

25:01

tobacco. So in that case, that's

25:03

fine. A younger company, one that's

25:05

growing faster, I like to see

25:07

a payout ratio somewhere around 50,

25:09

60% or less. And again, that

25:11

depends on the initial yield that

25:13

depends on the growth of the

25:15

company. That depends on how much

25:17

do they have, you know, how

25:19

much room do they have to

25:21

reinvest and grow, kind of where

25:23

are they in the company life

25:25

cycle. But for a high yield

25:27

company, under 70% for a payout

25:29

ratio, for a dividend growth company,

25:31

you know, anything 50, 60% or

25:33

lower is okay with me. Above

25:35

that, I'm a look closer. Yeah,

25:37

yeah. I, during, well, prior to

25:39

the Game Stop meme thing, I

25:41

actually, that was one of the

25:43

companies I made a mistake and

25:45

invested in and part of. part

25:48

of the attraction especially for value

25:50

investors back then was you know

25:52

it was an eight to ten

25:54

twelve percent yield mostly because the

25:56

stock price was dropping so much

25:58

and you know i remember people

26:00

like oh game stop is great

26:02

you know a great play and

26:04

yeah it wasn't so it's it's

26:06

always good to understand the pros

26:08

and the cons when you're when

26:10

you're looking at at different metrics

26:12

so you don't get you know

26:14

you don't drink the cool a

26:16

too much and get too excited

26:18

yeah sometimes chasing high yields is

26:20

a mistake but sometimes like sometimes

26:22

it can be a bargain and

26:24

sometimes it's just something that the

26:26

market is ignoring right now you

26:28

know European companies are really ignored

26:30

some of them are yielding fairly

26:32

high yield. There's some good companies

26:34

there that just aren't getting a

26:36

lot of investment. So it can

26:38

be okay. Did you get pulled

26:40

into Game Stop with Michael Barry?

26:42

No, actually, I know, it was

26:44

just me, and I, using screeners,

26:46

using thin-vis screeners, and it kept

26:48

coming up, it kept coming up,

26:50

and then I started doing some

26:52

research, and I just, you know,

26:54

I thought that maybe what they

26:56

were going to try to do

26:58

with collectibles and things like that

27:00

would be an opportunity for them.

27:02

So, and the, you know, the

27:04

high dividend yield was part of

27:06

the attraction. Yeah, that was, honestly,

27:08

that was one that came up

27:10

on some of my screeners and

27:12

when Murray bought it, it was,

27:14

it was on my list to

27:16

research and I never, I started

27:18

it, I looked at it and

27:20

I never really got deep enough

27:22

into it to convince myself to

27:24

do it. So, so I missed

27:26

it, but I could have been

27:28

right there with you and it

27:30

as a year. Yeah, it's it's

27:32

it's it's always interesting to look

27:34

back on some of your previous

27:36

mistakes and okay, what did I

27:38

learn from this? So we talked

27:41

about you kind of mentioned dividend

27:43

aristocrats and so that's something that

27:45

I think we could probably maybe

27:47

chat a little bit about. So

27:49

I guess first of all, maybe

27:51

can you help define what they

27:53

are? Yeah, so the dividend aristocrats,

27:55

it's a list of stocks. There's

27:57

a few requirements for them. They

27:59

have to be included in the

28:01

S&P 500 to be interested at.

28:03

Depending on who makes the list,

28:05

there's usually some kind of liquidity

28:07

requirement, but typically, you know, when

28:09

you're included. in the S&P 500,

28:11

they clear that one. The other

28:13

requirement is that they've paid an

28:15

increasing dividend for at least 25

28:17

years in a row. I think,

28:19

I shouldn't guess, but I think

28:21

there's around 66 companies on that

28:23

list right now, but there's a

28:25

few others that you can look

28:27

at if you're looking at lists

28:29

of, you know, good dividend payers,

28:31

dividend kings have paid dividends for

28:33

50 years or more. So that's

28:35

an interesting list. are lists of

28:37

companies that have paid dividends but

28:39

are not included in the S&P

28:41

500. So you've got dividend champions.

28:43

Those don't have the S&P 500

28:45

requirements. Those don't have liquidity requirements.

28:47

So that can be an interesting

28:49

list as well because you can

28:51

find some small cap companies. You

28:53

can find some companies that aren't

28:55

in the index that have a

28:57

good dividend history in some of

28:59

those lists as well. So those

29:01

are good places to start. especially

29:03

like you asked if you're a

29:05

starting investor and want to pick

29:07

your own companies, you're getting a

29:09

good dividend history there at least.

