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The corporate life cycle is an important yet often overlooked factor in investing. Like all things, companies age over time, with each phase having its own pros and cons.
In this episode, Greg explores the corporate life cycle's impact on dividend growth investing. Using research from Morgan Stanley and Aswath Damodaran, he covers various stages of a company's life, including startup, young growth, high growth, mature growth, mature stable, and decline— with examples from companies like Rivian, Nvidia, Microsoft, PepsiCo, GE, IBM, Intel, AT&T, and Tesla. Highlights include the prolonged profitability in maturity phases, industry-specific aging rates, and risks associated with corporate debt and large acquisitions. Greg emphasizes understanding a company's phase for strategic investment decisions and the critical role of suitable CEOs.00:00 Introduction
01:12 The Importance of Understanding the Corporate Life Cycle
02:10 Morgan Stanley's Five Stages of the Corporate Life Cycle
02:58 Key Metrics in the Corporate Life Cycle
05:39 Profitability and Debt in Different Stages
08:37 Cost of Equity and Capital in Mature Companies
11:10 Aswath Damodaran's Six Stages of the Corporate Life Cycle
14:08 Examples of Companies in Different Life Cycle Stages
20:15 Dividend Investing: High Growth to Mature Growth
21:48 Mature Stable Phase: Dividend Income and Growth
22:56 Challenges in Mature Stable Phase
24:24 Decline Phase: Managing Declining Cashflow
25:44 Narrative vs. Numbers in Company Growth
29:08 Pricing and Valuation Across Growth Phases
31:59 CEO Roles in Different Growth Phases
35:59 Conclusion: Investing Across Lifecycle StagesSend us a text
Notes & Resources:
DCM Investment Reports & Models
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When a company’s stock price has struggled for years, a change in management may be just what it needs to get back on track. Even still, new management can’t fix everything.Historically, Starbucks has been an impressive growth story, generating phenomenal wealth for investors. Despite its profitability and strong cash flows, recent challenges have raised questions about whether those days are long gone. In this episode, Greg analyzes the Starbucks story as a potential dividend growth candidate and what the future may hold. He discusses the implications of Starbucks' new CEO (who previously turned around Chipotle), and the company's strategy to address operational inefficiencies.
Later, Greg transitions to an update on Chevron which has been part of the model portfolio since 2010. Although higher dividend yields can signal problems for a company, Chevron’s resilience makes it worth considering adding to the position.
00:00 Introduction to Dividend Mailbox
00:47 Starbucks: A Familiar Name with a Compelling Story
03:33 Starbucks' Financial Performance and Challenges
05:22 Evaluating Starbucks as a Dividend Growth Investment
11:33 Starbucks' Debt and Cash Flow Analysis
27:10 Conclusion on Starbucks and Transition to Chevron
28:04 Chevron: A Reliable Dividend Growth Story
29:41 Chevron's Financial Health and Future Prospects
35:41 Final Thoughts and Wrap-UpSend us a text
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DCM Investment Reports & Models
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In our August episode, Greg interviews longtime friend and fellow financial advisor Kent Hughes. Kent has worked in the industry for over 40 years, focusing his investment strategy on quality and market indices. During his career as an advisor, Kent's expertise has earned him placement on both the Forbes and Barron's Top Wealth Advisor lists.
Greg and Kent begin the episode by discussing the evolution of the investment industry over the past four decades, the impact of technological advances on market information, and investor behavior. The duo also delves into market expectations, secular bull markets, and the potential effects of AI on investing.
Following their conversation, Greg mentions that he was able to speak with the investor relations department at Snap-on, and concludes the episode by providing answers to the questions we had about the company from the previous episode.
Timestamps:00:00 Introduction to The Dividend Mailbox
00:45 Interview with Kent Hughes: A Journey Through the Financial Industry
03:33 Changes in the Financial Industry Over 40 Years
05:35 Lessons Learned and Biggest Mistakes
08:13 Impact of AI and Investor Expectations
12:29 Economic Outlook and Market Predictions
17:21 Commercial Real Estate Concerns
19:25 Forecasting Future Returns
25:50 Investment Strategies and Dividend Growth
32:36 The Importance of Dividend Growth
34:07 Historical Performance and Market Trends
36:27 Understanding Compounding and Market Sentiment
39:37 Favorite Investment Books and Influential Figures
43:40 International Investing Considerations
49:20 The Competitive Advantage of Patience
55:43 Snap-on: A Potential Investment Opportunity
01:00:53 Closing Thoughts and Key TakeawaysSend us a text
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DCM Investment Reports & Models
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In this episode of The Dividend Mailbox, Greg takes an in-depth look at Snap-on (SNA), a company with a rich history of tool innovation and consistent dividend payments since 1939. He discusses the company's evolution from automotive tools to specialized equipment for various industries, its unique franchise model, and its financing arm. By examining Snap-on's business model, financial performance, valuation, management discipline, and potential risks, he makes the case that this seemingly "boring" business checks almost all the boxes and is a compelling investment idea for dividend growth investors.Send us a text
Notes & Resources:
DCM Investment Reports & Models
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Historical context and the evolving dynamics of dividend growth investing.Challenges and opportunities in the dividend space, including the impact of interest rates and market cycles.The role of stock buybacks and their effectiveness in shareholder returns.Strategies for managing dividend cuts and maintaining a high and rising income stream.The foundational importance of cash flow for all investors.
