Chit Chat Stocks - How To Find The Best Dividend Stocks

Episode Date: August 5, 2026

On this episode of Chit Chat Stocks, Dave Ahern returns to the show to discuss dividend investing. (00:00) Introduction (01:25) How Dave Got Started with Dividends (02:52) Lessons Learned from 15 Years of Dividend Investing (08:41) Growth in Dividend Stocks and Organic Growth Expectations (13:51) Why Pepsi Might Be a Value Trap (27:45) Why Visa and Mastercard Are Ideal Dividend Growers (33:24) The Power of Dividend Growth and Reinvestment (41:10) The Myth of Beating the Index and Focus on Lifestyle Funding (43:45) One dividend stock on his radar (48:36) Key Takeaways Dividend School: https://www.dividend.school/ Dave's YouTube page: https://www.youtube.com/@dividend.school ***************************************************** Subscribe to our newsletter, Emerging Moats: emergingmoats.com  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* Fiscal.ai is building the future of financial data. With custom charts, AI-generated research reports, and endless analytical tools, you can get up to speed on any stock around the globe. All for a reasonable price.  Use our LINK and get 15% off any premium plan: ⁠https://fiscal.ai/chitchat  ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

For the past three years, Interactive Brokers' individual clients averaged 24.3% annually, beating the S&P 500. Lower costs and access to 170-plus global markets matter. Visit ibkr.com slash performance. Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is a CCM Media Group podcast.

Anything discussed on Chitchat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome into the Chitchat Stocks podcast, a podcast to help you find your next great investment. My name is Brett Schaefer, and I am joined by my co-host, Ryan Henderson. Today we have an interview with a recurring guest, Dave Ahern, now of the Dividend School, an investing newsletter focused on making you a better dividend investor. This is a new project from Dave, so for anyone interested, the link will be in the show notes. I believe the URL, and Dave can correct me here, is very nifty. It's dividend.school.

So, Dave. That's it. Why did you start the Dividend School? Take us through the inspiration here. Well, the inspiration kind of started a long time ago. So in 2013, I bought Microsoft. I didn't know what I was doing. It was my first investment.

I got really, really lucky. But one of the things that I noticed not too long after I bought it was this extra money showed up on my account all of a sudden. I'm like, what the heck is this? And it's this thing called a dividend. I was like, whoa. So I get free money to buy companies? Like, how does that work? Anyway, I started looking into it and discovered the, you know, joys and the awesomeness that dividends can provide and how much they can help grow your wealth and your investments.

And that's really kind of started off my love affair with dividends. And I've been using dividends to invest all along. I've also branched off into other companies. We talked about NewBanco a while back, and I own MercadoLibre and other companies in Berkshire that are not dividend payers, but the vast majority of my portfolio is in dividend-paying stocks. And so it made sense for me to start talking about it because it's something I'm interested in, and I want to help people learn how to use dividends to become, A, better investors and to grow their wealth. And especially I'm older, you know, you two gents are young kids, but I'm younger, I'm 59. And so this is something that you need to kind of think about as you get closer to retirement is how you can build income as you get closer to retirement. Yeah, that is a great point. And there's a lot of listeners here, and maybe I'm basing this up more of what people like to read about on websites such as The Motley Fool, but they toss out things like, oh, high dividend yield, or I just want to be an income investor. I want to build up this percentage of dividend income each month or each quarter, and that's how I'm going to live my life. And what were the lessons you've learned along the way, I believe over around 15 years now, of investing with dividends as a focus, as you mentioned, someone closer to retirement than not?

Well, I think there's several things. So the first thing is a lot of people, when they get into dividend investing, they make a couple of mistakes. And the first one is chasing yield. like everybody talks about yield and that is there is no question that having a high yield is very attractive and i bought years ago before it was a meme stock i bought gamestop in large part because of the you know the yield that the company was paying i didn't know that it was a trap but that is something that could be very attractive you see this high number you think hey that's you know those are that's easy money a lot of times unfortunately it's not and i think

So combining the chasing the yield and ignoring the business, I think those two things, you see that in, you know, air quote, regular investing that you guys talk so much about, but you also see it in dividend investing. So many people focus only on the dividend and they don't focus on what is feeding the dividend, that they don't look at the fundamentals of the business. They have zero idea if the company has a moat or not or what's going to keep driving the business so they can keep paying the dividend. It just doesn't happen just because it's a lot of times it's because they have a great business and they have a great mode. You know, Johnson & Johnson is always the company that everybody kind of throws out there as an example. And it's because it's a great example. It's one of the only two AAA rated businesses in the United States. They've been growing free cash flow for, you know, longer than I've been alive.