29:11

Yeah, yeah, for sure. You know,

29:13

and the thing that a lot

29:15

of newer investors maybe don't realize

29:17

is when a company makes a

29:19

decision to start paying a dividend,

29:21

they don't do it lightly because

29:23

when the market sees a company

29:25

stop paying a dividend or cut

29:27

a dividend, the market does not

29:29

like that. And the companies take

29:32

a big, big hit. I remember

29:34

when Disney, you know, stopped paying

29:36

a dividend obviously was because you

29:38

know they had no revenue from

29:40

the pandemic but still the market

29:42

you know kind of spanked it

29:44

pretty hard because of that. Yeah

29:46

that's that's one thing that you

29:48

know there's a theory that dividends

29:50

are a signal to the market

29:52

from management and you're exactly for

29:54

the reason you mentioned when management

29:56

pays a dividend when they start

29:58

a dividend. That's usually a long-term

30:00

commitment once you start paying a

30:02

dividend shareholders expected to keep coming

30:04

unless you say this is a

30:06

special one-time dividend. We sold this

30:08

division of company and we've got

30:10

this giant cash ball and we're

30:12

going to pay out, you know,

30:14

some percentage of it is especially

30:16

different. But once you start paying

30:18

that quarterly dividend, that's a long-term

30:20

commitment to shareholders. And like you

30:22

said, one of the last things

30:24

management wants to do is cut

30:26

that dividend. That's a long-term commitment

30:28

to shareholders. And like you said,

30:30

one of the last things management

30:32

wants to do is cut that

30:34

dividend. That's a big signal to

30:36

the market. I guess I'm curious.

30:38

When you're searching for. potential investments

30:40

is an area like the dividend

30:42

aristocrats or the kings is that

30:44

something a place that you go

30:46

to mine first or like where

30:48

do you kind of look when

30:50

you're looking around trying to find

30:52

companies compounding dividends we have an

30:54

investable universe it's over 800 companies

30:56

only 800 yeah well you know

30:58

there's 30,000 stocks in the world

31:00

we're global we don't just look

31:02

But we split it into three

31:04

buckets to make it a little

31:06

bit more manageable. So one is

31:08

our dividend growth bucket. And essentially

31:10

those are companies that have grown

31:12

the dividend 10 years or more.

31:14

And so that's that includes your

31:16

risk crafts, that includes your kings,

31:18

the dividend champions that I mentioned

31:20

earlier, those are your 25 years

31:23

or more, no. index requirement, no

31:25

liquidity, and then the contenders are

31:27

the list that is 10 to

31:29

24 years of dividend growth. So

31:31

that's pretty much what makes up

31:33

that list. There is our high-yield

31:35

universe that's anything over a 4%

31:37

yield, and then we also look

31:39

at our cannibal bucket. So those

31:41

companies do not actually have to

31:43

pay a dividend, oh, some of

31:45

them do. But those are companies

31:47

that have a nice history of

31:49

buying back shares. So you can

31:51

think of, you know, your auto

31:53

zones, you know, Domino's Pizza has

31:55

bought back a lot of shares

31:57

over the years. Those type of

31:59

companies are in that bucket. So

32:01

those have all been screened and

32:03

and developed. So that's that's where

32:05

I tend to hunt. But for

32:07

someone that does not have access

32:09

to that, yeah, the aristocrats, the

32:11

contenders, the champions, pick your list,

32:13

that's a great place to start.

32:15

Yeah, yeah, I agree. Let's talk,

32:17

if we could, let's talk a

32:19

little bit about, you kind of

32:21

mentioned cannibals, and you and I

32:23

were talking off air about, you

32:25

know, Med Faber and Jim O'Shaugher,

32:27

Maybe you could explain a little

32:29

bit about what that really is

32:31

and how you use that for

32:33

your investments. Yes, this is this

32:35

is one of my favorites. Shareholder

32:37

yield is a combination typically as

32:39

your dividend yield, plus your buyback

32:41

yield, plus the yield from debt

32:43

pay down. And those three components

32:45

added together make up what's called

32:47

shareholder yield. And the reason for

32:49

that is if you think about

32:51

management, when they make a profit,

32:53

they have some options. You know,

32:55

basically you can reinvest in the

32:57

company, right? You can grow it,

32:59

you can maybe acquire another company,

33:01

you can pay down debt, or

33:03

you can keep it on the

33:05

balance sheet, just let the cash

33:07

sit there and build up, or

33:09

you can share it with the

33:11

shareholders. And those three ways really

33:13

are the ways the cash either

33:16

directly or indirectly gets back to

33:18

share. So the dividend payment. is

33:20

easy. That's a direct payment rate

33:22

to you. Share buybacks are a

33:24

way to give you more ownership

33:26

of the company. So every time

33:28

the shares shrink, your shares that

33:30

you own become worth more of

33:32

the company. And then debt pay

33:34

down, you can think of the

33:36

same way you would think of

33:38

it as if you were paying

33:40

off, you know, credit card or

33:42

auto loan debt. When you pay

33:44

that debt off, you don't have

33:46

to make that payment next month.

