0:00

Dividends are cash payments that

0:02

companies make to shareholders as

0:04

a reward for owning the stock. Dividend

0:08

investing is not necessarily why you're tuning

0:10

in here each week. Getting smarter, happier,

0:12

richer, our goal is for you, sure.

0:15

But, smarter, happier, richer about

0:18

dividend stocks? But then

0:20

again, on the other hand, some great rule-breaker stock

0:22

picks have over the years paid

0:24

dividends. And not only that,

0:27

some are just now starting. Did you

0:29

see this? Facebook, Meta Platforms, and

0:32

Google, Alphabet, have both announced their

0:34

first ever regular dividends in just

0:36

the past couple months. Four

0:39

years ago this very month, as the world was

0:41

shutting down for the pandemic and the stock market

0:43

had shut down to the tune of a 25%

0:47

one-month drop, we

0:50

dedicated that whole week's episode

0:52

to dividend investing. The timing

0:55

was purely coincidental, as

0:57

it is this week. But every few years,

0:59

I think it makes sense to touch base

1:01

here again. And so, it's

1:04

our next episode of Dividend Fools,

1:06

rejoined by the Motley Fool's Buck

1:08

Hartsel, and also this time by

1:10

one of our in-house dividend investing experts.

1:12

I think you know him. I love

1:14

him, Matt Argersinger. You're

1:16

ready to talk about free money that

1:19

comes your way just

1:21

by owning stocks? Dividend Fools

1:24

Volume 2, only on

1:26

this week's Rule Breaker Investing. It's

1:30

the Rule Breaker Investing podcast with

1:32

Motley Fool co-founder David Gardner. And

1:38

welcome back to Rule Breaker Investing.

1:40

Matt Argersinger works on the Dividend

1:42

Investor and Real Estate Winner Services

1:44

here at The Motley Fool, aiming

1:46

to identify and recommend compelling

1:48

income-oriented opportunities for our

1:51

members. You can also catch

1:53

Matt on The Dividend Show on Motley Fool

1:55

Live, and as a regular guest

1:57

on The Motley Fool Money podcast and radio

1:59

show, Matt, welcome back to Rule Breaker Investing.

2:01

Hey, David, it is great to be back. Buck

2:04

Hartzell is an advisor on FinTech

2:06

Fortunes and also works on the

2:08

Fools Canadian Investing Services and can

2:10

be regularly seen or heard on

2:12

the Canadian Power Hour on

2:15

Fool Live. And it should be noted,

2:17

Buck helped me kick off this series,

2:19

as I mentioned earlier, four years

2:21

ago this month. Dividend Fools Buck,

2:23

welcome back. Thank you very much. It's great

2:26

to be back here. And I did review

2:28

that. People can go back and listen to

2:30

the older podcasts, and we recommended

2:32

a few stocks back there. I actually like all

2:34

the ones that I recommended back then, and I

2:36

think they've all done fairly well. Yeah, we'll talk

2:38

about that a little bit later. In fact, we're

2:41

going to make some new fresh picks. I think

2:43

you guys have some dividend stocks and investments in

2:45

mind that we'll do a little bit later this

2:47

week. But thank you. It's great to have Buck

2:50

and Matt here talking about, yeah, companies

2:53

that make cash payments to you

2:55

to own their stock. I think, gentlemen,

2:57

it makes sense to define our terms.

2:59

Not every listener spends

3:02

a lot of time thinking about dividends, and some of

3:04

our listeners are probably completely new to the subject. I'm

3:06

going to turn to you, Matt. Could

3:08

you briefly define dividends?

3:11

Maybe throw in what the yield

3:13

is. I'm asking you to go

3:15

not just high level, but one

3:17

level down. Sure. So a company

3:19

pays cash out

3:22

of its earnings or from its balance sheet directly

3:24

to shareholders. That's called a dividend, and it can

3:26

do that on a regular

3:29

basis, whether it's quarterly, semiannually, sometimes

3:31

even monthly. There are some companies

3:33

out there that pay monthly dividends.

3:36

When you're looking at a stock, you'll see a dividend yield,

3:39

which is simply the annual dividend

3:41

the company is paying out divided by its stock

3:43

price. So that gives you a sense of what

3:45

you can earn if you bought the stock today

3:47

based on its dividend. So, for example, if a

3:50

stock were at $50 a share

3:52

and it paid a $1 annual dividend, and

3:55

let's just call it 25 cents a quarter,

3:57

most of these are quarterly, then that would

4:00

would be a 2% dividend

4:02

yield. Did I get my math right, Matt? I

4:04

think you did. OK, good. So that's a good

4:06

example of dividend yield using round

4:08

numbers, which makes it easy to explain. And so

4:10

in a sense, Buck, that's

4:13

the interest rate in one

4:15

sense that you get paid for

4:17

holding the stock. That assumes the stock doesn't

4:19

move up or down. We generally like them to

4:21

go up a little bit over time, of course.

4:24

But you can kind of compare a dividend yield

4:26

to T-bills or any other interest rate that you

4:28

might be looking to get in

4:31

income investing in the rest of your life. Sure.

4:33

Yeah. And you can compare it to

4:35

bonds. I did a video a long time ago.

4:37

I think it's on the full site

4:39

somewhere. Microsoft, at the time, interest

4:41

rates were dropping. And Microsoft

4:44

did the first bond issuance that was

4:47

below a percent. So

4:49

you could essentially buy a five-year bond

4:51

in Microsoft and earn 0.97%, I think

4:53

it was. And

4:55

the video that I did was, why in the

4:57

world would anyone buy

4:59

this bond? And they're

5:02

basically locking in less than a percent return for

5:04

five years. When they could buy the stock, and

5:06

I think at the time, it yielded almost 2.3%.

5:09

And you also got all the growing earnings,

5:11

which Microsoft had done for a long time.

5:13

So yeah, so that's a good comparison to

5:15

compare the interest rate, not only to what

5:18

you could get from a CD or whatever else, but also

5:20

a bond. It's a good comparison. Matt,

5:23

you mentioned that companies typically pay their dividends out

5:25

of cash flow, if they have it. And

5:28

many do. Usually, the companies that

5:30

are paying dividends can afford to do so. And

5:33

maybe they didn't have a good year for cash

5:35

flow, but they have a balance sheet where that

5:37

company has cash in the bank. In

5:39

some cases, they borrow to pay their dividends.

5:43

Can we define one more term, go a

5:45

little bit deeper, the payout ratio?

5:48

Sure. Would you just let listeners know exactly

5:50

what that is and why that matters? Sure.

5:52

The most traditional way to calculate the payout

5:54

ratio is to take a company's earnings per

5:56

share and divide it by the

5:58

annual dividend per share. That will give

6:01

you the percentage of the earnings that the company is

6:03

paying out as a dividend. Now

6:05

that number can jump around a lot, of course, as

6:07

David alluded to, if the earnings were to fall but

6:09

the dividend isn't cut, then you're going to see that

6:12

payout ratio rise, and you can start to get a

6:14

little worried about if the company can continue

6:16

paying its dividend if the earnings are falling. But

6:19

yes, a company that has a balance sheet and

6:22

maybe a short-term cash flow earnings problem can still pay a

6:24

dividend. Of course, this comes right out of cash on the

6:26

account. Guys,

6:28

we've defined our terms. I'm about

6:30

to play a game of word association with you

6:32

both. I'll let you mentally prepare for that. Before

6:34

I do, I just want to convey ahead of

6:36

time the five chapters that we're going to

6:38

cover in this podcast. So here they are

6:40

for our listeners. This is where we're headed

6:42

in our time this week.

6:45

Chapter one is, I'm going to call it

6:47

the shift in dividend investing

6:49

out of favor for

6:51

decades in some ways. There's been a

6:53

shift. There's been a shift to

6:55

that, why it is, and maybe a

6:57

little bit of why is meta-platforms and

6:59

why are Alphabet all of a sudden paying

7:02

dividends? So that's chapter one. Chapter two,

7:04

the practical value of dividends. Buck, you're

7:06

going to tell a story about your family,

7:08

among other things. The practical – why

7:10

we're doing an episode on dividends, why dividends

7:13

matter, still matter. Chapter three,

7:15

the challenges and misconceptions. A lot of people

7:17

talk about double taxation. Warren Buffett traditionally is

7:19

not said to be a big fan of

7:21

dividends, so we're going to talk about the

7:24

challenges of them and some misconceptions. Chapter four,

7:26

stock buybacks versus

7:29

dividends. Companies have a choice when

7:31

they have cash flow or money in the balance

7:33

sheet rather than pay it out directly to shareholders

7:36

as a reward for holding the stock. They could reinvest

7:38

it in their business. In some cases,

7:40

they could just buy back their own shares

7:42

and make holding an individual share dearer as

7:45

a consequence of that. So we're going to

7:47

talk about stock buybacks versus dividends. Chapter

7:49

five, our closer, a spotlight on some picks

7:52

and some strategies. So those are the five

7:54

chapters of this podcast. Now I did mention

7:56

a game of word association. Matt, I'm going

7:58

to turn to you first. Have

8:01

you played word association games before? I

8:03

think I have, David. With you several times. Yeah. I

8:05

tend to do this. I don't know why. It's not

8:07

even really a game. If it is a game, it

8:09

doesn't really have clear rules and it's kind of lame

8:11

as a game. But let's do it anyway. Matt Argersinger,

8:13

are you ready? I'm going to flash a word out

8:15

and I want you to give me your gut level

8:17

response with a word or a phrase back. Okay. You

8:20

ready? Yes. Dividend.

8:22

Real. Cash. Tangible. I

8:24

like it. Buck, I know you were in

8:26

a soundproof chamber. You did not hear what Matt just said.

8:28

I have no idea what I'm about to ask you. Let

8:30

me ask you. Buck Hartsel, are you ready for word association?

8:32

Yes. Dividend. Eureka.

8:37

It's Eureka to me because if there

8:40

weren't dividends, I probably wouldn't be doing the job

8:42

that I'm doing today, and I

8:45

wouldn't love investing as much as I do. Nice.

8:48

That's what got me originally interested in investing. And that's

8:50

why I'm delighted to have you back for Dividend Fools

8:52

Vol. 2. It makes so much sense. Let

8:55

me complicate the game slightly more. Let's extend the

8:57

game a little bit. Matt and then

8:59

Buck, I'm going to ask you this question looking

9:01

for your answer here, beyond that gut level response.

9:05

What is a word or phrase, Matt Argasinghe,

9:08

that you can titillate our

9:10

listeners with a

9:12

nuanced reaction to when I say

9:15

this word and

9:18

you react slightly more intelligently and reflectively

9:20

and provocatively? Are you ready? I'm

9:22

ready. Here's the word, dividend. A

9:25

high dividend yield does

9:27

not always mean the end of growth. Okay.

9:31

I hear you, and we'll get there. Thank you. Bob

9:35

Cartzel, I know you didn't hear Matt's response. We're

9:37

going to bring you back from outside the studio,

9:39

and I'm going to just try a word out

9:41

on you with a nuanced answer. Are you ready?