And it's a strong business. And yes, it's boring. It's not going to grow as fast as, you know, NVIDIA is. but it is a strong free cash flow growing business that pays a strong dividend. And they've been doing it for a very long time. The yield is not outrageously high, like you'll sometimes see when stocks get beaten down. I think I remember GameStop's yield at the time I bought it was around 9%. So that was really, really high, but I didn't understand that it was because the company sucked. And so that's why the market was beating it down and that's why the yield was so high. So

thank you vanna for that picture of johnson and johnson's yield um but it uh yeah that's that's a big reason why uh i think those are the two things i see most investors when they get into dividends fail to recognize high yield doesn't always signal good and ignoring the the fundamentals of the business yeah i think just uh touching what you just said there the high yield that there's the element of, can this sustainably be paid? So like, you know, can the company even continue to pay out what it's currently paying? And that's part of the yield trap. But the other part is, should they be paying it out? Because if it's sacrificing investment that's needed in the business, then it even can also impair the business long term. But let's talk about your

framework. I believe you've got a six step dividend investing framework. Let's go through that. What are the steps? Yeah. So nothing here is revolutionary or is groundbreaking. These are just things that I have picked up along the way that helped me analyze businesses and helped me analyze dividend businesses. So obviously the first one is what is the business like? What do they do? How do they make money? If you can't explain that, if you can't articulate that or figure that out in a couple sentences, then you probably don't really understand what the business is. So that's the first thing. The second thing is the moat. So most people are like, what's the big deal about a moat? The big deal is that's what protects the earnings and the free cash flow.

If the company doesn't have a moat, eventually it's going to come under attack because capitalism does work and people will figure out that, hey, NVIDIA is making a buttload of money. we need to figure out how to start to steal some of that share. And so having a moat is very, very important, even in dividend stocks. Management. So management is the one who drives the bus. They're the ones who make the capital allocation decisions. And paying a dividend is part of that decision. And you mentioned companies, should they or should they not pay? Beta decided to start paying a dividend not too long ago, about a year or so ago. And now people are asking, was that a really good decision? With all the money that they're

trying to allocate for AI and everything that you're trying to build out with their data centers and everything they're trying to build, is it really a good idea to pay a dividend right now? And would people be surprised if it got cut? Probably not. But understanding management and what they're trying to do and are they shareholder friendly? Because a company that pays a dividend or buys back a lot of stock generally have a better attitude, if you will, towards shareholders. And we want to, we want to find that. Number four, this is where the rubber starts to beat the road is growth. So one of the things that when you look at dividend paying stocks, there is a misconception or a misconception, if you will, that they're

boring, that these are boring companies. And for a large part, yeah, they are boring, but that's, that's the beauty of them is that they are boring and it kind of depends on what you're trying to do. But, you know, I want to see companies that are growing organically five to eight percent a year or better. And because those are strong companies are going to continue to pay a dividend going into the future. And, you know, Brett and I had a really great conversation a little while ago about NewBank. And NewBank does not pay a dividend, but it's a very profitable business. And at some point in their evolution, they probably will. And that is what you want to see. Now it's growing at, what, 45%, 50%. Maybe not investing in a dividend is the best decision for a new bank at this point, but 10, 15 years from now, it may be. And you want to see the company still growing because that's what's going to continue to fund the dividend.

Step number five is risk. Obviously, we got to figure out what's going to break this. We need to figure out if the company's investment grade. We want to make sure that they have manageable debt. We want to see the ratios, the payout or the earnings ratio, the free cash flow or the earnings ratios, you know, reasonable. And we want to see if they can survive a recession or any sort of regulatory stuff that may be happening. Visa and MasterCard are a perfect example of that. And then the second to last step is valuation.

So, just like anything else, we want to make sure that we're finding a company that has a decent price. If you overpay for a dividend stock, you're going to pay for that as well. So, understanding what the company is worth and trying to find at least a fair value for that or less than that is ideal. and then the last thing is dividend so the last thing i'll look at is the dividend i want to see the yield above the index uh the s&p 500 right now is only yielding 1.3 percent so that is why and if you want to invest in dividends maybe and you you're you're looking at doing the the etf route maybe something tracking the s&p 500 is not ideal because they don't pay super high you can find much better options that that way but you know i want to find companies that have payout ratios lower than 75 i want to see the companies that can grow through receptions and i want to see the the dividend growing above the rate of inflation if it's not growing above the rate of

inflation what's the point so that's that's kind of my my framework yeah it's a good point on growing above the rate of inflation that really depends on what uh inflation has been the last few years uh that's turned into a more important topic than historically yeah the 2010 to 2022 period was that was something i think a lot of investors uh didn't really think about we're going to go into some case studies but first i want to ask all else equal do you like a stock that pays just a dividend just repurchases shares because i know repurchases are including kind of your total return framework here or one that does both if i had you know if i put my feet to the fire i would love both you know i would love to find a company that's paying me a dividend that's