33:48

So then the earnings of the

33:50

company you're going to go up.

33:52

and then you can get more

33:54

either through your share buybacks or

33:56

your dividend yield. The really interesting

33:58

thing and the reason I like.

34:00

The shareholder yield metric so much

34:02

is one you mentioned that dividends

34:04

are a long-term commitment. So management

34:06

wants to be a little cautious

34:08

with those, right? They want to

34:10

set it at a target where

34:12

even in kind of a bad

34:14

year or bad couple years that

34:16

they're going to be able to

34:18

keep paying that dividend. They don't

34:20

want to get it cut. So

34:22

they tend to be a little

34:24

bit conservative on that. Buybacks are

34:26

flexible. Right so the board approves

34:28

such such and such a number

34:30

we're gonna approve three billion and

34:32

buy that's or whatever number They

34:34

approve but management gets to decide

34:36

when those shares get bought back

34:38

and how many so some buybacks

34:40

Just basically moth up share-based compensation,

34:42

you know, they issue so many

34:44

shares with one hand There's a

34:46

better that way So buybacks can

34:48

be used basically to mop up

34:50

the share base compensation and kind

34:52

of hide that. That's not overly

34:54

value creative. I would argue it's

34:56

not my favorite way to do

34:58

it. Honestly, I would rather them

35:00

just pay the, pay the bonuses

35:02

out in cash or whatever and

35:04

not play the, the buyback game.

35:07

But assuming the company is actually

35:09

reducing the number of shares and

35:11

doing so at a reasonable valuation,

35:13

that can be very, very. beneficial

35:15

to shareholders. But you have really

35:17

good management that pays attention and

35:19

waits and buys back shares of

35:21

cheap valuations. You can do very,

35:23

very well there. And then of

35:25

course the debt pay down, you

35:27

know, if they've got high yield

35:29

debt, they've got expensive debt to

35:31

pay that off. That can raise

35:33

your earnings and open up more

35:35

cash for dividends and payments back

35:37

to you. The other interesting piece

35:39

is that, you know, a lot

35:41

of people get worried about taxes

35:43

or dividends. That's not something necessarily

35:45

I discuss all the time because

35:47

it's so dependent on what what

35:49

account do you hold the dividend

35:51

in the you know the dividend

35:53

payer in? Where do you live?

35:55

Where's the company based because those

35:57

are all going to affect taxes,

35:59

but typically buybacks are more tax

36:01

efficient because you never receive that

36:03

payment. So you don't get a

36:05

tax, you know, on the dividend,

36:07

on the income, however that's taxed.

36:09

So a little bit more of that comes

36:11

back to you. So that shareholder

36:14

yield, it saves on some taxes

36:16

and it lets management, if

36:18

they're good, really drives some value

36:20

for you. Yeah, yeah, exactly. I

36:22

look at fin chat, has they

36:25

calculate? shareholder yield, which is nice

36:27

so you can look look at

36:29

it quickly without having to do

36:31

all the do all the heavy lifting

36:33

of figuring it out. It's good to

36:35

look at it to to see how

36:38

those you know interact. Some companies like

36:40

you said, AutoZone and O'Reilly

36:42

and Home Depot, they're all big

36:44

share cannibals, but they also pay

36:46

dividends. Well, well, does Home Depot

36:49

pay a dividend? Yeah, they do.

36:51

But one thing that surprised me

36:53

years ago, I was looking at

36:55

Johnson and Johnson, and they're obviously

36:57

famous for being a dividend aristocrat,

36:59

and they actually pay out more.

37:02

They spend more on buybacks than

37:04

they do on dividends, which kind

37:06

of surprised me. And that was

37:08

kind of my first introduction to

37:10

this whole advantage of buying back shares.

37:13

Oh, hey, this could actually be a

37:15

big thing. So I guess, what are

37:17

your thoughts on companies that are... You

37:19

mentioned the negative equity. So a company

37:21

like Starbucks and Home Depot, I believe,

37:23

are both negative shareholder equity. How do

37:26

you feel about that as like a

37:28

dividend paying company? Is that something that

37:30

concerns you? Or is it just kind

37:32

of a nothing burger? It really depends

37:34

on the company. It really depends

37:36

on the reason for the negative

37:38

equity. Like I said, sometimes you

37:40

see that, especially in companies that

37:42

do return a lot of capital

37:44

to their shareholders. The other thing

37:47

sometimes you see that in is companies

37:49

that don't have a lot of physical

37:51

assets. So think about like, you know,

37:53

McDonald's owns most of their real estate.