9:43

Dividend. Discipline. I

9:46

think when a company pays a

9:49

dividend, it introduces a

9:51

different level of consistent discipline

9:53

in that company because it's an obligation,

9:57

and I think you operate a little differently when you pay

9:59

a dividend. All right, well, I think we're

10:01

going to return to some of the things you just

10:03

said over the course of our five chapters here. So

10:05

feel free to go back there. But, guys, thanks. Thanks

10:07

for playing the game. Let's go from a silly

10:10

game to a slightly more serious

10:12

topic, Chapter 1, the

10:14

shift in dividend investing.

10:17

Matt Argersinger, what has been the shift?

10:21

Well, if you look at the dividend yield of

10:23

the S&P 500 today, it's right

10:25

around 1.4%. That

10:27

is the lowest yield on record outside

10:30

of early 2000, which we all know is

10:32

the kind of the height of the dot-com boom. So

10:34

the dividend yield in the S&P 500 really has

10:36

never been lower. And if you

10:38

look at a kind of a long-term chart of

10:40

the S&P 500 yield, it's gone nowhere

10:43

but down for about 40 years. And

10:46

it's been remarkable. And the shift is

10:48

if you go back before that, if you start in

10:50

the 1970s and go back even not just 100 years, but

10:53

go back 500 years to when

10:56

we were investing in the Dutch East Indies

10:58

Company on the Amsterdam Stock Exchange,

11:01

investors invested to get a dividend. That

11:03

was the whole point. It was a

11:05

cash relationship with your investments. And that

11:07

went for centuries. I mean, if you

11:09

think about the railroad investments, the industrial

11:11

investments, the postwar investments, it was all

11:13

about investing to get a dividend. You

11:16

know, Robert Brokamp joined us for Episode 1 of

11:18

this series, and he pointed out that – Robert

11:21

really said – I remember this. He

11:23

said if you go back as far as

11:25

the 1870s anyway, maybe not the Dutch East

11:27

Indies Company. Was it still in business? Up

11:29

through the 1950s, I remember him saying stocks

11:31

always yielded more than bonds. And

11:35

people felt like you needed to get that

11:37

higher dividend yield to make stocks worthwhile because

11:39

they were riskier. That's right. So

11:43

roughly 150 years, even including this

11:45

last decade, the average dividend

11:47

yield of the market was north of 4.5%. So

11:51

it was significant. It was about triple where it is today.

11:54

And there's a

11:56

new book out by Daniel Parris. It's called The Ownership

11:58

Dividend. And he

12:01

talks about three main reasons why there's been kind

12:03

of this shift away from dividends over the last,

12:05

say, 30 to 40 years. The

12:08

first reason is probably obvious. I mean, we've had almost

12:10

40-year decline in interest rates. If you look from the

12:12

early 80s to roughly 2021, 22, interest rates really went

12:14

nor-go-down. In

12:19

fact, in the last 15 years or so,

12:21

they were close to zero since the global

12:23

financial crisis. Amazing.

12:25

When the cost of capital in the market

12:27

goes down, when interest rates are super

12:29

low, you can – management teams can do a lot

12:31

of things and look smart even when they're making bad

12:33

decisions. You can always roll over debt, refinance debt at

12:36

lower rates. You can invest in most projects because the

12:38

discount rate is so low, it looks like it's going

12:40

to win. The value of assets and

12:42

real estate are high, so you always have more access to

12:44

capital. So there was just a lot of momentum behind the

12:46

idea of, well, I'm going to

12:48

retain this capital, invest in these longer-term,

12:50

longer-duration ideas and projects because the rate,

12:53

the capital cost was so

12:55

low over that time. So that's the big

12:57

first reason that Paris goes

12:59

into. The second reason, and I

13:01

think this is more interesting, and much less heralded reason, a

13:04

little-known SEC rule in 1982, rule 10B-18

13:06

– you can probably get what I'm

13:09

getting at – in

13:11

1982, it allowed more liberal share of buybacks.

13:14

So before 1982, it was actually difficult for companies

13:16

to do buybacks. A lot

13:18

of regulators thought it was akin to

13:20

market manipulation. If companies were buying back their own stock,

13:22

they often had to register and do shelf buys. They

13:24

had to do tender offers. It was a lot more

13:26

cumbersome to buy back stock. After

13:29

1982, a board can simply decide and

13:31

authorize a share of buyback. A company

13:33

like an investor can buy stocks in the

13:35

open market any time they want outside of a

13:37

few blackout periods around earnings or special events. So

13:40

that was a big shift in

13:42

the way managers started to allocate capital.

13:44

More towards buybacks, less towards dividends beginning

13:46

in 1982. The third reason

13:48

Paris gives, and I think it's a great one, is, look,

13:51

there was an undeniable rise in

13:53

the success and the value of Silicon Valley companies

13:56

and the idea of the high-tech companies where there

13:58

was a different culture about how to reward

14:00

and retain employees, more towards stock-based

14:02

compensation, more towards ownership in these

14:05

businesses, in these venture-type style businesses,

14:07

away from short-term dividends. And

14:10

I think that became, those companies, as they took off,

14:12

became sort of the fulcrum of the stock market boom

14:14

that we had in the 80s, 90s, and beyond. That

14:17

also took away a lot of the shine on dividends.

14:19

And I know you have a fourth reason you're going

14:21

to provide in a sec. I don't know what it

14:23

is, but I wanted to react and see what Buck

14:25

thinks about this. I just wanted to react to that

14:27

third point, Matt, because part of what

14:29

I think happened that Paris may be speaking to

14:31

is that an amazing

14:33

new technology was developed

14:35

and deployed, and it was the Internet. And

14:38

when you think about the growth rates associated with

14:40

that, the opportunity all of a sudden to

14:42

speak the entire world, which

14:45

most companies didn't have anything like

14:47

that platform or opportunity, free

14:49

information, social media, et cetera, e-commerce, it

14:51

was such a powerful development for our

14:53

society that in a lot of ways

14:56

I don't think it made sense if

14:58

you were driving it,

15:00

if you were AOL to start

15:02

with, or more recently amazon.com, it

15:05

didn't make sense necessarily to pay

15:07

your dear cash flow that

15:09

you're looking to reinvest in your business

15:11

at historically amazing rates. I

15:13

don't think it made sense for those companies

15:15

to pay out dividends. Do you agree? I

15:18

agree. I think that's a great point.

15:20

I generally agree with that point, but I would say

15:22

this. There's a lot of

15:24

misconceptions about dividends, and I think one of those

15:26

is that once you start

15:29

paying a dividend, you're no longer a

15:31

grower. And we've

15:33

known, I know we all know,

15:35

a lot of really innovative, high-growth

15:38

companies that in their early,

15:40

sometimes early on in their lifestyles, and I think

15:42

that's actually their lifespan, they start paying a dividend.

15:44

And that means a couple of things. They're profitable,

15:46

and even though they can reinvest, they can also

15:48

afford to pay some of it back. MercadoLibre is

15:50

one of those companies that did it, and obviously

15:53

has been a high-growth company for a very long

15:55

time. There are others, but I think

15:57

you're generally right, but there are some exceptions.

16:00

obviously all the time. So

16:02

Daniel Parris's book, the ownership

16:04

dividend, and he covered his

16:07

three main reasons. You've summarized him very aptly,

16:09

Matt. Is there a fourth? So this is

16:11

fourth reason. This is me,

16:13

and I don't have the

16:15

academic rigor study behind this that Parris applied to. We

16:17

don't need that on this show. We love you for

16:19

who you are. What do you got for us? So

16:22

we're gonna discuss him later in the

16:24

show, I know this, but I think Warren Buffett has

16:26

a little bit of influence on this. And now

16:28

Buffett didn't become, I think, a household name until

16:31

the mid late 90s. But I think

16:33

the fact that Buffett has never paid a dividend out

16:36

of Berkshire Hathaway, and has had

16:38

such extraordinary success, widely considered

16:40

the greatest investor of all time. I think

16:42

a lot of CEOs and investment managers look to Buffett and

16:44

say, well, he doesn't pay a dividend. And

16:46

he's done incredibly well. He's reinvested capital at high

16:48

rates and returns forever. Why should we pay

16:51

a dividend? So I think there's a little

16:53

bit of a cult of Buffett that

16:55

has some influence on this as well. And

16:58

I will also say, you know, one

17:00

of the misconceptions about Buffett will also get into this, I think,

17:02

is he actually is a bit of

17:04

a dividend investor himself. I mean, he if

17:07

you look at the investments he makes, he

17:09

absolutely loves getting dividends. He loves companies that

17:11

grow dividends over time, Coca-Cola, American Express, even

17:13

Apple. But of course,

17:15

he doesn't pay a dividend himself. And so

17:17

I think that has had some influence on

17:20

investor psychology. Thank you for that, Matt. And

17:22

as we start to close chapter one, the

17:24

shift in dividend investing, Buck, offline, you were

17:26

sharing just a little bit of how dividends

17:29

jump started your investment journey,

17:31

your initial fascination with them.

17:33

Can you speak to that? Yeah, so I

17:35

was five and I had my first job. I

17:37

grew up in a family business, which was a

17:39

restaurant. It was a large restaurant

17:41

in Pennsylvania, Dutch country. And I earned a

17:44

paycheck. I was the pot dryer. You were

17:46

five? I was five years old. And I

17:48

don't know that you have a 401k. I

17:50

did not have a 401k. But it was,

17:52

you know, it's funny, ran into some folks

17:54

that I haven't seen for decades. And I

17:56

went to school with them when I was

17:58

younger. And they said, I just remember

18:00

you were the hardest working people. They were feeling

18:02

sorry for me, and I didn't

18:04

realize that, and I was friends with those folks, but the

18:07

reality was it wasn't work for us, it was

18:09

what we did, and we were together as a

18:11

family. But anyhow, I earned a paycheck, and at

18:13

the end of every week, I would get a

18:15

check, and Mrs. Bricker, who was a lifelong Eagles

18:18

fan, would come over and she'd do our book

18:20

or she'd do all the payroll for everyone, and

18:22

I would get the first check. It was usually $2.38 or $5.28, and

18:27

I'd run to my dad, who always had money in his pocket, and

18:29

I'd say, cash this, I'd sign it, and I put

18:31

all my money in my sock drawer. So that

18:33

was the safest spot that I knew, because it

18:35

didn't just open like a regular drawer. You had

18:38

to go up underneath and open it, right? You

18:40

had a couple brothers, right? You had to protect

18:43

that money. Right, you had to keep it safe,

18:45

yes. And so that's what I had. So after

18:47

about two or three years, one

18:50

day my mother came to me and she said, "'Buck, come on,

18:52

we're going to the bank.'" And that was fun for me. Back

18:55

in those days, you got a lollipop every time

18:57

you went to the bank, and besides, there was

18:59

this mystery machine that you put stuff in it,

19:01

like zoom things out of space, and this little

19:03

tube came back to you. Kids don't

19:05

know about that today, but- I remember one that had

19:07

little NFL helmets that

19:10

was at the safe way. You'd put your

19:12

25 cents in, you'd like, will I get the New

19:14

Orleans safe? I hope not. Oh, nice, yes, yep, yep.