also going to buy back shares because the blunt factor of the matter is is that buying back shares does kind of does two two jobs number one is it saves you money on taxes because it's a better it's a better tax, you know, it impacts your taxes more favorably than dividends do. Number two is if it's buying back shares, it's also increasing your dividends per share at the same time. So that's also a bonus. And so companies, you know, companies that I follow that do do that, they're some of my favorite investments, you know, Visa and MasterCard, which we're going to talk about a little bit, they do both. And I think that's, to me, is the best of both worlds. So that's what I that's what I would choose. But I also am, I mentioned this before and I'll say it again,

I'm 59 years old. I probably have a little more risk on appetite than some dividend investors would do. And so if you're 64 and you're looking retirement straight in the face, I would probably want something that pays me more income than I would worry about the returns that i would get on something like a buyback so a lot of it will depend on where you are in your evolution and what you're looking to get out of your portfolio but you know if you put my feet to the fire i want both all right let's talk pepsi i look at their numbers it looks good their dividend per share has grown at a seven percent rate give or take over the last decade I'm seeing a 4% dividend yield, 4.1% on our friends at Fiscal.ai.

As of this writing, I will mention, use our link, fiscal.ai slash chitchat, get 10% or 15% off any paid plan. So I'm going to kick things off with a broad question because you're the one that brought this up when we were conversing on what to talk about before the show. Why is Pepsi a potential value trap? Well, there are several reasons. I think, you know, let's cover, I guess, the good, and then we can spend some time talking about it. Like, the business is definitely good. Like, right, people understand what Pepsi is, free to lay. It's a boring, durable business.

The moat, very strong, very, very strong. Management, you know, we'll see whether that's a pass or not. But their ROIC is 12.2% over the last five years. That's, you know, above their cost of capital. So that's great. The S&P 500 gives the S&P Global gives them an A plus rating. And so it's a very, very strong. It's investment grade kind of upper middle of the of the pack. And so you look at all that. That's awesome. Right. It's when we start to look at the growth and when we start to look at the profitability of the business that it starts to get a little bit scary. So if you look at the growth of the business, they've been growing less than inflation, you know, keeping out the last few years and those really high numbers. They're growing 1%, 2% revenue growth over the last couple years, and the last couple quarters haven't been stellar either.

And so if you look at those numbers, you see that they're not growing very fast. And if you look at the volume that they're putting out, that has actually been falling. So what's been happening is that they've been raising prices on their products, so their potato chips and their sodas. So any increases that you see for the business have actually come from price increases, not volume increases. And that works as long as it does until it doesn't. And so that can be a problem. Where the company starts to kind of go off the rails, where you start to look at dividends in particular, is if you look at the earnings payout ratio. one of the things that you'll see that and for people who aren't familiar with that it's basically

you're comparing the dividends to the earnings of the business and the lower the number the more room they have to spend on other things and there's also another ratio that a lot of a lot of people don't aren't familiar with it's called the free cash flow payout ratio you're basically replacing earnings with free cash flow and so you want to compare both of those ratios because earnings sometimes can be misleading. They're an accounting measure where free cash flow is actual money in the bank. And so sometimes earnings can look great and free cash flow can look not so great. And so, Ryan, if you could do me a favor, could you look at the free cash flow and the dividends? And so we can just kind of compare those. I've got that pulled up here, Dave. So

So we've got, this is since 2005, the blue bars are the annual free cash flow and the orange is common dividends paid. All right. Perfect. Thank you. So this illustrates my point here exactly, is if you look at the business, the free cash flow payout ratios for this company have breached 100% many, many times. And it has an incredibly strong balance sheet for the business.

But the free cash flow payout ratio is well above the dividend. And the company, not this earnings call, but the earnings call before, the projections that they were giving basically were telling people that they were going to be between dividends paid out and buybacks, they were going to spend more than 100% of their cash flow to do this. And just like raising prices, that works until it doesn't. And as a dividend investor, when you start seeing consistent numbers like that, it starts to get very, very scary. And so I'm not predicting that the company is going out of business. I don't think that's anywhere near the conversation. the bigger the bigger question is is how much is the dividend going to continue to grow and how much is there a opportunity for a cut and one of the things if you look at the growth of the dividend over the last three years it's gone from seven percent to five percent to four percent and as that continues to slow down those are classic signs of either a pause which is what ups just did ups just paused their dividend they kept they kept slowing the raises and then they put a pause on it. And it wouldn't surprise me if Pepsi at some point does that. And this all