37:55

That goes on the balance sheet. But,

37:57

you know, a franchise company, like a...

37:59

like a domino's pizza, don't own the

38:02

majority of the restaurants. So the

38:04

land, the buildings, the equipment, none

38:06

of that's on the balance sheet.

38:08

And when they pay dividends and

38:10

buyback shares, that puts their equity

38:12

negative. Like I said, you really,

38:14

you have to dig in and

38:16

understand the reason that the equity

38:18

is negative. Yeah, yeah, that's a

38:20

good point. I guess kind of

38:22

on the flip side of that,

38:24

how do you feel about companies

38:26

that borrow to pay dividends? Typically,

38:29

I would say that that's a

38:31

bad idea. You know, one that

38:33

famously did that was Boeing. If

38:35

you look at charts for Boeing,

38:37

you can see the dividends going

38:39

up, and if you chart the

38:42

long-term debt alongside it, it gets

38:44

up right along with the dividend,

38:46

and then of course eventually they

38:48

cut the dividend way down, and

38:50

then they stop paying one altogether.

38:52

So it's typically a bad sign.

38:54

I really prefer to see the

38:56

dividend coming from earnings. Would I

38:58

say that I would absolutely never

39:00

ever ever invest in a company

39:02

that did that? I hate to

39:04

say never period. I guess I

39:06

could see maybe a situation where

39:08

during you know the zero interest

39:10

rates where it was a better

39:13

idea to invest in this thing

39:15

for growth and then borrow a

39:17

little bit to pay the dividend

39:19

because the yield on the growth

39:21

was going to be so high

39:23

and the debt was so cheap,

39:25

a little bit of financial engineering,

39:27

but I would be really, really

39:29

cautious and that would make me

39:31

really look hard at management. You

39:33

know, that's not a strategy that

39:35

I love to see. Most of

39:37

the time, if they're borrowing to

39:39

pay the dividend, that's a bad

39:42

sign. And GM did it for...

39:44

for quite some time before they

39:46

got failed out. Like I said,

39:48

Boeing more recently. I honestly don't

39:50

know of any cases where that

39:52

was done and it turned out

39:54

well. Right. Yeah. Like I said,

39:56

that doesn't mean it didn't happen.

39:58

That doesn't mean somebody didn't take

40:00

really cheap debt whenever money was

40:02

basically free and and take advantage

40:04

of it, but I would be

40:06

hard-pressed to think that that's a

40:08

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series at stock market pdf.com. I

42:09

know I remember a few years

42:11

ago, might have been during the

42:13

pandemic or prior to that, that

42:15

I think was Exxon or Chevron

42:17

was kind of on the struggle

42:19

bus and I know that they

42:21

were borrowing some money to pay

42:23

the pay the dividend because they

42:25

didn't have the cash flow because

42:27

of oil prices were all over

42:29

the place. Like when you're thinking

42:31

about companies like that, does that

42:33

play into how you're evaluating them

42:35

because they're their commodity based business

42:38

and so there's going to be

42:40

wild fluctuations in what goes on

42:42

with them? Yeah, so so so

42:44

in that case, I mean, that's

42:46

that's an odd case, you know,

42:48

when when oil prices are negative,

42:50

that's something I don't think anybody's

42:52

ever seen before. No, no, I

42:54

wouldn't have predicted that. So in

42:56

that sort of case, yeah, to

42:58

borrow to cover because, you know,

43:00

commodity prices have crashed, you know,

43:02

you sit there and you look

43:04

and you go in two years,

43:07

is oil still going to be

43:09

negative now? you know, there's no

43:11

way. So in that case, yeah,

43:13

that's probably, you know, a safe

43:15

bet, especially in something like an

43:17

Exxon or a Chevron. And if

43:19

you look at those companies, I

43:21

honestly, I don't know Exxon as

43:23

well. I know Chevron fairly well.

43:25

Chevron's got a pretty solid balance

43:27

sheet at this point. Yeah, yeah,

43:29

for sure. And I think Exxon

43:31

does as well. So those large

43:33

companies like that, like I said,

43:36

for a one-time event to borrow.

43:38

Yeah, that's fine. That's probably a

43:40

smarter move than cutting the dividend.

43:42

Like you said, that's a that's

43:44

a massive signal to the market.

43:46

Your stock's going to sell off.