19:16

So we had that vacuum tube or whatever. And a

19:18

lollipop came back at the end, and that was always

19:20

great. But this time we had to go into the

19:22

bank and we set up a checking account. I said,

19:24

why are we doing this? She's like, I don't have

19:26

any room to put socks in your drawer anymore. It's filled

19:28

with money and that's not safe if the house burns down

19:30

or whatever else. So anyhow, long

19:32

story short, is I got a checking account,

19:35

and in a couple months, she started giving me

19:37

checks. $2,

19:40

$5, $7, and after about the fourth or fifth check,

19:42

I'm like, what is this? And she's like, well, those

19:44

are stocks your father and I bought for you when

19:46

you were born. And this one's

19:49

from Hershey Chocolate. That was one of them, and

19:51

I liked Hershey Chocolate. And they also pay out

19:53

a portion of their dividends. And now, as somebody

19:55

who started working at five, when I

19:57

got a free check for $2.38, sense

20:00

that I did not have to work for,

20:02

that was eureka to me because I'm like,

20:05

oh my gosh, I don't have to work at

20:07

all for this. I'm gonna

20:09

get more of that and so that was I

20:11

was probably seven or eight at that time and

20:13

that's what really for me kindled

20:16

my lifelong kind

20:18

of interest in investing. Love

20:20

that story. Thank you, Buck. You're reminding me

20:22

of one of our former employees who told a

20:25

great story when I first met him at his

20:27

kind of initial coffee, joining the

20:29

Fool, wonderful guy for several years

20:31

here. Mark Reagan said, yeah, my

20:33

mom said this to me growing up when I

20:35

was at an impressionable age, son, there are three

20:37

ways to make money in this world. First

20:41

is with your strength, second is

20:43

with your mind, the third

20:45

is with your money. And

20:48

Mark said, could you tell me more

20:50

about that third one? And you just shared

20:52

a story very similarly. Our money makes

20:55

more money and especially when you're a

20:57

kid, mind.blown.

21:02

Let's move on to chapter two, the

21:04

practical value of dividends. Buck, maybe some

21:06

more storytelling. You brought some stories for

21:08

this hour. I did, I brought some

21:10

stories. So I think in some senses

21:12

you just spoke to the practical value

21:14

of dividends, maybe more the excitement that they

21:17

would even exist. Speak now, did you bring

21:19

a story about the practical value of

21:22

dividends? Yeah, so I'll give one. Your

21:25

parents? Yeah, my parents. My father,

21:27

as he got older, I helped

21:29

manage his portfolio and we had

21:32

a couple guidelines and one of those, and

21:34

I think this is something that's attainable if

21:36

people work for it, one is to have

21:38

three years living expenses in cash, right?

21:40

Because if you get beyond retirement and all that stuff,

21:43

and one of the great things about that is you

21:45

don't have to sell anything when the market goes down.

21:48

And for somebody who was in his 80s

21:50

and he wasn't in great health and things,

21:52

he had zero percent of his portfolio

21:54

in bonds, which most

21:56

people would find crazy, but he did have a

21:59

decent amount of cash. When

22:01

2008 and 2009 came out, the stock

22:03

market went down about 30 percent, and

22:05

our stocks went down like everyone else's. Mine

22:08

went down more. What

22:10

you saw then, though, in the portfolio was one,

22:12

didn't need to sell anything. Secondly,

22:15

dividend stocks hold up better

22:17

than regular stocks because companies

22:19

don't like cutting the dividend because their investors

22:21

don't like it when they cut them. The

22:24

dividends hold up better than the stock

22:26

prices, and that kept the constant flow

22:28

of income coming in throughout his portfolio so

22:31

that not only did we not have to

22:33

sell stocks when they were down, we had

22:35

the dividend income to live off, he did,

22:37

and he could also reinvest some and buy

22:39

some more stocks when they were very cheap.

22:41

That regular ongoing income that comes in, and

22:43

I think at that point in time, and

22:45

it was a decision I made, was I'd

22:47

rather own dividend stocks than I would

22:49

have 30 or 40 percent

22:51

of his portfolio in bonds. I think that worked

22:53

out very well for him over the long term.

22:55

Wonderful story, and I love that he did it

22:57

with stocks. Now if Robert Brokamp were here with

22:59

us, and he always is here, he's

23:01

on our shoulder. There's the

23:04

angel on one side of your shoulder, and then

23:06

on the other side is Robert Brokamp. He

23:10

might talk about laddering T-bills at this point

23:12

or other strategies you can use without using

23:15

stocks in order to get that guaranteed, regular,

23:17

recurring income. We love Bro,

23:19

and I like that about him. A lot of

23:21

people use strategies like that, and they're brilliant. You

23:25

can do with stocks. You can

23:27

do with stocks, and the reason I paraphrase that

23:29

and said three years living expenses

23:31

in cash means you

23:34

have the flexibility that if you

23:36

don't want to do that, you don't have to, but it

23:38

all comes down to your tolerance. My

23:41

mother was more of the investor in our house, and

23:43

that's who I talk stocks with my entire life. He

23:47

had seen that, and she managed our money that

23:49

way, and so he had a tolerance

23:51

that he didn't care about the up and down.

23:53

It was long-term money that was going to stay

23:55

invested. I actually needed it for something. Buck

24:00

said earlier about the fact that when the market

24:02

declines, dividends come down

24:04

to cut. If you look at even the

24:06

Great Depression, the worst period from the

24:08

market, 1930-1932, where

24:12

the market declined 83%, the dividends

24:14

in the market only declined 32%. In the great financial

24:18

crisis, October 2007, March

24:20

2009, stock market down 57%, the amount of dividends, 0%

24:26

declined. Incredible. Before

24:28

we move on, Buck, where was that

24:30

family restaurant? Lancaster, Pennsylvania. That is amazing.

24:33

Last week, Robert Scuia wrote into

24:35

the mailbag from? Lancaster,

24:38

Pennsylvania. And indeed, with me at

24:40

the microphone, the Motley Fool's Chief

24:43

Investment Officer. We know him, we love him. Andy

24:45

Cross. And Andy Cross is from? Lancaster,

24:47

Pennsylvania. And he's really from Lancaster.

24:50

When I say Lancaster, I'm like actually in a town

24:53

called Lidditz. It's seven miles north of Lancaster. Sure,

24:55

that counts. And he's legitimately from Lancaster. That would

24:57

be like the city. We would say he's a

24:59

city boy, right? Big town. And

25:02

my father and his brother, his

25:04

brother went on to start Gardener Investments and

25:07

they grew up in? Lancaster, Pennsylvania. I mean,

25:09

what is going on with this? Okay, enough with

25:11

the Lancaster, Pennsylvania Chamber of Commerce announcement in the

25:13

middle of our dividend fooled conversation.

25:15

But thank you. Yeah, Lancaster. So

25:18

these are, Matt, these

25:21

are some of the most resilient companies

25:23

in the world today that are paying

25:27

substantial dividends, especially ones that have done so

25:29

over a long period of time. We haven't

25:31

used this phrase yet, but is there a

25:33

phrase that's used to label the

25:35

companies that dependably pay

25:37

rising dividends over long periods

25:39

of time? That's

25:41

right. The dividend aristocrats, which is a S&P

25:44

500 global property. So give them

25:47

the trademark there. Okay. These

25:49

companies have not only paid a dividend for

25:51

25 consecutive years, they've grown their dividend every

25:53

year for at least 25 consecutive years. It's

25:55

a remarkable set of companies. If you think

25:57

about what it takes to do that, the

25:59

type type of business that you

26:02

have to have to sustainably

26:04

grow earnings and exist for

26:07

that period of time and beyond is extraordinary. So

26:09

it is an absolutely extraordinary set of companies. And

26:11

Matt, you're working on the Dividend Investor, one of

26:13

the Motley Fool's services. Please give

26:15

a really brief plug for Dividend Investor.

26:17

Sure. So Dividend Investor, it's actually about

26:20

a year old as of this month. We

26:22

launched it, yeah, early 2023. And

26:25

with a focus on dividend growth, because

26:27

if you look at companies that are, and we just talked about

26:29

the dividend aristocrats, but if you look at companies that can grow

26:31

their dividend over time, those tend

26:33

to be over the very long term the best

26:36

performing part of the market. So

26:38

companies that initiate and grow dividends compared to

26:40

really any other sector of companies, non-payers,

26:43

worst of all, companies that cut their dividend,

26:45

those are the companies that do well. So

26:47

we wanted to really isolate that part of the market, focusing

26:50

on high quality companies within that space. And

26:52

before we move to Chapter 3, we're closing

26:54

in on Chapter 2 here, the practical value.

26:57

Could you speak to the benefits

26:59

of reinvesting through, let's say, a

27:01

drip plan, dividend reinvestments that investors

27:03

can make over the course of

27:06

time, benefits thereof? That's right. So

27:09

one of the things that Buck said was talking

27:11

about owning dividend stocks and downturns, which

27:13

I loved, and dividend stocks tend to hold up better.

27:15

But what they also do for you, if you're reinvesting

27:17

those dividends, and you have a couple

27:19

options to do that, you can get the cash and

27:22

simply choose what to invest in, choose what

27:24

to buy more of, or you can do

27:26

what you said these drip plans, dividend reinvestment

27:28

plans, where most brokerages will allow you, they

27:30

get the dividend and it's cost

27:32

free, tax free, they will just reinvest

27:34

that dividend into that same stock. So

27:37

you can buy fractions of the stock over time and kind

27:39

of build your position naturally. I love

27:41

doing that, especially during downturns, because if you think about

27:43

if stock is down 30%, but the

27:45

dividends aren't, your dividends are getting reinvested

27:47

at better prices. And so you're building these

27:49

positions over time in these

27:52

companies, these high quality companies, oftentimes at

27:54

low valuations, and you're kind of really

27:56

compounding your wealth as years go by.

27:58

Yeah. And interestingly, I'll just add. that

28:00

when you calculate the actual returns on a

28:02

stock that pays a dividend, you have to

28:04

make some assumptions about what

28:07

people do with those dividends. And usually

28:09

the convention is that you assume that

28:11

they were reinvested at the time, but

28:13

ironically almost no one does it. So

28:15

the returns that you see for most of those

28:17

stocks that they've paid a long-term dividend is assuming

28:19

that they reinvested and bought more of that stock

28:21

when they got the dividend and most people do

28:23

not do that. Now I know some of our

28:25

listeners do. I bet we over... And through The

28:27

Motley Fool, I bet we over-indexed toward people who

28:29

do that. And yet, and yet a

28:32

lot of people listening right now are

28:34

probably going, wait, check that. Wait, what did Matt say

28:36

again? How do I

28:38

sign up for a dividend? How do I get

28:40

that automatically reinvested? And is this something guys that

28:42

I would typically do, let's say I have an

28:44

account at Schwab. Do I just let Schwab know

28:47

or do I go to the company? Are there

28:49

benefits? Let me know. I'll speak to Schwab just

28:51

because I have an account there. If you go

28:53

to, you can simply go to your portfolio page

28:55

and there's literally a checkbox next to every position

28:57

and you can say reinvest dividends, check that box,

28:59

yes. And then going forward, every dividend that receives

29:02

for that stock will be reinvested in that stock.