To start our fourth year of The Dividend Mailbox, Greg is joined by Daniel Peris, author of The Ownership Dividend: The Coming Paradigm Shift in the U.S. Stock Market and Head of the Income and Value Group at Federated Hermes. Daniel's deep historical perspective and expertise offer valuable insights into the future of dividend growth strategies and the importance of sustainable dividend investing.
Their conversation covers a range of topics including:
Follow Daniel on X/Twitter @HistoryInvestorSend us a text
Notes & Resources:
DCM Investment Reports & Models
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In today's episode, Greg dives into a practical application of our dividend growth strategy by discussing a recent buy, a watch, and a sell.
He starts the episode with Hershey (HSY), exploring why this classic chocolate maker made it into our portfolio despite soaring cocoa prices. Although it may sound like a boring name, companies like this can generate outsized long-term returns.
For the watch candidate, Greg turns his attention to CVS Health (CVS). Despite its financial strength and attractive valuation, he discusses CVS's coming headwinds. Sometimes when there is a lot of negative sentiment surrounding a company, there is potential to make a lot of money.Lastly, Greg explains his decision to trim our position in Emerson Electric (EMR). Even though it is a long-time dividend growth stalwart and has seen strong price performance recently, it no longer meets our dividend growth criteria.
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Notes & Resources:
DCM Investment Reports & Models
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Between immediate information on the Internet and minute-by-minute stock quotes at your fingertips, investors appear to be more infatuated with price appreciation than anything else. In contrast, prior to the 1990s, investors primarily focused on earning returns through a cash flow of dividends. Even though there has undoubtedly been a shift from cash-focused investing to a market fixated on price performance, cash flows play a critical role in assessing company valuation.
In this episode, Greg examines wisdom from "The Ownership Dividend: The Coming Paradigm Shift in the US Stock Market." Through several excerpts, he exposes how important dividends are to the structure of the market, investor goals, and company valuation. In the second half of the episode, Greg looks at Williams-Sonoma which has appreciated 200% since we first bought it two years ago. He analyzes whether its recent outperformance should warrant selling it to lock in gains.
EDIT: In the episode, Greg comments that our Williams Sonoma position has appreciated 300%, however, it has only appreciated 200%. The stock prices were given, so simple calculations could identify this error.Send us a text
Notes & Resources:
DCM Investment Reports & Models
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Check out our Union Pacific Investment Report
In most cases, holding quality stocks for the long term tends to play out in favor of the investor. However, if a company’s prospects change, there are situations where exiting a position can be warranted.In this episode of The Dividend Mailbox, Greg outlines our decision-making process behind selling off a portion of our IBM position. What started as a turnaround play transformed into a potential value trap. Using IBM as an illustration, Greg provides insight into the complexities of owning dividend growth investments and taking advantage of opportunities to exit positions that don't meet your expectations.
Plus, get a sneak peek into next month's episode featuring a success story with Williams Sonoma, highlighting the potential rewards of high-conviction investments in the dividend growth landscape.
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DCM Investment Reports & Models
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In this episode, Greg analyzes the wisdom of renowned economist, Jeremey Seigle. Between his investing classic "Stocks for the Long Run," and "The Future for Investors," Siegle maintains that you don't need high growth numbers or a flashy industry, only consistent growth. Although it is seemingly counterintuitive, Seigle presents the power of compounding from a new perspective. Most investors would hope stocks go up, and the quicker the better. But there is an argument for how a stock that goes sideways, or even downward, can be beneficial to your long-term total return.