filters back into when the company's revenues are growing that slowly, less than the rate of inflation, and their volumes are not increasing, then the profitability of the business starts to come under pressure. And because they've been a dividend payer for, I don't know, 50, 60 years, now they have pressure that they have to stay on that because Wall Street hates nothing more than a dividend cut. Like they hate it, hate it, hate it. And that will just destroy the returns for people that are in Pepsi. And so, you know, if you're, if you're got your guys' age, I would say Pepsi might not be a bad opportunity to get into a company that's trading at, you know, record lows for their forward multiples, for their PEs. It's the highest yield they've had in forever. And so

it could be a great opportunity. But if you're 65 and looking at retirement, I would run for the hills. There are way better income opportunities than Pepsi is right now. And so when I look at the company, it's exhibiting the classic signs of a dividend cut at some point in the future, unless something changes. You research your investments, you analyze markets, you manage risk, but have you researched your broker? For the past three years, Interactive Brokers individual clients averaged an annual return of 24.3% compared to 23.1% on the S&P 500. IBKR's lower trading costs competitive rates efficient execution and access to 170 plus global markets help investors keep more of what they earn and put more capital to work over time the broker you

choose matters interactive brokers member sipc if you care about performance find out why the best informed investors choose interactive brokers at ibkr.com slash performance again visit ibkr.com slash performance and when you say because you mentioned pausing the dividend you're saying keeping the dividend per share flat not okay yeah correct um i guess let's say on pepsi for a second here what do we're sharing the charts there you can see that organic growth has slowed what do you think what do you think is causing it i think i have a guess what you're going to say and then do you think the concern of weight loss drugs is something that could really impair the business long-term? Well, so a couple of caveats. Number one, I actually just started taking Ozembic

about three weeks ago to help control my diabetes, not because I'm overweight or cosmetically, because I mean, look at me, let's be honest. So I started taking it because my doctor needed I needed help with my diabetes and I can tell you from firsthand knowledge it it definitely decreases your appetite like I I literally haven't eaten today and it's almost four o'clock here and I'm not hungry and it's it's the weirdest thing like my brain tells me I need to eat but my stomach is like dude you had you had food like 20 some hours ago you're not hungry Um, and so it does work. Um, so I will say that. So I think, uh, I read, I read that I think it's 21% of households in the United States are now on some sort of, um, GLP type of drug, whether it's

Ozembic, Wagovi, Farciga, any of those kinds of things, uh, around 11 or 12% of adults are on some sort of, I guess, what would you say, hunger-reducing medication. And if that continues to accelerate, I think it will have, it will unquestionably have an impact on these types of businesses, Coca-Cola included, Celsius, you know, any of these beverage companies or snack companies, Mondelez, you know, any of those kinds of companies, it will have an impact. And how big of an impact, you know, I don't know. I think that's definitely, I definitely think it is something that needs to be considered. I wouldn't say it's the, you know, 100% driver of what's going on with Pepsi, but I think it's definitely having an impact. You know,

I will freely admit I'm a Coke user. I'm a Coke drinker, not Coke user. Coke Zero is my drug of choice and let me rephrase that uh and i don't like pepsi and so i i know through the years uh that you know the companies have had a lot of competition um i just feel like coca-cola is a better product personally but uh i don't know you know do you guys have an opinion on why you think pepsi has struggled or has been struggling definitely glp once i think the majority of profit now comes from frito-lay and that feels like the type of business along with the other brands with under frito-lay you're just going to stop with that snacking the chips are going to go away and that has to be the head one in my opinion nothing else has changed right no all right the

economy is doing great consumer spending is still still fantastic right yeah i mean i was gonna say To illustrate your point, my wife and I went to Costco on Friday, and normally I'm like all about, I want this snack, I want this snack, I want this snack, I want this snack. I didn't get any snacks. And so it's not great for Costco, but yeah, it was a perfect example. I just, I don't want them. I don't need them, I don't want them. Costco, they can pivot. They're magic.