43:48

Your cost of equity is going

43:50

to go way up. That creates

43:52

more problems than taking on some

43:54

debt until oil prices you've covered

43:56

and you paid off. Yeah, very

43:58

good point. Very good point. Are

44:00

there any sectors or asset? classes

44:02

I guess that are more favorable

44:04

to dividends than others? Yeah so

44:07

traditionally there are certain sectors that

44:09

tend to pay more out in

44:11

dividends that you already mentioned one

44:13

with energy and your bigger mature

44:15

industries tend to pay more in

44:17

dividends so think things like utilities

44:19

Some of your like cable companies

44:21

and then as far as asset

44:23

classes, we already talked a little

44:25

bit about reets that the real

44:27

estate investment trust. They're actually required

44:29

to pay out 90% of their

44:31

profits as dividends for tax reasons

44:33

that based on the structure. So

44:36

reets are always a heavy. dividend

44:38

paying asset class. There's another structure

44:40

called a master limited partnership, very

44:42

similar to a read, they're required

44:44

to distribute, they don't tend to

44:46

pay a dividend, they they distribute

44:48

cash to limited partners, but that's

44:50

common in, think like your pipeline

44:52

companies, so your companies that run

44:54

pipelines to transport oil or gas,

44:56

that's your most common MLP structure,

44:58

and they tend to be pretty

45:00

heavy dividend payers as well. Is

45:02

the tech industry traditionally much in

45:05

dividends at this point? Traditionally, no.

45:07

But some, you know, when you

45:09

think you're magnificent seven, they're starting

45:11

to pay out some dividends. It's

45:13

not heavy, it's not a lot.

45:15

But, you know, Google's got a

45:17

dividend going, Apple's been paying a

45:19

dividend for quite some time. I

45:21

don't know, some of the listeners

45:23

that have been around a while

45:25

might remember, Apple had a lot

45:27

of shareholder. Ravel about building up

45:29

a bunch of cash on on

45:31

the balance sheet. Carl icon maybe

45:34

got in there. There was an

45:36

activist investor. Yeah, I think they

45:38

had over like a trillion dollars

45:40

of cash sitting on the balance

45:42

sheet. The investors got upset and

45:44

they said, hey, you should be

45:46

sharing this. That's kind of an

45:48

apple initiated the dividend. They've been

45:50

paying the dividends. Envidia pays a

45:52

dividend. Envidia actually is buying back

45:54

shares, which kind of baffles me

45:56

as far as valuation of the

45:58

business. Capital allocation goes, but they're

46:00

buying back shares. Tesla, I do

46:02

not believe pays a dividend and

46:05

Amazon does not, but if Amazon

46:07

initiated a dividend, it wouldn't shock

46:09

me either at this point. No,

46:11

no, and I think a lot

46:13

of people when they think about

46:15

dividends We talked about this off-air

46:17

is they think of it as

46:19

kind of a fuddy-deddy It has

46:21

that stereotype of a fuddy-deddy, but

46:23

then you throw off something like

46:25

a video Which everybody thinks is

46:27

a brand new company. It's really

46:29

been around for like 25 years.

46:31

What's what's touched on that? When

46:34

if somebody comes to you say

46:36

yeah, dividends are boring, you know,

46:38

I want to invest a tack

46:40

I want to be exciting well

46:42

What's your counter to that, sir?

46:44

Well, first of all, I would

46:46

say if you're investing for excitement,

46:48

that's probably the wrong reason. If

46:50

you want to, if you want

46:52

to take some money that you

46:54

can afford to lose and gamble

46:56

it and invest in, you know,

46:58

micro strategy or pick your flavor

47:00

of the week, if you want

47:03

to ride the game stop roller

47:05

coaster or buy an NFT in

47:07

2021, that's, that's okay with me.

47:09

But as far as long-term investing

47:11

goes, I'm of the opinion that

47:13

it should be boring. I don't

47:15

want my life savings going up

47:17

and down 20% every year. I

47:19

would prefer 10% for 20 years

47:21

in a row. So that would

47:23

be, that would be point number

47:25

one. Point number two is the

47:27

idea that, so let me back

47:29

at the second. So one of

47:32

the reasons I think people get

47:34

down on dividends is they say

47:36

that, you know, that's money that

47:38

could be reinvested back in the

47:40

business. That's money that could grow

47:42

the business, right, but. When you

47:44

look at some of these companies,

47:46

where are they going to reinvest?

47:48

What's Google going to do? What's

47:50

the profit it makes? What's invidia

47:52

going to do with the profit

47:54

it makes? You can only reinvest

47:56

so much cash in things that

47:58

that have a high return. And

48:01

then the question beyond that becomes,

48:03

what do you want management to

48:05

do with it? And actually, one

48:07

of the arguments for dividends, and

48:09

there's been academic research that's looked

48:11

at this, is that by taking away some

48:13

of the excess cash that's laying around,

48:15

it forces management to make better capital

48:17

allocation decisions. So if you don't have

48:19

a trillion dollars on the balance sheet

48:21

like Apple did, that you don't have

48:23

anything to reinvested in, you're much less

48:25

likely to buy a new corporate jet.