Later, Greg provides an update on Emerson ($EMR) where faster dividend growth seems to be on the horizon. In case you missed it, the original Emerson Electric ($EMR) story is linked here: EP 17 - The Dilemma with Slow GrowSend us a text
Notes & Resources:
DCM Investment Reports & Models
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Check out our Union Pacific Investment Report
Over the past decade, the oil industry has become increasingly controversial and subsequently neglected by investors. No one knows when the industry's expiration date will come due, but there are great value and dividend growth investments to be made in the meantime. Even in declining industries, there can still be big winners.
For episode 31, Greg focuses on Chevron's resilience in a politically incorrect landscape, including its recent Hess acquisition. He explores the intersection of environmental concerns and the indispensability of oil in everyday life, with investing as the backdrop. Despite the industry's challenges, he makes a compelling case for Chevron's sustainable dividend growth and long-term potential.Send us a text
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DCM Investment Reports & Models
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Do you feel confident that the dividends in your portfolio are healthy? What techniques can you use to get a clearer picture of a company's long-term dividend growth prospects?
This month, Greg examines a simple 3 decision model from Aswath Damodaran to determine how companies create value for shareholders, and what it means for you as a dividend growth investor. He draws the line between companies that pay a healthy dividend and companies that are in a dysfunctional dividend mindset. As part of that, Greg gives you two simple models to employ when you're considering a company's dividend-paying capability. Later he takes a moment to discuss some of the wisdom of the late Charlie Munger.
Models used in today's Episode:
ROIC Model - (Excel download)
Excess Cash Flow Model - (Excel download)
DCM Investment Reports & Models - (Website)
Happy Holidays from The Dividend Mailbox!Send us a text
Notes & Resources:
DCM Investment Reports & Models
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There is a huge difference between understanding compounding and actually understanding the numbers behind it. As a blanket term, compounding is thrown around in the investment arena often, yet few investors are actually patient enough to experience its full potential. Creating real wealth takes time, discipline, and strategy.
In this episode, Greg uses our model portfolio to look at a couple of examples that expose just how significant your portfolio income can be when you have the discipline to let it grow. Moreover, he makes the case that income growth, rather than price growth, has a larger impact on the long-term value of your portfolio. Later, he likens the mindset of dividend growth investing to Odesseyus's voyage.Send us a text
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DCM Investment Reports & Models
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To most investors, big returns are associated with exciting stories or cutting-edge technology. Since everyone is in the market to make as much money as possible, “boring” companies can be easily dismissed without much second thought. That line of thinking is straightforward enough but it may be misguided. Truthfully, some of the better-performing companies out there are actually pretty boring. When it comes to achieving attractive returns, it is not what a company does that is important, it is how well they do it.
In this episode, Greg embarks on a deep dive into Union Pacific Railroad ($UNP) and the broader railroad industry. He makes the case that railroads are extremely predictable, well run, and have provided investors with decades of market-beating returns. Railroads are probably not your first idea for building wealth, but these companies are cashflow-compounding machines. This episode is a little bit deeper than we have gone in the past, but it makes for a compelling story.Send us a text
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Is there a difference between being intelligent and being smart? Most people would think of those concepts as one and the same. Although it may be abstract, these are two separate schools of thought entirely. You may go so far as to characterize intelligence as left-brain thinking, and smarts as right-brain reasoning. How does that apply to investing? If you’ve ever regretted an investment decision before, it may have been due to an overreliance on numbers, data, or rules, and not enough on vision.
For our 27th episode, Greg takes a step back and examines a recent blog post from Morgan Housel. He starts out by contrasting intelligence vs. smarts, then uses several examples to show how it relates to investors. He applies this mindset to everything from analyzing America’s deficit problems, to honestly reflecting on his own thought process when he sold Intel ($INTC) several months ago. Greg wraps up the episode by introducing a new stock idea, United Pacific ($UNP), and sets the stage for a deeper dive next month.Links referenced in today’s episode are below:
Morgan Housel's blog -> Intelligent vs. Smart
Greg's newsletter on America's Debt and Deficits -> Debt, Denial, & Illusions: America Has a Spending ProblemSend us a text
Notes & Resources:
DCM Investment Reports & Models
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Do you ever find yourself looking for that one crucial piece that would make you a better investor? Being active in the market naturally drives investors to want to compare notes. When you look at the impressive track record of great investors, it can feel as though they know something you don’t. Is there a formula? What’s the silver bullet?In this episode, Greg reveals seven key factors that he looks for in a good dividend growth story. He explains what they are and why they are important to achieving 7% dividend growth per year. Later on, he applies them to Dover Corporation ($DOV) which is a company that appears to check all the boxes. But before you go out and buy stock in it, you may want to listen to the whole episode.