29:04

And so a lot of brokerages do that

29:06

now. So it's as easy as Matt said.

29:08

There used to be a company when nobody,

29:11

a lot didn't offer it. It was called

29:13

Share Builder, which I originally had for my

29:15

kids and they got bought out by somebody,

29:17

I think E-Trade bought out Share Builder, but

29:20

they were kind of the unique one in

29:22

this year. They did it really well. That

29:24

was their like big focus. Around the challenges

29:26

and misconceptions. Buck, let

29:28

me turn to you. This

29:32

is an important topic because there

29:34

are some challenges to being

29:36

a dividend focused investor. Double

29:38

taxation might be something you'd like to speak

29:40

to, but in addition we're

29:42

also going to address some misconceptions. Let me

29:45

take it Hartzell's way. Yeah, so I'll

29:47

say that the double taxation is real, so

29:49

the company pays taxes on the profits they

29:52

earn. That's what companies do. If they have

29:54

profits in the United States of America, most

29:57

of them I think. Right. If they haven't offshorted

29:59

or figured out some. some way around the

30:01

tax man, they're paying taxes on their profits.

30:03

Yes. And then when you

30:05

get a dividend from them, you also have to

30:07

pay taxes on your taxes. Their profits have already

30:09

been reduced and they're paying you some of what's

30:11

left over to you, the

30:14

poor shareholder, but you poor shareholder,

30:17

poor only in relative terms, you

30:20

unfortunate shareholder now also have to pay

30:23

tax on the dividend that you receive, the

30:25

dividend's in income that you're receiving. Yes, that's

30:27

right. And hence the double taxation. Yes. And

30:30

I think Matt mentioned earlier about Warren Buffett

30:32

and one of the reasons he's gone publicly

30:34

and said, you know, several

30:36

times that Berkshire Hathaway will

30:38

never pay a dividend as long as he's

30:40

CEO. And that's been true

30:42

to date. And by the way, I'm going up

30:44

to the Berkshire meeting here in a day or

30:47

so. So I'll be there. I

30:49

think we've talked about meta and we've talked

30:51

about alphabet introducing

30:54

dividends. I'll

30:56

predict the future and say that Berkshire will

30:59

actually pay a dividend. I

31:01

don't think it'll come on Warren Buffett's

31:03

watch, but I think whoever's predecessor, which

31:06

is going to be Greg Abel, it's

31:09

going to relieve some pressure from him

31:11

and the people that invest Berkshire Hathaway's

31:13

money. And Warren Buffett has also said

31:15

it's hard to hold $150 billion in cash on the balance sheet

31:19

and do that. So I think they will

31:21

pay a dividend sometime in the not too

31:23

distant future. Over his dead body?

31:25

I'm not meaning to be morbid. No, I

31:28

don't know. I think that's what you're getting at, Buck. I'm

31:30

saying it's at the point. Perhaps

31:33

they'll make a giant acquisition of a $100 billion company, which

31:35

I know he'd love to do, but I

31:37

think a dividend is coming to Berkshire Hathaway. Thank

31:39

you. You heard it here first or maybe not

31:41

because... Well, you heard it here. Is that completely original to

31:43

you, Buck? Are you the first person to take a risk

31:45

and say that? No, I don't think so. Well, you might

31:47

be. But I don't know. We don't know. We

31:50

can't know. I don't know. That was brave.

31:53

So, yeah. The other one I'd say is there's

31:57

a lot of great businesses and even the...

32:00

businesses, you probably don't want

32:02

to pay a dividend. And what I mean by that

32:04

is if management has

32:06

demonstrated an ability to take their

32:08

profits and reinvest them at a high

32:10

rate of return and earn 20% or 25% or 30%, you want

32:12

that management team

32:16

to keep all that money as

32:19

long as they can and keep earning

32:21

more money on it, right? So not

32:24

many companies can do that, but if you are one of those companies in

32:26

your growth business and you reinvest at a high

32:28

rate of return, you probably

32:31

don't want to dividend from it. Matt Argersinger,

32:33

agree, disagree, neutral. I will

32:35

disagree mostly in the sense that when

32:38

you say not many companies, I would say very,

32:40

very few companies can invest at a high rate of

32:43

return for very long periods of time. And what

32:45

do you mean when you say long periods of time

32:47

because that seems like an important point? I would say

32:49

I'd say 10 plus years feels like a long

32:51

time. I don't think many companies can even invest at

32:53

high rates over a decade. I'll

32:56

give you an example. I mean, we talked about

32:58

Alphabet earlier. Alphabet is –

33:00

Google is an extraordinary business. I think we'd

33:02

all agree. And since its IPO, it's trounced

33:04

for the stock market. It has. And

33:07

I think rightfully so. They should not have paid a dividend. But

33:09

I would argue that if Alphabet

33:11

had started paying a dividend, say 10 years

33:13

ago instead of just recently, I

33:16

think their returns to shareholders would have been better. I

33:18

say that because they've made a

33:21

lot of allocations, capital allocations in the last 10

33:23

years. I think that's a huge issue. Probably wasn't

33:25

in the best interest of shareholders. And had some

33:27

of that gone to dividends and not to a

33:29

lot of their other bets or other parts of the business,

33:33

I don't think paying, say, a 3% dividend yield over

33:35

the last 10 years would have absolutely restricted them at

33:37

all from allocating capital effectively. Yet

33:39

I think shareholders would have been better off. So

33:41

it's not always about, well, a company just invested

33:43

at high rates of return. Let them keep all

33:45

the capital. I think that can go hand in hand with paying a

33:47

dividend as well. And I think, to you

33:50

guys, one of the things I've said about dividends over

33:52

the years is that they provide a

33:55

cushion for a company's

33:57

stock price drops. Because

34:00

if the company can keep paying out, let's go

34:02

back to our example we used to kick off

34:04

the podcast. It's stocks at $50 a share, companies

34:07

paying a dollar a share

34:09

in dividends, a 2%

34:11

dividend yield. Let's just

34:13

pretend the whole market drops 25%

34:16

like it did in a single month when we last

34:18

did this episode four years ago. All of a sudden

34:20

that $50 stock is now down to $37.50 or something

34:22

like that. And

34:25

now the dividend yield, $1 around $37.50,

34:27

is starting to get closer to 3% to 4%. And

34:33

it's almost like if they can keep paying out, the

34:35

stock can't drop much below 20%. Because

34:38

at that point it's a 5% dividend yield. You

34:41

pointed out, Matt, we're at historically low dividend yield for the

34:43

S&P 500 of 1.4%. 5%

34:46

is a phenomenal return. Again,

34:48

assuming this is a rock-solid enterprise, they can

34:50

keep paying that dividend. So there's that cushion,

34:53

there's that unsinkable Molly Brown factor for the

34:55

companies that can keep paying these dividends. That's

34:57

right. There's an absolute balance that comes with

34:59

a company that pays a dividend. And I

35:01

would also argue that you wouldn't

35:04

just argue. You are arguing. I am arguing.

35:06

Don't use the conditional form of the verb.

35:08

You are arguing. I am arguing that. What

35:11

Buck said about agency risk

35:13

or the discipline that the dividend

35:15

exerts on a company is I

35:17

think it's really an understated point.

35:20

If a company knows it has to pay a dividend, and we

35:22

talk about companies that are paying it, I have to pay this

35:24

dividend. I have to pay 30% of my earnings out or whatever

35:26

the payout ratio. Because that's what I promised, and companies hate to

35:28

cut their dividend, and they want to maintain that.

35:31

I think it exerts a certain amount of pressure on

35:33

management to say, well, we can't do this other project

35:35

or this other thing. Because you know what? 30% of

35:37

our earnings are going to dividend. 30% are

35:40

going to pay back debt. And so that leaves us 40% to

35:43

allocate to the business, reinvest, whatever have

35:45

you. I think that is an

35:47

underrated strength of a lot of companies that have

35:49

paid dividends over time. And I

35:51

like one thing that Matt said, and a

35:54

few companies do this, where they say, we're going

35:56

to pay out a certain percentage of our earnings,

35:58

or above a certain level. level of earnings,

36:00

we're going to pay out this much in

36:02

dividends. And it varies year from year. We

36:05

also haven't talked much about special dividends at

36:07

all here at all. I

36:09

love companies that pay one-time special

36:11

dividends, and some do it very

36:14

regularly, where they're saying, hey, if we have

36:16

the optionality to invest in this growth, or we're going to

36:18

make a big acquisition, or we're going to do whatever else,

36:21

we're not going to pay a special dividend this year.

36:23

But if we find ourselves, or we can't find good

36:25

ways to invest, we're going to pay you out a

36:27

special dividend and return that capital

36:29

to you, because that is disciplined in another way

36:31

that's saying, hey, nothing's meeting our hurdle rate, so

36:33

we're giving it back to our share. I

36:36

don't know if it's ... I don't think irony is the

36:38

right word, but it's interesting if you look at a lot

36:40

of international companies, especially European companies. They do exactly that model.

36:42

Which is, we're going to make a certain amount of earnings,

36:44

or we think we are, and if we make it, we're

36:46

going to pay a certain percentage of that out to investors,

36:49

and it varies year to year based on the earnings.

36:51

I kind of wish a lot of companies would do that more in the

36:53

States. We tend to, for some reason in the United States, we have adopted

36:56

the whole, we declare this quarterly

36:58

dividend, and that's what we're going to pay

37:00

until we raise it, and it's going to stay that way. Whereas

37:02

a lot of international companies, a lot of commodity

37:04

based companies, Rio Tinto comes to mind, where it

37:06

pays big special dividends based on how their earnings

37:09

do. That's a cyclical business, so it makes sense,

37:11

but that to me always seems like a smarter

37:13

model. I don't know why more companies don't raise

37:15

it. It's a much better model. It's funny, because I'm torn on that,

37:17

guys. I will mention, looking back over the

37:19

stocks that I picked for the Motley Fool over 28 years, one

37:22

of them was a great dividend payer,

37:24

and has been a fantastic investment. It's

37:26

TDG, TransDime,

37:28

ticker symbol TDG TransDime

37:31

Group. This company is

37:33

famous for special dividends. We're

37:36

here in Chapter 3, Challenges and Misconceptions. I

37:38

find it challenging to remember what my actual

37:41

rate of return is, because when I look

37:43

at a stock graph and I look at

37:45

TDG, it's amazing looking. It's up 900%,

37:47

if you go back July 20, 2012, and I picked it for Stock Advisor.