They find a way to delight their customers. All right. I want a hot take. Does Pepsi cut their dividend before 2030? before 2030 yeah yes we got it we got it in recording if you're right we'll bring it back up and if hey like as we say with our predictions on the show if we're wrong no one's going to remember except for that one crazy list don't put any money on calci or polymarket on what i just said please yeah i hope i hope those type of odds aren't on uh on those things me too um all right

Before we move to the positive case study, I want to ask what – in regards to a company like Pepsi, what would you – what type of stuff would you be covering at the dividend school for someone that's a reader with a company like that? Would you be going through just exactly what you talked about, business analysis, what type of things? I would do exactly what we just did. I would try to look at the business as a whole. uh a lot of people will just focus on the dividend aspect of it i think that's fine uh but i want to i want to understand the business of what's driving the dividend uh just like you want to draw you want to understand what's driving the return for nelnet right like what's driving this company to to improve and where are returns coming from the exact same thing i'd want to

understand with pepsi and you know it's nothing personal and i'm not trying to bash the company but i want to you know my job i feel like is to try to head head people's head people off at the pass on making a mistake and if they choose to ignore me and i'm wrong okay fine so be it but if i'm right then i could possibly save people a lot of money and like i said earlier if you're looking at income and investing and you need to generate an income there's you know there's so many other companies even coca-cola uh which is facing the same pressures that's the interesting thing about all this is that pepsi is getting hammered and coke isn't and but they're they're facing the same pressures and so you know if you're looking for income there's plenty of other

companies that you could look at that would be potentially better income investments johnson and johnson we mentioned earlier home depot a company i'm super bullish on accenture they got their own, you know, anchor to try to carry. But, you know, there's, I think there's just better options than Pepsi right now. Yeah. And I think something before we move on to the Visa and MasterCard case study, something that I have always appreciated about dividends is it's harder for a management team to flip-flop on when they say, all right, We've got a $2 billion repurchase authorization. They can allocate that as aggressively or non-aggressively as they want.

They could just say, ah, I got nervous about this business. Let's not buy back as much stock as we want. If you've got a dividend and you've declared it for investors, you've now attracted probably investors that were – that that was a big motivator for them. It's a lot harder to say, nah, we're backing out of it or we're cutting it. But anyways, let's talk Visa and MasterCard. Why are these such great dividend-paying investments? Talk through some of the growth numbers and maybe what is a good early sign of – because we look at Visa and MasterCard. These have been growth businesses for a long time. What's a good sign of a dividend grower? Well, I think probably the first thing is you want to see a company that's growing. And I'm not talking about the dividend itself. I'm talking about the actual core business of whatever the company is. And if you look at Visa and MasterCard, they're growing at 14%, 15%, 16% depending on which quarter you look at. you know annually they're they're growing eight to ten twelve percent a year and it have been for decades and uh over the last three or four years everybody's been saying that the you know the the

the end is is nigh and it's it's coming soon and it hasn't happened yet and i'm not saying it won't but when you're looking at businesses you want to if you're looking for companies that are growing a dividend quickly, you also want to find a company that's growing quickly because they have to have the profitability to be able to pay the dividend. You can only pay a dividend for so long off of debt. You can only pay a dividend for so long off of selling equity. At some point, it has to come from the operations of the business. And so companies like Avisa and MasterCard, because they have such low payout ratios, both the earning and the free cash flow, that they have lots and lots of room to continue to grow the dividend over a very, very long

period of time. So I can't see. So you want to explain what you're showing to people there? Because I think that can be really beneficial. Yeah. Just illustrating your point here, the top chart is Visa and MasterCard's free cash flow since 2009. Both have grown significantly. directionally very very much the same visa has grown a little bit faster dividend per share has basically followed suit it actually it's kind of flip-flopped here but i'd say the averages come out to about a similar growth rate on the dividend per share as opposed to the free cash flow maybe dividend per share has outgrown it just a little bit quicker yeah Yep. And that illustrates exactly the thing that you'd like to look for when you're looking at any company that's growing a dividend, that you want to see a company that's growing a dividend, is growing its free cash flow.

And those generally will fall in line with each other because what's happening is as the company is generating profits and they got to put it somewhere. Most companies don't want to be Berkshire Hathaway and have their cash balance grow and grow and grow and grow and everybody's screaming about what are they going to do with all that money. And so Visa and MasterCard are arguably two of the more profitable businesses in the markets today. You know, their operating incomes are in the high 50s to mid 60s, give or take. And so that is a lot of money that they have to play with. And because of the nature of their businesses, they don't also, they're very capital light. They don't have to spend a lot of money to reinvest in the business per se. And so they do acquisitions.