48:28

Right, you're much less likely to

48:30

acquire some company that really doesn't add

48:32

anything. You're much less likely to try

48:34

and build an empire. And the other

48:36

thing that does is it forces sometimes

48:38

for expansion and for those ideas that

48:41

management has, it makes them go to

48:43

the capital markets, you know, to either raise equity

48:45

or to take on some debt. And

48:47

when that happens, there's a lot more

48:49

scrutiny of the company and of the

48:51

management. So again, that's one of those

48:53

forcing functions to make them. make better

48:56

decisions instead of wasting

48:58

capital. So that's one thing.

49:00

And number two is that the market

49:02

we've had, I touched on it

49:05

earlier, that some of the things

49:07

that are going on in the markets

49:09

don't really make sense to me at

49:11

this point. And when you look

49:14

at what's going on essentially since

49:16

2009, to today versus historical,

49:18

it's odd. It doesn't look like

49:20

the past. Historically, dividends have been,

49:23

like I said, a big component,

49:25

you know, close to half of

49:27

your total return. So if you

49:29

intentionally avoid them, assuming that the

49:32

market doesn't go up the way that

49:34

it has forever, you're probably giving

49:36

up some potential return. And we

49:38

talked about it offline a little

49:40

bit, you know, you threw out

49:42

seven, nine percent, ten percent, whatever,

49:44

pick your historical market return over

49:46

the long run, we've had twenty

49:49

percent recently, you know. for quite some

49:51

time. So if you think that the

49:53

long-term return is going to be that

49:55

seven, nine, ten percent, then there's

49:57

either a lot of sideways trading.

50:00

or at some point there's a

50:02

big drawdown. And in both those instances,

50:04

dividends are a big component of your

50:06

return. So whenever the market draws down

50:09

and your stock prices are lower, your

50:11

dividend return is always positive. The total

50:13

return might not be. But if your

50:16

portfolio's got a 5% dividend yield, that's

50:18

5% that you're getting. And it comes

50:20

off to the negative yield. And if

50:23

you're reinvesting, assuming those companies come

50:25

back, you're just. buying more shares of

50:27

that company cheaper on the way down,

50:29

you know, when it recovers, that dividend

50:32

payment's going to go up and so's

50:34

the stock price. So it may not

50:36

be the most exciting way to invest,

50:39

but I think, you know, historically it's

50:41

worked. Historically, companies that have grown their

50:43

dividends have outperformed the S&P and companies

50:46

that don't pay a dividend, and especially

50:48

companies that cut the dividends, and it

50:50

adds some stability to the portfolio,

50:52

you know, it kind of takes away

50:55

some of those market effects. Yeah. Yeah,

50:57

for sure. And if you look at

50:59

the, if you look back at even

51:02

just the last 20, 30 years of

51:04

the market, you know, if you break

51:06

it into five or 10 year, you

51:09

know, components, the top five or top

51:11

10 companies from 20 years ago are

51:13

not the same that they are today.

51:16

And history tells us that. in the

51:18

next 20 years, those probably won't be

51:20

the same that we're seeing today.

51:22

There may be a few, but not

51:25

all of them. And so the markets

51:27

will change. And as those companies evolve

51:29

and grow, they have, as you said,

51:32

allocation decisions to make. And I think

51:34

our whole discussion today. to me really

51:36

indicates how important what a company does

51:39

with the money that they make and

51:41

how important those capital allocation decisions really

51:43

are and I think you know the

51:46

more the more you can figure that

51:48

out and find the best capital

51:50

allocators the better your returns are going

51:53

to be over the longer run. Yeah

51:55

absolutely I think And management is important

51:57

no matter what type of investing you're

52:00

doing. But if you're looking at dividend

52:02

paying companies, they're really important because those

52:04

are the guys that are going to

52:07

decide, workouts, that are going to decide

52:09

how much they're paying out. Are they

52:11

going to continue to pay out dividends?

52:14

Are they going to buy back shares?

52:16

Those are the people that drive

52:18

your shareholder return. And, you know, no

52:20

matter what the market does, like you

52:23

said, it's definitely uncertain. Top 10 companies

52:25

change, which country does the best changes.

52:27

You know, there's been periods. Japan outperformed

52:30

the US for a long time. International

52:32

stocks have outperformed small caps about performed.

52:34

What does the best, you know, varies

52:37

from year to year decade to decade.