37:53

900% on a stock graph today, S&P 500, 300% over that same 12-year period. So

37:58

tripling the market, awesome stock. Well,

38:01

it wasn't its return. The actual

38:03

return of TDG – and we have this on

38:05

our Stock Advisor site because we properly fully account

38:07

for things – the actual return

38:09

is 1,900%. It's a 20-bagger. The more the

38:11

dividends factor into a stock's return, the harder

38:13

it is, the more opaque it is, not

38:15

just to me, the shareholder, but to the

38:17

world at large, to us on a podcast

38:20

trying to talk about what your actual returns

38:22

are. So I find that a challenge, and

38:24

– I'm about to pass the ball to

38:26

Matt here – but, and at

38:28

least if you do it regularly, quarterly, I kind of can keep

38:30

up with that and get that. If

38:32

you start going, yeah, $3.79 dividend

38:35

this, I don't know, January, it

38:37

becomes very hard to understand what our return was.

38:39

So I find that a challenge. So I know

38:42

you guys are championing the European model, and I

38:44

love me, my TDG. Shout-out

38:47

to Stock Advisor members who might still be

38:49

holding that for 12 years ago because it's

38:51

been phenomenal. Amazing. But it's very hard to

38:53

really know what's going on. No,

38:55

I agree. I agree with you, and I – and right,

38:57

I'm kind of hurting my original point about the

39:00

regular dividend is more disciplinary on management in

39:02

a way. So I kind of – I

39:04

like that aspect of it. But

39:06

your example of Transom brings me to the example

39:08

of Costco, which is kind of a hybrid model,

39:10

pays a regular dividend and the occasional special dividend.

39:14

But we do a big disservice with most stock

39:16

charts when we just show price, or even because

39:18

companies that do pay special dividend, or even companies

39:20

that just pay a high regular dividend, there's a

39:23

company called EPR Properties. It's

39:25

a real estate investment trust. No one's ever heard of

39:27

it. If you look at the return since its IPO,

39:29

it's been phenomenal. It's like 1,800%. If

39:32

you look at just the price return, it's up like 50%. That's

39:35

what I'm talking about. It pays such a huge

39:37

percentage of its earnings out of dividends, being a

39:40

REIT. It has to, that it really

39:42

undercounts the actual total return that shareholders get. Do

39:44

you know what EPR stands for, by the way?

39:48

Experiment? No, I don't. Experiential

39:50

properties? It is entertainment

39:52

properties, and the R for

39:55

EPR may be just from

39:57

properties. Maybe. It's kind of a –

39:59

it's a – I

40:01

wish they'd rebrand themselves. They have an opportunity to

40:04

create more love and consumer awareness by

40:06

not claims of EPR properties. I agree.

40:08

Even, Matt, you're lionizing this coming. You

40:10

don't even know what it stands for.

40:12

That's terrible. What am I doing here?

40:16

All right. Well, thus concludes chapter 3, the

40:18

challenges and misconceptions. Sure, there are

40:20

probably more misconceptions out there and more challenges,

40:22

but we're not trying to cover everything

40:25

this episode. We're just trying to

40:27

cover the things we think are important.

40:29

Chapter 4, stock

40:31

buybacks versus dividends. Now,

40:34

I have made some hay over the years

40:37

on Rule Breaker Investing by occasionally dedicating an

40:39

entire week's podcast to my pet peeves. And

40:42

it's almost embarrassing. I think I'm on volume 8

40:44

or 9, and I'm doing like 8, 8-an-episode. Like

40:47

I have put out there into the public 60 to

40:51

70 things that irk me over the

40:53

course of time. A lot of them are pedantic

40:55

language. It's like – it's almost

40:57

sad and self-indulgent that I've

40:59

done as much as I have with pet peeves

41:01

because I'm a happy person. I don't think I

41:03

walk around judging the world in

41:05

the way you'd think for my pet peeves and

41:08

Buck Hartzell. I'm not the only one with pet

41:10

peeves. I have many pet peeves,

41:12

but I haven't done any episodes, so I've probably got

41:14

a long list of ones that we need to leave.

41:16

Well, you're on this episode, and you've got a pet

41:18

peeve in this area. I've got a lot of different

41:21

dividends, and I've got bone to pick with a lot

41:23

of executives. Pick it.

41:25

The big one that I have is when

41:27

companies at the end

41:29

of the year ago, we bought back $100 million

41:32

in stock and paid $30 million in

41:34

dividends, and we returned $130 million to shareholders.

41:36

You did not return $130 million. When

41:43

you buy back stock, that is

41:45

not a return of capital to

41:47

shareholders. Dividends actually are. So

41:50

stop telling us that you return

41:52

capital to us, because oftentimes, stock

41:54

buybacks don't even benefit the shareholders

41:57

at all. So you

41:59

don't see it. Technically, if we're not getting

42:01

down to technicalities here, but you take money, right?

42:04

And you when you take money

42:06

and you buy back stock and that money was on

42:08

your balance sheet if it was a hundred million dollars

42:10

It's now gone. Yeah, you didn't give it to me

42:12

And if the stock didn't go up by the total

42:15

stock by a value of a hundred million dollars There's

42:17

nothing that comes back and typically it's just not a

42:19

return of capital shareholders So don't tell us that one

42:21

of them is and that's dividends. That's a return of

42:24

capital shareholders Matt

42:26

are buybacks effective are dividends

42:29

effective Do you want to

42:31

is there a debate to be had here

42:33

about what we as shareholders should be cheering

42:35

on? I think as shareholders we

42:37

should be cheering on dividends much more than buybacks.

42:39

So I'm with buck I would

42:42

say there you know, and this is an obvious point

42:44

I think we all know this that there are companies

42:46

that do buybacks more effectively and I think buybacks have

42:48

a role to play I wish there wasn't I wish

42:50

you know, it wasn't dividends really small

42:52

here and these buybacks here I mean if you

42:54

look at even alphabets announcement, you know They announced

42:56

this point five percent dividend yield stock got a

42:58

nice day that day Although there was also a

43:00

buyback and a dividend and some earnings so I

43:03

couldn't really tell why I stopped But they announced

43:05

a dividend in conjunction to this massive. I want

43:07

to say 70 billion dollar buyback I think that's

43:09

what it was a new buyback. Anyway, I

43:11

think the dividend will cost them 10 billion dollars

43:14

Well, I think I read that the the

43:16

interest they're getting on the cash on the balance

43:18

She's gonna almost cover the dividend if you look

43:20

at it, but they got a lot of cash

43:22

But regardless, no, I think dividends should should be

43:24

more in favor. I think more companies which should

43:26

do that I think invest in shareholders be better

43:28

off, but there are certainly good examples of companies.

43:30

They're doing it, right? I think eBay is an

43:33

interesting example of a company that although it has not

43:35

been a you know A market beater

43:37

by any stretch if you look at and

43:39

I know bucks a little bit fan of eBay They

43:41

initiated dividend for the first time five years ago. They've

43:44

doubled that dividend over that five

43:47

year period But what's interesting is the cash they're

43:49

paying out to cover the dividend today It's

43:51

only ten percent higher than the cash they're paying

43:53

out five years ago when they first initiated the

43:56

dividend and that's because they bought Back so much

43:58

stock that the the obligation the cash obligation

44:00

to pay out the dividend is if

44:06

you can find a company that's growing its earnings a high

44:08

quality business paying a growing dividend but that's

44:10

also doing effective buybacks and we have there's a bunch

44:12

of companies that do wow you can really

44:14

compound your wealth in a business like that and you don't have to

44:17

get a ton of growth in revenue or

44:19

earnings to really do that yeah

44:21

and unfortunately I agree with Matt

44:25

the statistics tell us that most companies are

44:27

not good at buybacks terrible I always hear

44:29

that right and and and they don't create

44:32

a lot of value for folks but here's

44:34

here's why I believe CFOs and CEOs like

44:36

buybacks because they're not locked into

44:38

them when they it's that discipline

44:41

they declare a dividend something happens they've allocated

44:43

X dollars toward buyback yeah and so if

44:45

you see what happens and I did I

44:47

did that's absolutely right I did research many

44:49

years ago where you looked at S&P 500

44:52

buybacks and when do you think they peak

44:55

if you look at the performance of the stocks and

44:57

the price is gonna be a cynical point isn't it?

45:00

It says the market peaks. Yeah when the market

45:02

peaks that's exactly when

45:04

when buybacks peak and then

45:06

what happens when stocks drop in 2008 30%

45:08

ain't nobody buying back nobody buying back right

45:10

for like 10 years I think 2007 was

45:13

like their record year it

45:15

always hits the record right before

45:17

so their timing is impeccably

45:20

terrible but if you think of

45:22

it from the mind of

45:24

the CFO the first thing that they're going

45:26

through is okay we got to pay our payroll

45:28

we got to invest in our growth and we

45:30

got to do all these things and then at

45:32

the end of time they go okay what do

45:34

we have leftover and on their

45:36

best years when they're earning the biggest profits and

45:39

they're really good they're like we have a lot

45:41

left over what do we do we're gonna we're

45:43

gonna we're gonna buy back stock even though we're

45:45

paying a very high price for it and then

45:48

we'll tell shareholders that it's a return of capital

45:50

and they'll all be happy. I don't really follow

45:52

buybacks per se it's not something I target hope

45:54

for in the stocks that I would buy or

45:57

recommend or follow in the

45:59

companies that are doing it. So

46:01

you guys probably follow this more than I do, and I'm

46:03

not even saying you follow it. But are

46:05

there companies that routinely,

46:08

regularly buy back through

46:10

all market conditions in the same way

46:13

that there are dividend aristocrats that regularly

46:15

pay dividends quarter after quarter

46:17

through all market conditions?

46:19

Because if there are, and I

46:22

suspect there are, at least sometimes I'll look over

46:25

five years of financial results in an annual report,

46:27

which used to be paper that we used to

46:29

call the investor relations department for and have nailed

46:31

to us, and these days it's all online. But

46:33

when I look over the companies that,

46:36

you know, there are definitely ones that persistently

46:38

reduce their share count. And

46:40

those are often good performers. But it would seem to

46:42

me, guys, that if

46:45

you as a CFO, Chief Financial

46:47

Officer, simply routinely bought back stock,

46:50

you would not be one of those companies that always

46:52

makes the bad calls. The stock market tends to rise

46:54

over time. If you want to be a hero

46:57

CFO, just systematically,

46:59

quarterly allocate something to

47:01

buy back stock if you want to allocate your capital

47:03

that way. Don't time anything.

