Dividend based investing

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Weekend thoughts 07-22-2023

I have invested or to be more precise speculated in the US stock market since 2003, and this will mark the 20 year anniversary. In recent years, I gave more thoughts to the dividend, both because the dividends are becoming more meaningful, as well as I am thinking about potentially switch from a 9 to 5 job to multiple income streams, e.g., dividends, adjunct teaching at college, ads income from this blog (this seems to be hardest so far, btw :-), etc.

A few things to keep in mind when doing dividend-based or focused investing.

  1. Make sure the company can afford or pay the dividend from its Free Cash Flow (FCF). If something is too good to be true, it’s likely not true. Case in point, if you look at AT&T stock now (07-21-2023), the dividend yield is 7.5%. The problem with AT&T and some other companies (e.g., $SCS, Steelcase the office furniture maker came to mind) is with the debt and deteriorating business or economy, they may not be able to pay the dividend continuously. I know one company that cut dividends recently: VF Corp ($VFC). More on AT&T, I had a tweet on its return in the last 29 years: I think I still need to calculate it myself. Not sure if the chart below includes all the cash dividends and the stock dividend (“Additionally, shareholders of AT&T received 0.241917 shares of WBD for each share of AT&T common stock they held at close”) $T #dividend.
  2. I just noticed this Tweet (thread): S&P Dividend Aristocrats (Wikipedia). I have $KO (#CocaCola) on this list. But Number 2 on the list Leggett & Platt, Incorporated (LEG) looked interesting to me. I just realized it’s based in Missouri (wiki), in fact, the town Carthage, Missouri is close to Joplin, MO, and it has two interstates passing the town: I-44 and I-49. Note their products are also interesting (e.g., this geosynthetic solution and their specialty products, as well as their history. They seem making components for office furniture too – reminds me of Steelcase and my recent purchase of an office chair. The family appears to no longer controls the company. Their current annual dividend is $1.84 (rate is %6.26 per Friday 7-21-2023 closing price of $29.38). I think I will do a deep dive into the company next. Btw, recently I realized this is a hard time for new graduates to get into the IT/software development field, I just noticed there is one position for this company (IT support, I know it’s not ideal, but still something to think about as an entry-level job).
  3. I think I probably say a word about why invested in “stocks that issue cash dividend”. Besides the benefits of cash, a company that issues dividends regularly in some way shows two things: 1) Financial strength (again show me the free cash flow); 2) They care about the shareholder, in some cases the owners probably have a lot of shares too and they actually rely on the dividend for their lives. On the other hand, this does not mean the companies that doesn’t issue dividend are not good, in fact, Berkshire Hathaway the company famous investor Warren Buffett doesn’t issue regular dividend. I recall he said once they did issue 10 cents (source: “Other than a ten cent per share dividend that Berkshire paid in 1967, the company has never paid a dividend to shareholders since Warren Buffett took control in 1965.“) dividend, which looking back it was an expensive mistake. The reason being they invested in the money (say $1) instead of give it to shareholders right away, they get way more than $1 down the road.

PS: Leggett & Platt reminds me of another Missouri based company (Monett, Missouri), ironically it’s a banking ( technology company named Jack Henry & Associates (JKHY). They provide technology and service for financial services industry, with a focus on smaller banks or credit unions. It has an excellent return if we look from its IPO. It has a small dividend, and is in the S&P 500 index. Maybe someday I will drive around those two towns, and see if I can find special sauces that made them successful. Note the greater St. Lotus area has some S&P and Fortune 500 companies too: such as Emerson Electric (EMR) on this list (tweet). Btw, the all time return of JKHY (+47,569.44%, from 1985) is much better than EMR (+1,717.33%, from 1983). Not sure if Google finance has the complete set of historical data. Btw, Leggett & Platt (LEG) Inc performed similar to EMR in this period. I probably looked at JKHY about 15 years ago, not definitely not as serious as Warren Buffett. Warren probably reads the annual report for the company he is interested (plus the reports for 8 competitors).

Market sentiment week of 07-17

It can be better summarized by the unusual_whales tweet on the $ABNB share sales of its cofounder. While I am not saying the insiders always time the market, but it still reminds me of this: Microsoft CEO Satya Nadella sells more than $285 million in Microsoft stock. I recall about 6 month later (April 2022), $MSFT and Nasdaq had a peak / climax. Again I am not predicting the same this time around 🙂

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