52:39

But one of the things about dividend

52:41

investing for me is that I just

52:44

can't think of a reason that

52:46

it's a bad idea. to own a

52:48

company that generates a lot of cash

52:50

and shares some of it with me.

52:53

Right. Yeah, I mean, I think that's,

52:55

that last little sentence, I think you

52:57

said, is something that's really important for

53:00

people to understand. Companies that pay dividends

53:02

are generating a ton of cash. You

53:04

know, companies that don't generate a ton

53:07

of cash can't pay a dividend. And

53:09

that's, and you want companies that are

53:11

generating a lot of cash because it

53:14

gives them optionality, choices to make

53:16

of what to do with that money.

53:18

You may think of Coca-Cola as a

53:20

boring company, but the fact of the

53:23

matter is it makes a lot of

53:25

money. And it pays a nice dividend

53:27

because it makes a lot of money.

53:30

And those are the companies we all

53:32

want to find. There's cash flow in

53:34

companies. So another question I think is

53:37

kind of interesting to explore is what

53:39

are your thoughts on Buffett? So he

53:42

loves dividends, but he doesn't want

53:44

to pay one. and he hasn't paid

53:46

one and he unlikely will before he

53:48

leaves the company. So what are your

53:51

thoughts on that? Yeah, that's that's a

53:53

good question. Buffett's interesting in this in

53:55

this regard. And I just read, I

53:58

just reread the intelligent investor, you know,

54:00

it came out with a new addition,

54:02

Jason's wife. did new commentary. It's worth

54:05

it for his new commentary. It's really

54:07

interesting. But when you read Ben Graham

54:09

and you read the intelligent investor,

54:11

there's a pretty big focus on dividends

54:14

there. And you think about, you know,

54:16

the companies and the stock market in

54:18

his day, most of the companies paid

54:21

a dividend. It was expected. You were

54:23

an owner of the company and you

54:25

deserve, you know, your share. And when

54:28

you look at Buffett's top holdings, All

54:30

of them pay dividends. I mean, you

54:32

know, he's selling down Apple, but Apple

54:35

was a big holding for a long

54:37

time, a dividend payer. Bank of America

54:39

was a big hoard, a dividend

54:41

payer. He owns a lot of Chevron,

54:44

dividend payer, Coca-Cola, Coca-Cola, as you mentioned,

54:46

dividend payer, Coca-Cola, as you mentioned, dividend

54:48

payer, as you mentioned, dividend payer, as

54:51

you mentioned, that's a dividend payer, but

54:53

that's a buyback company. you know, Domino's

54:55

Pizza was a recent acquisition. That's a

54:58

buyback company and they pay a dividend.

55:00

Occidental Petroleum pays small dividend, but they

55:02

buy back a bunch of shares. So,

55:05

Buffett really seems to like this shareholder

55:07

yield model. When you look at

55:09

what he does and what he holds,

55:11

he really does seem to like it.

55:14

And, you know, we talked about capital

55:16

allocation and management. I have a hard

55:18

time arguing. that when you have the

55:21

best capital allocator in the world running

55:23

the company, that I'm going to do

55:25

a better job with the capital that

55:28

he is. Berkshire not paying a dividend

55:30

and building up the cash is is

55:33

kind of okay in my book. Just

55:35

like I said, that's that's the

55:37

best capital allocator in the world. Management

55:39

I trust, you know, like nobody else.

55:42

So to let Buffett build up a

55:44

bunch of cash and hope that, you

55:46

know, something interesting comes along before you

55:49

know, he passes away. I don't have

55:51

an issue with that. I suspect that,

55:53

you know, when Buffett's gone, that Berkshire

55:56

probably will become a dividend paying company.

55:58

But I don't think, you know, some

56:00

people look at that as a contradiction

56:03

and Buffett's written pretty extensively about it.

56:05

You know, as long as you

56:07

can generate more than a dollar for

56:09

every dollar you keep in the company, then

56:11

that's a good decision. You know, given

56:13

his track record, I think Buffett deserves

56:16

a lot of leeway. I trust them to

56:18

generate more than a dollar for everything he's

56:20

keeping. Yeah, for sure, for sure. Do

56:22

you, so I guess speaking of

56:24

that, do you own companies in

56:26

your portfolio that do not pay

56:29

a dividend? I do, Berkshire Hathaway

56:31

being obviously the prime number one.