47:06

Be rigorous. I'm just curious, is that something

47:08

that you observe? That's an amazing point. I

47:11

haven't seen work on that, and I have

47:13

not observed that necessarily. I will say that

47:15

a company like Chevron, which maybe has

47:18

never come up on the RBA podcast, I don't

47:20

know. You know what? I will search. I have

47:22

a database of our podcast. Oh, that's awesome. The

47:25

number of times Chevron may have been uttered in nine

47:27

years of this podcast. Keep going. Okay, but Chevron is

47:29

an example, at least one that comes to mind

47:32

of a company that eight or

47:34

nine years ago had a new CEO came in,

47:36

kind of did a big capital allocation shift. And

47:38

they have dedicated, every year, they have

47:41

said, we're going to buy back $4 billion or $5 billion worth

47:43

of stock. And they actually have done it. Now,

47:45

it's not all, it's not in equal amounts.

47:47

But they've really lived up to what they've said they're going to

47:49

buy back. And so one company I can think of right now,

47:51

but I'd love to do that study, David. Walmart

47:54

is another company that years ago decided they

47:56

were going to take about a third of

47:59

their earnings and buy back stock and they're going

48:01

to take another third of their earnings and pay out

48:03

a dividend. So they kind of balance it. And

48:06

I think those are better than the ones that

48:09

guess and just do it when they have extra

48:11

left over for sure. The ones that I do

48:13

spend a lot of time on and

48:15

think a lot about are the ones that are

48:17

very strategic about it. And they're saying basically there's

48:19

two rules. We have to have extra capital and

48:21

it has to be below intrinsic value. And those

48:24

are companies that when it does go on sale,

48:27

they buy a lot of it back. So

48:29

those are the ones that are very strategic,

48:31

not just the regular. So for 30 years,

48:34

we at The Fool have said to anybody

48:36

who would listen on our website, our podcast,

48:38

et cetera, dollar cost averaging is a great

48:40

way to approach investing. Save a

48:42

portion of your salary check every two weeks.

48:45

Market's high, market's low, doesn't matter. Put it into

48:47

a company or a fund that you love and

48:50

respect and think it'll be around 10 plus years.

48:52

Take timing out of it. It's time in the market,

48:55

not timing the market. Dollar cost

48:57

average. It's got its own acronym, DCA. I

48:59

think a lot of people hearing us right

49:01

now are already doing this. Why

49:03

wouldn't you do this with your capital allocation if

49:05

you're going to buy back? DCA, baby. Sounds

49:08

like a CFO, what they should be doing. I

49:10

appreciate that, Matt. And yes, you are the first

49:12

person to ever bring the

49:15

word Chevron. It's the word Chevron. The

49:18

podcast launched in July of 2015. We've

49:21

had a new fresh episode every single week

49:23

since. No one until right now,

49:25

Matt, had ever said it's happened. Chevron. All

49:27

right. Take your CVX, by the way. All

49:30

right. I love it. All

49:32

right. Chapter five, maybe the spotlight chapter

49:34

of this entire podcast. We'll see based

49:37

on the clicks and the data that

49:39

I never actually look at. I hope people are still listening.

49:42

It's spotlight on dividend

49:44

stocks and strategies. It's

49:46

PICS time. Buck, by the

49:49

way, thank you for your PICS four years

49:51

ago. It's been fun to watch them. You

49:53

mentioned CNA Financial at the time, an insurance

49:55

company. It was paying out special dividends, something

49:57

that I now know that you really like.

50:00

It had like a 10% yield back then. Yeah,

50:03

and it still does. It still has a high yield. The

50:06

stock's gone up, but they still pay a

50:08

special dividend, which they did again this year,

50:10

and they've raised their regularly quarterly dividend. So

50:13

people that did buy then are probably getting over a

50:15

10% yield. Pretty happy. Do

50:17

you know, who's the CEO today? Is

50:20

it still the same gentleman? Yes, it's a

50:22

person, Dino Robusto, who came over. An amazing

50:24

name. Yes, which is an awesome name. Could

50:26

you say that name again? Dino Robusto, and

50:29

he came over from Chubb, which is a

50:31

great insurer, and he's done a remarkable job.

50:33

Possibly the best CEO name of our time.

50:35

Yes, with a great name. Dino Robusto. A

50:38

whole of family. Robusto, baby. All

50:40

right, good. Well, let's get into

50:42

the picks here, guys. Let me go to Matt first.

50:44

I think you've each brought three, and

50:47

so we're going to bounce it back and forth. Ping Pong,

50:49

a minute or so each. Give us

50:51

a pitch. Matt Argersinger, pick number one. Let's go. RPM

50:54

International. It's like our RPM. This

50:56

is a great family-run business, founded

50:58

by the current CEO's grandfather. In

51:00

1947, RPM stands for

51:02

Republic Powdered Metals. If that gives you an

51:05

indication how exciting this company is, then, well,

51:07

there you go. But this is

51:09

a company that just has a

51:11

ton of products in sort of

51:14

the repair, maintenance, DIY home renovation

51:16

markets. Think Rust-Oleum, Quicksield, Dynaflex. If

51:19

you've done any home renovations, and I've done

51:21

way too many, you've definitely used RPM's brands,

51:23

I promise. In

51:25

1947, when the company was founded, they had

51:27

this one product, and it sold

51:29

only in the United States, and their sales reached 90,000. In

51:32

the most recent fiscal year, they have a portfolio

51:35

of dozens of products, a market

51:37

that encompasses 164 countries and

51:39

territories, and their sales hit 7.3 billion. It's

51:42

really impressive. What I love

51:44

about this business, we recently recommended

51:46

it for our Dividend Investor Service, is

51:49

they have paid, now paid a dividend

51:51

that's grown for 50 consecutive years. And

51:53

there are very few companies that

51:55

have done that, and the business and CEO, who's

51:58

also the grandson of the founder, loves to call this out. But

52:00

if you invested in the business after

52:02

it went public in 1973 and held for all those 50

52:06

years, your $1,000 has turned into $1.1 million. So

52:12

extraordinary business and a company that has really dedicated

52:14

to growing the dividend and continue to grow within

52:17

its markets. And I love all these picks.

52:19

They're all our children. I do

52:21

know something more about this particular one, Matt, because

52:23

I did pick it for Motley Fool Stock Advisor.

52:25

That's right. I was checking it. It was January

52:27

16, 2015. So

52:30

we're coming up now on nine years. And

52:32

I was just checking the stock over

52:34

that period of time. It's been roughly

52:36

a market tracker. It's right around 150%

52:38

or so over the last nine years. But

52:42

I'm pretty sure that doesn't include dividends.

52:44

It's not showing up on the stock

52:46

chart, a point we made earlier. I

52:48

think it's been a very good performer. And Frank

52:51

Sullivan is actually somebody that I know through

52:53

the University of North Carolina connections that I have.

52:55

So I didn't know you were bringing that. If

52:58

there needs to be a disclaimer for me, there you go. Home

53:00

team pick. Great company. Fuck.

53:03

I will break the home team pick. And I have

53:06

contrarian streak in

53:08

my picks, but also some important

53:11

points. Love it. We're going

53:13

to dispel some myths. So my pick is

53:15

EngHouse Systems. That's

53:17

eghs.f. It trades over the counter.

53:19

I'll make one quick point about

53:21

that. For those United States investors,

53:25

when you get a dividend from a foreign company,

53:27

in this case Canada, usually there will be a

53:29

15% withholding tax. So

53:32

we talked about you have to pay tax on dividends. Triple

53:34

tax? This is above that. It's

53:36

15%. This

53:38

better be good, Bob. It's just a

53:41

warning for you. But here's why

53:43

EngHouse Systems is important. It's

53:45

a small cap company, which typically I

53:47

think people associate dividends with larger companies.

53:50

True. It's

53:52

Canadian, as we mentioned. It's also

53:54

a technology company. It's a founder-led

53:57

business that is a serial acquirer

53:59

of smaller... technology companies. And

54:01

so it's very profitable. And one of the

54:03

things that they've done recently

54:06

is when interest rates

54:08

went to zero and the prices

54:10

for the companies they acquire were very high.

54:13

They said, we're not gonna buy anything. We can't find anything.

54:15

And they built up a war chest of $250 million in

54:17

cash, no debt.

54:19

And now those prices are starting to turn over

54:22

because they often buy companies that aren't particularly well

54:24

run and then they run them better. So we're

54:26

starting to see a big pickup now in their

54:28

acquisition activity. And it trades for 20 times earnings

54:31

for a wonderful business. If you look over the

54:33

last 10 years, the average is about 34 times

54:35

earnings. We mentioned they have zero debt,

54:38

$250 million in cash on their balance sheet. They

54:41

recently raised their quarterly dividend by

54:44

nearly 19%. That's

54:46

22 cents a share, that's Canadian.

54:49

It's the 15th consecutive year that

54:51

they've hiked their dividend by over 10%. So

54:55

15 years in a row, not just raising it by

54:57

over 10%. That beats inflation,

54:59

fellas, by a long shot. And

55:02

triple taxation. And triple taxation, right? So you

55:04

do have some taxes. And current yields

55:06

about 3.5%, which

55:08

Matt mentioned the S&P

55:10

500. If you're buying the index fund, you're getting about

55:12

1.4%. So you can

55:15

afford to pay that little extra 15% tax

55:18

and you're still gonna be getting a much higher yield than

55:20

you will be from the S&P 500. And

55:22

I think you're getting a better quality company as well. Is

55:24

this company liquid enough? If

55:27

all of our listeners try to buy this

55:29

stock on next week. I have checked that.

55:31

I sure hope so. We've wrecked that in

55:33

many services, including in the US, and

55:35

it trades on the OTC, and the trading volume is

55:37

pretty good. If

55:40

all of our millions of listeners go in and

55:42

buy at the same time, I would say, what

55:44

I generally recommend for all smaller companies is use

55:46

a limit order and be patient.

55:48

If everybody's buying today on the first day

55:50

of the podcast, then wait till tomorrow or

55:53

Monday and put in a limit order. That's

55:56

always been good advice for all of our Motley

55:58

Fool services, especially our biggest ones. stocks will

56:00

pop when we say we're buying this one.

56:02

We've always designed it so that you don't

56:04

have to get it that minute or that

56:06

day. Just do it two

56:08

days later, especially if the prices pop just

56:11

because of demand. That will

56:13

subside and you'll find yourself with the

56:15

stock two days later less stressed. Matt

56:17

Argersinger, stock number two. I promise this

56:19

is a complete coincidence. But

56:21

the company, my number two company. Is Enghouse.

56:25

That would be a real coincidence. You're

56:27

not working out the Canadian. No, no,

56:29

it's not Enghouse, but it is a

56:31

company we talked about earlier. Founded

56:34

in 1894 by a gentleman

56:36

named Milton Hershey in. Oh,

56:38

Hershey, Pennsylvania. Not Lancaster, but. No, actually,

56:40

no, no, no. Sweetest place on earth. It

56:42

was founded in Langstra, Pennsylvania. That's right,

56:44

because it was Carmel's original. Yeah, it

56:46

was Carmel. I didn't know that. So

56:48

Langstra's come up, it's like the fifth

56:50

time it's come up. That and Chevron.