they do invest some in upkeep of the business but the vast majority of the money they make goes in dividends and buybacks and so because they got to put it somewhere and they might as well give it to us and so when you're looking at companies like that you want to try to find companies that have good profit ratios especially for their their particular industry whatever it may be whether it's consumer goods whether it's uh you know utilities whether it's reits you know any of those kinds of companies you want to find companies that have good profitability and you also want to have you want to find companies that are willing to pay out those dividends and grow them consistently and that is how people that's how people you know generate

wealth is by growing dividends because that piece of your pie keeps getting bigger and bigger bigger and if you use something called the drip or the dividend reinvestment program which you can get through any brokerage. I'm sure IBKR does it. And you can use this to grow the share of Visa MasterCard's dividend, and it just becomes a snowball as it rolls downhill. But to make a long story short, you want to find very profitable companies that are growing well in their industry and that have a history of paying out a dividend. If you can find those, then you can find really good dividend paying companies and that's why i was that's kind of why i was mentioning new bank because i could see that happening david velez seems like the kind of guy that would do that

well at some point i think that highlights as well the importance or maybe the advantage for individual investors for the dividend reinvestment programs and the fact that you can have a longer term time horizon with dividend growth stocks you can turn where you know wall street analysts take care of the next quarter, next few quarters, inflection points, things like that. If you do that dividend reinvestment program for something like Visa, and this isn't even including the reinvestment here, but in, say, the 2010 period, you know, it was a low point for many stocks out there. But still, the stock was at about $20 per share, paid a negligible amount of dividend for that time. But up through to today, the dividend per share is above $3. The yield's not that high

today, but on your cost basis, it could be significantly lower. What made Visa and MasterCard the ultimate dividend growth stocks outside of, you already mentioned some things, but anything else there? Because Visa, I was even shocked to see the number, 28% CAGR on that dividend since like 2005 or 2006, say the last 20 years. Yeah. Yeah. I think a lot of it has to do with the the business model that they operate because of the way that they operate in a way that they make money and the fact that they don't have to reinvest so much it just gives them you know so much cash flow to allocate and they can grow even though their yield is puny i mean let's let's call it what it is it's you know if you look at just the yield of vista mastercard compared to pepsi

the company we just talked about it's anemic but when you look at the growth of the dividend And it's massive compared to Pepsi's. And one of the things about, and so that's what makes these companies such a great company, a great investment. It's because they have so much cash flow and they can keep growing it. And there's this term called yield on cost. And in essence, the way it works is you talked about the cost basis and it's grown 28%. If you own a company like a Visa or MasterCard, the ideal scenario for dividend investors is you're not trading in and out of these companies. You're buying them and you're holding them for a very long period of time and allowing the dividends to massively compound.

And a company like Visa or MasterCard, even though Pepsi right now is paying a much, much higher yield, in 10, 15 years, Visa and MasterCard are going to be paying roughly the same yield on cost that Pepsi is. And the dollar amount that you're earning on that is going to be better than Pepsi's because it's growing faster. And so that's where investing in a company like a Microsoft or Visa MasterCard that pay really low yields for a long period of time growing faster is actually a better investment for. And you also get the bonus of share appreciation that you wouldn't get with a company like Pepsi, for example. And so when you combine those two, it's to me, it's the best of both worlds. Now, again, caveat, if you're 65 staring retirement directly in a phase, you don't necessarily have 15, 20, 25 years to wait for that yield on cost to improve. So something like a Pepsi might be a better option because of the potential reliability of the dividend and the income that you could earn from that. So, you know, some of this is there.

There's always qualifiers right in in the market. Question for you. So I'm kind of generalizing here, but do you think it's the correct school of thought that the higher the dividend yield, the less you should feel inclined to reinvest the dividend? I'm kind of thinking here Altria, for example, I don't know what it's at today, but at one point it had like a near 10% dividend yield. But I didn't think the business was going to grow, but I thought the valuation was good. So maybe I'll take the cash now and I'll invest it elsewhere. Whereas obviously Visa, you're not investing for the current yield, but you're expecting sort of that dividend growth. I guess, do you have a different approach towards reinvesting the dividends depending on the companies or are you always kind of automatic on the reinvestment? you know honestly for the most part i i tend to be automatic i have seen a fair amount of people in the dividend world if you will that are kind of um they're kind of mixed on the that decision

there's a lot of people that feel that you know to your example with altria you know maybe reinvesting in altria is maybe not the best option and while i won't disagree with that i also would quantify i had somebody ask me about this and i'll kind of give the same response it depends on how much effort you really want to put into this right it's like it's like anything else like if you have if you have seven companies that are kind of like that and they're paying you dividends really high yields but you don't want to reinvest them in the companies then how much work is that for you to you have to track when the dividend comes then you have to take that money and try to find another opportunity to invest in and, you know, hope that that grows.