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Even though dividend growth stocks typically have a high degree of predictability, that doesn’t mean you can’t end up with surprises. Outside dividend cuts, some of the most significant surprises can come from legal liability - often arising from the distant past. Companies routinely face challenges in the courtroom and are well-equipped to handle their cases, but occasionally they are forced to cut a check with a lot of zeros. The problem for investors is that there is no quantifiable way to know what legal liabilities might be lingering out there.This episode is packed with specific companies as Greg dives into two stocks from the tobacco industry and two from the telecom sector. He examines the legal history of British-American Tabacco ($BTI) and Altria ($MO), alongside the potential future liability of AT&T ($T) and Verizon ($VZ). In doing so, he also breaks down their performance as companies and gives you a snapshot of how we analyze dividend growth candidates.
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If you want to be a successful long-term investor, you must know your discipline and be willing to stick to it. All investing strategies come in and out of favor in the marketplace and they ebb and flow over time. In 2022, we saw high growth and tech companies underperform, while dividend growth companies held up well. So far in 2023, we’re seeing the opposite. However, switching your investment strategy based on short-term performance is almost always ill-advised. Of course, having discipline is easier said than done, but gaining perspective can help.In this month’s episode, Greg zeros in on how discipline and dividend growth are one and the same. He breaks down some of the largest wealth creators in the market and examines what exactly is driving the current market rally. He discusses the importance of knowing why your portfolio is performing the way it is but stresses that short-term performance is unimportant for the bigger picture. Later, he looks at a few dividend growth ETFs and finishes the episode with a listener’s question about investing from abroad.
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By now, almost everyone has heard of the turmoil in the banking sector. The current scenario is much different from that of 2008 yet investors are nonetheless on edge. That has presented the long-term investor with an opportunity to scoop up well-managed banks at an attractive price. But buyer beware, there is a big difference between the haves and the have-nots. Although there may very well be more turbulence in the short term, there are a few candidates worth analyzing.Considering the sell-off in the banking sector, Greg presents a new investment idea to add to our model portfolio. He makes the case that M&T Bank ($MTB) is conservatively managed and poised for continued dividend growth, even in rough seas. Later he explains why we sold a third of our Clorox ($CLX) position and addresses a listener’s question about cash investments.
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In this month’s episode, Greg sits down with Jeff Weniger, Head of Equity Strategy at WisdomTree. For the unfamiliar, WisdomTree is a fund and ETF manager with roughly $90 billion in assets under management. What makes WisdomTree’s funds special is that most of them focus on dividend and dividend growth strategies. One of their largest funds is the US Quality Dividend Growth Fund ($DGRW), which incidentally is our largest core position and is one we have mentioned over past episodes. Among their other funds, $DGRW is exceptional for gaining exposure to quality dividend growth.
Jeff has spent decades in the finance world and specializes in the management and creation of strategy-focused ETFs. Prior to joining WisdomTree, he was Director & Senior Strategist at BMO, working directly with the CIO of the firm from 2006 to 2017. He is a CFA charterholder, and earned his MBA from Notre Dame. As head WisdomTree’s equity strategy, Jeff has invaluable experience in equity markets and provides unique perspectives for long-term investors and the macro environment.During Greg and Jeff’s discussion, they cover the history of dividends, the difference between US and overseas dividend culture, why “boring” actually performs well, and why having a lottery ticket mindset can lead to mistakes. The interview is full of topics that the dividend investor should keep in mind and ultimately serves as a powerful reminder of why dividend growth investing is a long-term strategy that works.
EDIT: This episode was originally uploaded with an hour of silence that followed the episode. The current audio file has been edited and corrected.Send us a text
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Most of the time, using the screening criteria that are characteristic of good dividend growth companies weeds out the bad apples. When you buy companies that have low debt, attractive yield, high return on invested capital, etc., it can feel like you’ll be cashing those dividends forever. However, companies inevitably run into challenges, and you might get a surprise. If you invest long enough, you’ll eventually find yourself with a dividend that’s been cut and a once attractive investment that has soured. The good news is if your portfolio is structured properly, not even dividend cuts get in the way of growing your income every year.On another note, one factor that greatly influences the security of a dividend is debt. Given everything that has happened in the market recently, and with a liquidity crisis in the banking sector, debt has become a hot topic. It is extremely important to understand how debt functions for a company, especially in an environment with rising interest rates.
In this month’s episode, Greg takes you on a deep dive into Intel ($INTC). He looks at why we originally bought it, the problems they ran into, and why they recently cut their dividend. He even lays out why it may do better in a couple of years. Later, He uses a couple of different examples to show how debt can be good, bad, or indifferent.
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