56:33

Yeah, I do. So it's not the only

56:35

way that I invest. I do own Berkshire. And

56:37

I do own some other

56:39

non-divident paying companies. So like I

56:41

said earlier, whenever I kind of

56:43

talked about my my road to

56:45

dividends and shareholder yield, the other

56:48

piece that really makes sense to

56:50

me. you know, no brainer, like

56:52

something is going on with this

56:54

company and the market is way

56:56

mispricing it. I'll, I'm more than happy to

56:58

take advantage of those. So, so I

57:00

do own some of those types of

57:03

companies that, that I've had along the

57:05

way. Probably, most recently to

57:07

give you an example, you know, Netflix,

57:09

whenever it dropped under $200 a share

57:11

in 2022. Yep. Because they lost a

57:14

few subscribers coming off the pandemic and

57:16

the market went good, Netflix is over.

57:18

It's done. Yeah, that's he's gonna win.

57:20

Yeah, that's one of those ones I

57:22

bought and I should have bought a

57:25

lot more, but you know, still hold

57:27

Netflix and part of it even

57:29

goes back to kind of this this

57:31

shareholder deal cash flowing mentality, you know,

57:33

at that time, and still, it's only

57:35

the second. I think there's two

57:38

streamers that actually make money at

57:40

this point. Disney Plus just became

57:42

profitable. But at the time, Netflix

57:45

was the only streamer that actually

57:47

had positive cash flow. You know, they

57:49

had a pile of subscribers, the data

57:51

they have is unbelievable. They know what

57:54

you want to watch before you do,

57:56

and they use that data to make

57:58

shows that will be hits. You know,

58:00

whatever it dropped that cheap, I went,

58:02

I got to buy some of this.

58:05

So that's, you know, those kind of

58:07

things I will take advantage of. You

58:09

know, I do still like the quality

58:11

companies, like the compound and quality philosophy.

58:14

I own, I own some of the

58:16

companies that are in that portfolio. I

58:18

haven't bought every single one of them.

58:20

There's been a few that Peter will

58:23

pay a higher price than I will.

58:25

I'm still a cheap paid paid at

58:27

heart. So there's still some of those

58:29

that have been a little pricey for

58:31

a little pricey for me that I

58:34

don't. But I do have some of

58:36

those quality companies in my portfolio and

58:38

I do have some of those that

58:40

were no brainers that just got way

58:43

too cheap. Yeah, yeah, you got to

58:45

take advantage when the market, you know,

58:47

when Mr. Market offers you a deal,

58:49

sometimes you got to take advantage when

58:52

you can. Yeah, yeah, so I'm not

58:54

I'm not a dividend purist. I'm not

58:56

a you have to pay a dividend

58:58

for me to be interested But I

59:01

think especially right now. That's a that's

59:03

a very interesting way to invest I

59:05

think it's defensive I think it protects

59:07

you against whatever unknowns are coming in

59:10

the market And since you know growth

59:12

is such a focus at this point

59:14

I think a lot of these dividend

59:16

payers are are underpriced compared to the

59:18

rest of the market Yep, I totally

59:21

agree. I totally agree. Well, TJ, this

59:23

has been a lot of fun. I've

59:25

learned a lot today and made me

59:27

think about some things differently that maybe

59:30

I had kind of thought about. So

59:32

where can people find more about what

59:34

you got going on and what you're

59:36

doing with compounding dividends. Net? You can

59:39

sign up for the newsletter there. We

59:41

do have a free subscription and then

59:43

if you want to become a paid

59:45

partner and get access to the entire

59:48

portfolio and all of the all of

59:50

the companies in the watch list the

59:52

investigative universe the over 800 companies that

59:54

I mentioned earlier and you can do

59:56

that there is a compounding dividends Twitter

59:59

account that's compounding W you can find

1:00:01

me there as well it's TJ underscore

1:00:03

to Williger those are probably the best

1:00:05

places to find us and keep track

1:00:08

of what's going on and he's very

1:00:10

active on Twitter as someone who follows

1:00:12

and interacts with T.J. tries to keep

1:00:14

up with him on a daily basis.

1:00:17

He's very active on Twitter and he

1:00:19

posts a lot of great stuff so

1:00:21

it's definitely worth your mentioning your following.

1:00:23

The blog posts are great as well,

1:00:26

the subscription, the subscription, the subscription, I

1:00:28

was actually just reading when he wrote

1:00:30

about a breakdown of reets earlier today

1:00:32

and fascinating lots of great info in

1:00:35

there so it's well well worth your

1:00:37

time for sure. And thanks for joining.

1:00:39

Yeah. Thanks for having me, Dave. Really

1:00:41

enjoyed it. You're welcome. All right. All

1:00:43

right. Well, that folks, we'll go ahead

1:00:46

and sign us off. You guys go

1:00:48

out there and invest with the margin

1:00:50

of safety. Have a great week. And

1:00:52

we'll talk to you all next week.

1:00:55

We hope you enjoyed this content. Seven

1:00:57

steps to understanding the stock market shows

1:00:59

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1:01:01

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