And so, you know, I understand the sentiment and I think it can certainly work. But I think it also adds a level of difficulty that for me personally, I would try to find companies that I think are going to grow the company as well as the dividend and not invest in companies that have a really high yield just for the yield. There's plenty of MLPs or BDCs or even REITs that pay really attractive yields, but maybe aren't the greatest business in the world. And so, you know, I know there's people out there that do that, and I'm not saying there's anything wrong with it, but my quantifier would be how much work do you want to put into this? And how confident are you that you can find a better opportunity to put that into than maybe reinvesting in Altria? And I mean,

I know you guys know your stuff and so you guys would have no problem finding other opportunities to put it in. But I'm thinking about somebody who's, you know, driving their lawnmower right now and they don't have a lot of time to potentially pick companies like we do, then I would hesitate to, you know, recommend that as a strategy per se. But I'm not saying it's a bad thing to do and it certainly can work. I've seen the numbers and it definitely could work, but I think it just adds more complexity and i'm always of the mind that trying to keep things as simple as you can stupid is the best way to do it so is that kind of the same philosophy as someone that's looking at an index fund say hey look this is for return on time spent gonna be solid i'm gonna

track the market but what you're saying is where and where your niche is aiming to be with the dividend schools that hey if you're a dividend investor the s&p 500 yield isn't you'd rather are just going treasuries if you're an income investor at this point. So is that what you're trying to target? Return on time spent, get those nice dividend growers, and then you have the Visa and MasterCards in your portfolio. Yes, that's exactly it. If you're looking for dividend yield and you want to get a good share return, then maybe the S&P 500 is not the place to put the money. There's plenty of dividend-focused ETFs. SCHD, the Schwab Fund in particular, is the one that most people talk about. And that, you know, is it's yield is like three and a half percent

ish. And it's, it's, you know, had decent returns over the last year or two, eight or eight to eight, seven, eight, 9%. It's not going to beat the market. And if that's what you're trying to do, then it's not going to beat the market. But if you're trying to fund a lifestyle and looking at income, then yeah, that might be a really good place to park your money. Keeping in mind that some of the companies that we're talking about will not be in that fund. So you will not find companies like REITs. You will not find technology companies like Microsoft or Google when they start paying more of a dividend. That's not going to be in SCHD. So those are just things to keep in mind when you're looking at those funds. One follow up there. I think for the listeners, this could be

important topic to double down on. You mentioned beating or not beating the index. You talked about this in, I think, your introductory article for the newsletter. And Ryan and I, we have this problem as well. I think a lot of people have this issue where psychologically you say, well, I'm not doing good if I'm not beating the index. Can you explain to the listeners why this actually doesn't matter? Yeah. Yeah. So for whatever reason, there's a machoism, if you will, around investing. And if you're not beating the index, whichever one it is you're tracking, whether it's the S&P 500, the NASDAQ or, you know, MSCI or whatever. And you're not beating that.

3x lever micron. Yeah, right. There you go. Yeah. Any of those kinds of things. If you're not beating those, you're a failure. And that is so far from the truth. I think the most important thing is investing allowing you to fund your lifestyle.

Whatever it is you want for your lifestyle, if investing is allowing you to be able to do that because, you know, the options are, you know, to, to sock it away in Wells Fargo savings account earning 0.03% and, you know, picking up pennies in front of steamrollers, or you can put it in, you know, treasuries, which, okay, great, you know, right now they're nice, but how long is that going to last? So, you know, but there's also the fun that you get about learning about businesses, about tracking your money, having an impact on what you do with your money and how you feel about that. And it's not about beating the index. You know, investing is hard. If anybody's told you that it is easy or that, you know, this is free money kind of thing, they're lying to you

because it is hard. And that's what makes these great investors that we all look up to so amazing is that they've done the hard work and they've done really well with it. It's hard. It's really, really hard. And so I think, you know, for me, it's I want to fund my lifestyle. I want to retire And I want to be able to go sit on a beach in Brazil and drink Brahma and have churrasco, you know, twice a week, you know, and that's, that's what I want to do. You know, Brett and Ryan want to do different things. And so whatever investing allows them to do, I think that's, that's what you should focus on, not focus on trying to beat the NASDAQ or, you know, some levered 16 times levered, you know, index that's, you know, insane. Yeah, I think that's a good approach. And there is, for those that find it intellectually stimulating, there's a lot of fun, I think, in reading and understanding businesses around you. Now, I think we've maybe got two questions to wrap things up here. One, I want to ask, what is one stock, one dividend-paying stock that you like today? We can't let you get out of here without a little recommendation. Okay. A company that I'm actually quite bullish on and have been reading more and more about is Accenture. So this is the, what would I call it? Oh, I'm going to blank on the word, of course. Very large company. It's been around for a very long time. It's a company that's been beaten down by the market over the last year or so.