56:52

And we're done. We're done here. We're

56:54

done. So we all know Hershey. Hershey's Reese's

56:57

Kisses, Jolly Ranchers, Icebreakers. I love Hershey.

56:59

But these days, Pirates Booty, Skinny Pop

57:01

Popcorn, Dots Homestyle Pretzels as well. They

57:03

got into the salty snack business. Wonderful

57:06

business. If you just bought Hershey and nothing else

57:08

for the last 30 years, you've more than doubled

57:10

the stock market. It pays, of course,

57:12

it's paid a dividend. It's raised its dividend for

57:14

14 consecutive years. Stock

57:16

has been hit lately, though,

57:18

because cocoa prices, guys. I

57:20

don't know if you follow the news, but cocoa prices have

57:23

just been, unbelievable.

57:25

They've tripled in the last five months.

57:28

They recently traded over $10,000 a ton, more than

57:30

the price of copper. That's what's happened

57:32

to cocoa prices. So that is put

57:34

a little bit of a cloud on Hershey's stock. It

57:37

hurts their margins. I

57:39

promise you, cocoa prices are going to come down.

57:41

Hershey's margin is going to soar within the next year.

57:43

And you get the stock today at a very

57:45

nice valuation, almost 3% dividend yield. Great

57:48

opportunity to buy a great long-term business.

57:50

And I believe the most unique ownership

57:52

structure, probably of just

57:55

about any public, probably traded company. Yes, there

57:57

is. It is controlled by a family trust

57:59

that... Doesn't own majority

58:01

of the shares but controls the voting power

58:03

so and that and that's controlled by the

58:05

hurt Milton Hershey school That's

58:08

right orphans orphans. Yeah, that's right phenomenal

58:10

story Milton and his wife did not

58:12

have kids I don't think it's so

58:14

yeah, and I did not know

58:16

the Lancaster Caramel Company you say caramel because you're

58:18

from you're actually from Lancaster I'm not but I

58:20

love that and I didn't know that that that's

58:23

how her she started. Yeah, right Yeah, that was

58:25

his first success and by the way Milton Hershey

58:27

I think when he went bankrupt several that was

58:29

his first success Yeah, it was the predecessor company

58:32

to Hershey's company got it. Yeah, and just

58:34

so many things I mean what a wonderful

58:36

person first of all But a

58:38

great story and a success

58:41

story of capitalism doing well and not

58:43

only for doing good Yeah, he built

58:45

he built Hershey Park, which a

58:47

lot of people know is an amusement thing Entertainment

58:50

for the people that worked in his factories

58:52

right to give that in and if you

58:54

go to Hershey It's a beautiful quaint town

58:57

with wonderful long streets with just a beautiful

58:59

place And he's an example of not

59:01

only now that school and by the way a couple

59:03

years ago I think

59:05

that the school tried to sell the stock

59:07

so they wanted to spin it off and

59:09

Diversify and the governor put an injunction. It

59:11

was a whole battle over that and by

59:13

the way you think about this and this

59:16

happens a lot We're very wealthy people give

59:18

their stock to certain causes and then the

59:20

first thing you do is sell it off

59:22

and diversify it You're typically much better off

59:24

keeping the stock that was given to you From

59:27

the place that was originally yeah, and that's

59:29

served that that little high school can

59:31

do very well with the amount of money They

59:33

they have it alone right and so there was

59:35

no reason to diversify, but I think there were

59:39

Other things going on Hershey family

59:41

Pennsylvania Mennonites and Milton

59:43

grew up speaking, Pennsylvania Dutch That was

59:45

like what he was rocking right? Yeah

59:48

Six All right, let's let's

59:50

pull ourselves back to pick number four.

59:53

Buck your pick number two. Yep, Okay,

59:55

I'm going to Canada again. This is

59:57

Brookfield infrastructure. Okay, and there's two tickers.

1:00:00

And I want to make something clear

1:00:02

about this. Be Ip is one any

1:00:04

other was be I P C. Important

1:00:06

thing for us investors if you want

1:00:08

to avoid that foreign tax withholding and

1:00:11

filing a K one you by be

1:00:13

I P C that is a corporation.

1:00:15

Okay and it's not a limited partnership.

1:00:17

so. The So What

1:00:19

You're sharing with us right now. Could.

1:00:22

Take one of two flavors. If people.

1:00:24

Are buying. Definitely. By be

1:00:26

I pc we're not going to Florida with don't to

1:00:28

buy if you're in the U S. We're just gonna

1:00:30

say the ticker that you want to remember. That.

1:00:32

Be I pc that's correct, and so

1:00:34

what do you get? This is a

1:00:36

couple. It's much larger than the last

1:00:38

one we mentioned, about twelve billion dollars

1:00:40

and. What they'd

1:00:42

what they do is they own. A

1:00:45

remarkable stable of infrastructure assets

1:00:47

were talking about Ports were

1:00:49

talking about railroads in Australia

1:00:51

we're talking about data centers.

1:00:53

Were talking about cell phone

1:00:55

towers in India. This is

1:00:58

worldwide and one of the

1:01:00

things that makes Brookfield so

1:01:02

unique is that their parent

1:01:04

company Brookfield Corporations invest money

1:01:06

alongside their investors and every

1:01:08

project they do and and

1:01:10

it's resulted in wonderful performance.

1:01:12

And if you buy appropriate.

1:01:14

right? Now you're getting about a five

1:01:17

point, one eight percent dividend. They recently

1:01:19

raised that distribution which they have a

1:01:21

long history of doing another six percent

1:01:23

and in the reason the stock is

1:01:25

downloaded, it's just because interest rates went

1:01:28

up right? So interest rates went up

1:01:30

and so high devon in pairs when

1:01:32

little bit out of favor. But this

1:01:34

is a wonderful company and most of

1:01:37

their revenues that they earn or inflation

1:01:39

protected are contracted. See, don't have to

1:01:41

worry about this company an inflationary time

1:01:43

for frame doing better. Are cutting

1:01:45

the dividend. So wonderful company over

1:01:47

five percent your be I Pc

1:01:50

Brookfield infrastructure. Gotta keep moving back.

1:01:52

but earlier you did when I

1:01:54

asked you. Playing. Word association

1:01:56

for that more nuanced non got level

1:01:58

term you spoke to. High

1:02:00

dividend yields and. Maybe. Alluding

1:02:02

a little bit to dividend traps. Are

1:02:04

you just shared with us a five

1:02:06

percent yield? Or that's definitely a high

1:02:09

yield in today's market without spending too

1:02:11

much time because we're running out of

1:02:13

time. Can you briefly speak to high

1:02:15

dividend yields and traps? Yes. So the

1:02:17

big trap for me is when you

1:02:19

have a business. That's. Not performing

1:02:21

very well. And. You can

1:02:23

see that either revenues or and

1:02:25

or profits are declining dropping your

1:02:28

every year and the stock price

1:02:30

has declined significantly. Such.

1:02:32

That there's a very high divinity. Or maybe it's

1:02:34

ten percent in today's world, or nine percent or

1:02:37

whatever else it as. And you say? Well, that's.

1:02:39

That's. A high yield, but there's a

1:02:41

good chance that that demeaning could be

1:02:43

cut fifty percent or sixty percent or

1:02:46

go away altogether. So I'm very careful

1:02:48

of of looking at the company and

1:02:50

how they're doing, not just picking a

1:02:52

stock based on whether it has a

1:02:54

higher motive in a new correct. So

1:02:56

we're looking at the whole start here.

1:02:58

We're not just Iraq aiming are browsers

1:03:00

at a certain level of dividend yield

1:03:02

saying those the ones for me? Correct.

1:03:04

Absolutely correct. And on an anode you

1:03:06

know we talk about Matt and they

1:03:08

focus on dividend growers. Those are ones that

1:03:10

are growing over time and all the want I'm

1:03:12

recommending have as well. These are companies that are

1:03:15

growing in strength and paying more and they might

1:03:17

not have a real high dividend yield to start

1:03:19

with, but if you get in now they keep

1:03:21

drama or ten years from now, you're at a

1:03:23

stock that has that high yield based on the

1:03:26

original cost basis. or it. Chapter. Five

1:03:28

near it's and one more pick from each

1:03:30

of my guests Matt Argosy, Or right Starbucks

1:03:32

or two of us here during at the

1:03:34

table or tricking Starbucks Coffee good on yet

1:03:36

another coffee and forces market. Just don't like

1:03:39

Starbucks.right now to training and or a five

1:03:41

year low. Lot. Of reasons we won't

1:03:43

get into but I would you say Starbucks would

1:03:45

really compelling states price. I think the still tons

1:03:47

and tons of international growth ahead for this business.

1:03:49

The news, the relatively new Ceo things to consider

1:03:52

oh store count by ten percent a year for

1:03:54

the foreseeable future. The groin in the of lesson

1:03:56

for hundred stores in India, they think any could

1:03:58

be as big as China for. them in

1:04:00

the future. But the dividend, they

1:04:02

initiated dividend, I believe in 2010, they've grown

1:04:05

that dividend at almost 20% annual rate. Wow. Back

1:04:07

since then, they've also been buying back a ton

1:04:09

of stock lately. They bought back more stock in

1:04:11

the last quarter than they did in the

1:04:13

previous fiscal year. And I think that's mentioned being really

1:04:16

smart with the stock where it is today. So I

1:04:18

think Starbucks looks really good right now. And

1:04:20

Buck Hartsel, number three. Yeah, I'm

1:04:22

gonna go with MTY Food Group.

1:04:25

And that's when most of you are probably

1:04:27

going, what is MTY Food Group? No, I'm about

1:04:29

to ask you what MTY stands for. Are you

1:04:32

prepared to answer that? No. Oh boy.

1:04:34

Nor would I be, but I have the internet at

1:04:36

my figures. Yeah, right. So we're gonna

1:04:38

know shortly. Go ahead, Buck. Okay. But I

1:04:40

would say we're heading into May

1:04:43

here. It's going on summertime. This

1:04:45

is an operator of multiple franchise units.

1:04:47

A lot of them you'd think were

1:04:49

in the malls in the 1980s

1:04:51

or 90s and kind of been brands that you've

1:04:54

kind of lost track of. Is this Orson Julius?

1:04:56

Yeah, right. That's exactly what I'm gonna say. Is

1:04:58

it really? No. Oh, I'm gonna. But TCBY, frozen

1:05:00

yogurt. Oh, that was one of my first grade

1:05:03

stock picks. Cinnabonnies. Yeah, there you go. We have,

1:05:06

no, we have Famous Dave's Barbecue, which

1:05:08

is a recent acquisition. Wetzel's

1:05:10

Pretzels. And as we mentioned

1:05:12

going into summertime, Cold Stone Creamery. Oh

1:05:14

yeah. You like mix-ins with your

1:05:17

ice cream. Pinkberry Froyo if you

1:05:19

like that. Or Planet Smoothie or

1:05:21

Sweet Frog Frozen Yogurt. Tasty Delight.

1:05:23

So they have a bunch of

1:05:25

different brands spread across Canada and

1:05:27

the United States. And as you

1:05:29

know, franchise operations, they use other

1:05:31

people's capital to grow and they

1:05:33

take a percentage of revenues and

1:05:35

they generate a lot of cash.

1:05:37

Well, the two recent acquisitions that

1:05:39

were rather large were

1:05:41

Wetzel's Pretzels and Famous Dave's

1:05:43

Barbecue left them with about $700 million

1:05:45

in debt. And what they're doing is they're

1:05:48

paying that down very quickly and they have

1:05:50

a history. They're a serial acquirer and they

1:05:52

pay down their debt. So what

1:05:54

I'm thinking is going to happen and what is

1:05:56

trading at a very low multiple relative to what

1:05:58

it typically does. And we're seeing

1:06:01

them. The leverage now and what that's going

1:06:03

to mean in the future is certainly more

1:06:05

acquisitions but also it's going to mean higher

1:06:07

dividends and they've also or one that will

1:06:09

pay special live in every now and that's

1:06:11

so Mtb. Why? Food group and and when

1:06:13

you got the Swede Frogger your Pinkberry Regatta

1:06:15

tc be. Why are you go to plan

1:06:17

a smoothie? I'll think of you know that

1:06:19

I'm a little bit of what you spend

1:06:21

their is coming back to you in the

1:06:23

form of a dividend. And.

1:06:25

At them See why? figure? Well that's a

1:06:28

company that I've I've not heard of before,

1:06:30

but M T Y Food Group makes me

1:06:32

wonder, what is the N? T Y? damn

1:06:34

for We talked about acronyms here and T

1:06:37

Y Food Group I once met same as

1:06:39

days. I. Was in this is

1:06:41

not been waiting for the it seat. He sold

1:06:43

it before they bought. I understand. If.

1:06:45

He's ended up not be now famous am I. But

1:06:48

I will note you brought three canadian of s

1:06:50

is because that's where you're specializing with that aren't

1:06:52

does sometimes I just did it for like we.

1:06:55

It's a big world out there and I think.

1:06:57

We. Have some friends to the north of Us. About

1:07:00

one tenth the size of our

1:07:02

country They are friends to I

1:07:04

love Canada. They are friendly, everybody's

1:07:06

friendly in Canada and and there's

1:07:08

some wonderful businesses of their. That.

1:07:11

People. Generally here in the United States, don't

1:07:13

tenant look abroad. What we do look at

1:07:15

shopify and we appreciate that. A lot of

1:07:17

money for members everyday. even though it's been

1:07:19

a Valls died last year's that are the

1:07:21

Canadian and a Dynamo Constellation software's of raw

1:07:24

bubbly. The the best business that know I

1:07:26

can see no one's really aware of ever.

1:07:28

Imo. Yes, Know that Yes On by the

1:07:30

M T Y Food Group. It is unclear

1:07:32

what M T Y stance for they. They

1:07:34

haven't really put an official explanation out. They

1:07:36

changed their name a few times. It does

1:07:38

remind me of what am I earliest worst

1:07:40

stock picks. One of my earliest. best was

1:07:42

t c b y that's why i

1:07:44

have one of as a feeling as

1:07:46

he talks about he's a good lawyer

1:07:48

and favors dave i have a different

1:07:50

feeling about him but ah specifically n

1:07:52

b i which was an early stage

1:07:54

back in the day microcomputers were a

1:07:56

thing with the eighties and they were

1:07:59

making the maybe the chips and I think

1:08:01

it was the computers. I remember that they were

1:08:03

based in Colorado. I think the CEO's name was

1:08:05

TS Cavanaugh. This is back when you would just

1:08:07

read that on the annual report. There was no

1:08:09

YouTube where you could watch the CEO talk. It's

1:08:11

just a name on paper to me. I may

1:08:13

have it wrong, but one thing I have right,

1:08:16

NBI stood for nothing

1:08:19

but initials. For

1:08:21

real. And I loved it. That's

1:08:24

why I bought the stock. It ended up being a

1:08:26

not great investment, but any company that had that kind

1:08:28

of sense of humor, very very

1:08:30

foolish. And by the way, foolishness doesn't

1:08:32

always win. Sometimes we lose. Well

1:08:35

I want to thank Matt Argasinghe and Buck

1:08:38

Hartzell for their expertise and their time shared

1:08:40

with us this week on Rule Breaker Investing.

1:08:42

We don't talk about dividends as a thing

1:08:44

very often on this podcast, but

1:08:47

I'm glad we do sometimes. And I think

1:08:49

everybody should be aware of it. So I

1:08:51

think we laid some track and some scaffolding,

1:08:53

especially for newer investors this week, that might

1:08:55

not think too much. I certainly don't think

1:08:57

too much about dividends, but

1:08:59

you guys brought a lot of terms,

1:09:01

nuances, and additional thoughts. In the end,

1:09:04

dividend is one aspect of what a

1:09:06

CFO can allocate. In the end,

1:09:08

dividend is one aspect of what an investor

1:09:10

might target in his or her investments. And

1:09:12

I think we really fleshed that one out

1:09:14

this week. In fact, I'm going to ask

1:09:16

you guys to provide some quick summary points

1:09:19

to close the podcast. Before I do that,

1:09:21

one quick plug for the next two podcasts

1:09:23

here on Rule Breaker Investing. Next week, it's

1:09:25

going to be Blast From the Past, Volume

1:09:28

9. That's right, I will be

1:09:30

bringing back five points that

1:09:32

are favorites that I just don't want people

1:09:34

to forget because this podcast has been around

1:09:36

nine years. So I'll say something in 2016

1:09:39

that I thought was really good, but no

1:09:41

one remembers it in 2024. So we

1:09:43

bring it back, Blast From the Past next week, and

1:09:46

then my annual birthday gift to

1:09:48

me, you as our listeners, rbi

1:09:50

at fool.com is the email address. It's what

1:09:52

have you learned from me? What

1:09:54

have you learned from David Gardner, which we do

1:09:56

somewhere around May 16th every year. We're going

1:09:58

to do it again this year. So we'd love emails,

1:10:01

rbiatfool.com. You can tweet us

1:10:03

out, at rbipodcast. What

1:10:06

have you learned from me? Either over the course

1:10:08

of time or in the last year. It's always

1:10:10

a fun way to share back a summary of

1:10:12

a lot of rule break rethinking that we put

1:10:14

out here from one week to the next. So

1:10:17

rbiatfool.com for what have you learned from David

1:10:19

Gardner two weeks from today. Okay guys, let's

1:10:21

summarize. I'm gonna ask you each to bring

1:10:23

three summary points and we're gonna bounce it

1:10:26

back in reverse order this time. Buck, are

1:10:28

you ready? Point number one. Summary point number

1:10:30

one, we'll keep these quick. Point number one, dividend

1:10:33

companies don't have to be stodgy

1:10:35

and they don't have to be big. Often

1:10:38

the best companies early on in their life

1:10:40

stage are very profitable and so they

1:10:42

can pay an early dividend and I think we have some small

1:10:45

companies that are on there that are growth

1:10:47

companies and also pay a dividend. Summary

1:10:50

point number two. Well, I

1:10:52

gave some reasons why dividends have kind of become out of favor the

1:10:54

last 30 to 40 years. A

1:10:56

shift may be coming. I think dividends could be in

1:10:59

favor. So the next

1:11:01

several decades or so. Meta platforms, alphabets, some people

1:11:03

are saying, hey, Amazon's next. The trend is the

1:11:05

dividend trend. Netflix maybe, that would make me happy.

1:11:07

All right, summary point number three, Buck Hartzell. Technology

1:11:10

companies generally don't pay dividends. We've already

1:11:12

talked about the large ones that are

1:11:14

meta in Google. I put Hangout Systems

1:11:16

on our list. That's a small technology

1:11:18

company that pays a dividend. It's

1:11:21

a very good business. So your point with this

1:11:23

one is that's a misconception. It's a misconception and

1:11:25

I think even, I'll mention a company that was

1:11:27

recommended in FinTech. Nuve

1:11:30

is a company that recently got taken private.

1:11:33

They announced in the previous call

1:11:35

that they were initiating a dividend. They're a

1:11:37

very profitable company. The stock went down because

1:11:39

they said, oh, you're not a growth company

1:11:41

anymore. And people didn't want to own it

1:11:43

because you can't be a growth company and

1:11:45

pay a dividend. That made the yield a

1:11:47

little bit sweeter. Yeah, it was ridiculous. And

1:11:49

then now they're going private. All right, Matt

1:11:51

Argusinger, summary point number four. I would say,

1:11:53

favor companies that emphasize dividends over buybacks. Buybacks

1:11:56

are great. I would just say if a

1:11:58

company is putting dividends on equal. footing or

1:12:00

even greater footing, that's when you want

1:12:02

to pay attention to. Buck number five.

1:12:05

My last point I would say is

1:12:07

pay attention to capital allocation. Not

1:12:09

only what people are doing that are managing

1:12:12

the company, where they're allocating the capital, but

1:12:14

also, this is a little tip, what they're

1:12:16

doing with their own money. So I'll say

1:12:18

if you have a company that has a

1:12:20

good history of not only paying dividends but

1:12:22

making good capital allocation decisions and

1:12:24

insiders are buying the stock, that's

1:12:27

probably a good place to look. Close

1:12:30

this out, Matt. Summary point number

1:12:32

six. I think above all for me, focus on

1:12:34

dividend growth. I think dividend growth will show you,

1:12:37

will be a good clue as to earnings growth because they

1:12:39

go hand in hand. So if you find a company that's

1:12:41

growing its dividend, it's probably growing its earnings, it's probably a

1:12:43

great business and it's probably going to be an outperforming stock.

1:12:46

And it was a delight to be with both of you

1:12:48

gentlemen. You know, part of the pleasure of hosting this podcast

1:12:50

from one week to the next is I get to share

1:12:52

my friends. And look at these amazing friends

1:12:54

that I have and have made over the years. And they're

1:12:57

a lot more than just these, but Buck Hartsel

1:12:59

and Matt Argusinger, you guys did a

1:13:01

great job. Thank you again. Buck, four years again

1:13:04

from now or so. So let's do it again.

1:13:06

I mean, I hope we're both still at the

1:13:08

Motley Fool, but, you know, or maybe more than

1:13:11

once every four years. We'll see how people like

1:13:13

this episode. Volume two of

1:13:15

Dividend Fool's Buck. Thank you. Thank

1:13:18

you for having me. Matt, thank you. Thank you,

1:13:20

David. It was a pleasure. As

1:13:23

always, people on this program may have interest

1:13:26

in the stocks they talk about. And the

1:13:28

Motley Fool may have formal recommendations for or

1:13:30

against. So don't buy or sell stocks based

1:13:32

solely on what you hear. Learn

1:13:34

more about Rule Breaker Investing at RBI.Fool.com.