I think it's down 50%, 60% from its highs over the last year or so. And it's a company that pays a very nice dividend. And it's based out of Ireland. But it's been one of those air quality stocks that everybody always dreamed of owning someday because great returns on invested capital, you know very high profit margins consistent you know revenue growth for many many years and it's it's been on the struggle bus uh the if you look at the financials the financials look fine it's a little bit like adobe where if you look at the financials they look okay so far but the market thinks that ai is going to kill it and um it's a consulting business they just hit me

Okay. So everybody thinks AI is going to kill it. And I think that it's going to hurt it, but not kill it. And I'll give you an example why. So a bank, I think it was PNC Bank recently, needed to roll out their online banking app. So yes, could something like that be vibe coded? Absolutely. You know, any three of us could probably build one today. But who's going to build the infrastructure? Who's going to maintain the app? Who's going to make sure that it's compliant and that it's going to do, you know, all the things that it needs to do, tracking people's money, connecting to the accounts, all that stuff, all that stuff that happens in the back end. That's what Accenture does, is they help build the app. They help manage everything that goes into managing the app, and they take the design and everything out of the bank's hands so that they can do that. And while a lot of that stuff, if you're a small business like myself, like if I wanted to build something like that, I would not hire Accenture.

I would do it myself. And, but for enterprise level businesses, Netflix, when Netflix does something that, you know, requires compliance to receive people's money from Mexico, they're not going to rely on, you know, George in the IT room, vibe coding it on the weekend. They're going to pay somebody because it also covers their butt. So if something happens, Accenture's on the hook, not Netflix. And so all those things go into what Accenture does and how I think, yes, is it going to hurt it? Yes, I think it's going to hurt it. But is it going to irrevocably damage the company and destroy it? I don't think so.

And so that's why I think this could be a good opportunity to get a really good business at a pretty decent price. And if I'm wrong, heads I win, tails I don't lose that much. I really like that one. I've talked about Accenture a couple of times on Chit Chat Stocks. And I think people – like the first line of thinking is, oh, they're doing – they're writing code on behalf of businesses. Why can't Claude do that? But you look into it and these are – for the most part, their bookings are comprised of $100 million plus contracts. These are mega deals where they are big projects.

They basically become a part of these companies essentially to get these deals done. And the other part is like there's an element of expertise there. It's like, yes, maybe you could get one of your devs who's never worked on mobile apps before to figure it out and work with Claude to try to do that. Or you could speed up the time and talk to Accenture who's done this for four banks in the past. And they've got a team that can do this quickly and have a great mobile app built for you. And it just makes all the sense in the world to, I think, partner with Accenture in that case. But this isn't meant to be an Accenture podcast. So, Brett, I guess any wrap-up questions here?

I'll mention the numbers here and just we'll have a disclosure at the end too. Not a recommendation for anyone listening, right, for anything we talk about on the podcast. Dividend yield, 3.8%. 10-year dividend per share growth, 11.5%. That's a good place to start, if anything. All right, I have the final question here. What is one takeaway you want any prospective or current dividend investor to have from this discussion?

If anything you do should just be a better or just maybe the opposite, inverted, not a bad dividend investor, what should they do? uh i i would say two things uh analyze the business understand the business and look at the free cash flow payout ratio if you do those two things you will protect yourself from investing in companies that will either cut or freeze the dividend at some point because those things will show up in the financials eventually and if you do those two things which will set you above most dividend investors don't do those things and so that will that will save you a lot of heartache

and it will also make you a lot of money. Okay, final, final question. If you had to choose between these three as dividend growth stocks, Visa, MasterCard, American Express, which one tops the list? You got to pick my three favorite kids, and I got to choose between the three of them. I have owned, okay, so I'll qualify it. I'll say Visa, and it's only because I've owned it longer.

All right, beautiful. for anyone that wants to learn more as we get out of here give listeners a 30 second pitch on the dividend school and where they can find more information on you yeah go to go to substack and you can find it at brett said dividend.school i also have a youtube channel that's also the handle is dividend.school as well so you can check out both of those and you can i have lots of free articles i have a lot of paid articles as well but i try to give away as much information as I can to help everybody learn how to become a better dividend investor.

All right, I can take us out of here. Thank you, Dave, for joining the show. Thank you, everyone, for listening. Thank you to our sponsors, Interactive Brokers, Fiscal AI. As a reminder, we are not financial advisors. Anything we say on the show is not formal advice or recommendation.

Ryan, I, or any podcast guests may hold securities discussed in this podcast, may have held them in the past, and may buy, sell, or hold them in the future. Thank you, everyone, once again. I will see you next time. don't you wish you could just hit skip on the worst parts of your life you know the same way you can skip an ad i get it i'm siaya and i live in ice cove i've made some questionable decisions

that didn't end up the way I planned. And today, I'm still figuring it out. Somehow, things usually get worse before they get better. Apparently, that's how I roll. So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem.