The Dividend Cafe - Thursday - February 26

Episode Date: February 26, 2026

Brian Szytel reviews a mixed Thursday market session with the Dow slightly up, the S&P 500 down about 0.5%, and the Nasdaq down about 1.2%, highlighting value’s outperformance versus tech. He discusses Nvidia’s heavily anticipated earnings beat (including guidance) but notes the stock still fell, arguing expectations were priced in and that AI-related capex at big tech is already starting and will inevitably continue to slow from a record pace that has pushed Mag Seven free cash flow slightly negative; as free cash flow rebounds, he expects more shareholder returns via buybacks, acquisitions, and potential dividend growth. He then explains the Depository Trust Company (DTC) system created in 1973 to simplify securities ownership and transfers, addresses concerns about government seizure as unlikely, and cites MF Global’s 2011 misuse of client assets as an example of illegal but possible misconduct. 00:00 Market Wrap and Style Shift 00:33 Nvidia Earnings and AI Valuation 01:10 Mag Seven CapEx and Shareholder Returns 02:45 What Is the DTC 03:59 Can Assets Be Seized 04:58 MF Global Cautionary Tale 05:51 Closing Thoughts Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividing Cafe weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Good evening and welcome back to Dividend Cafe. This is Brian Saitel with you here on a down day overall in markets here on your Thursday. We actually had the Dow close up 17 points. So technically the Dow was just slightly positive. And the equal weight, S&P 500 by the way, outperform the cap weighted by the only. over 100 basis points on the day. So big outperformance of value and those names and underperformance of tech companies, S&P was down half of a percent. Nasdaq was down about 1.2%. So a bigger sell off in tech. Part of the reason of that was that you had big announcement and heavily anticipated earnings from Nvidia. This is the largest chip makerage for artificial intelligence. It's a four and a half

trillion dollar market cap. It does move markets. It actually beat both top and bottom in guidance. So handily beat earnings across the board by wide margin. The stock actually was lower though on the day. I spoke about this on Schwabt, on Monday, so a couple of days ago, as being likely the case where you just get good reports, but underperformance of stocks with that particular name, just because it was already fairly priced in. It was trading at about 47 times earnings.

That's expensive. And we know that CapX inside of the big tech companies on AI is going to slow. It's already starting to slow, but it's inevitable that it will keep slowing. It doesn't mean that hundreds of billions of dollars won't continue to be spent. It will. It's just that the record pace that has literally caused free cash flow in those Mag 7 names to go slightly negative here the past couple of years, particularly the last 12 months, to slow down. And that was my comment today.

It's stunning that you've got over a third at this point of all capital expenditures in the entire 500 stock index being from just those seven large names. But two things. One, that represents their market caps. So I suppose that makes sense. And then number two, just understand that as that free cash flow goes from slightly negative back up to these big positive 20, 25, 30 percent numbers, you're going to have a lot of dry powder. And that dry powder will likely get put to use in buybacks. Yes, there'll be a combination of things. These boardrooms will spend the money on buybacks. They'll spend it on acquisitions. They'll spending on cap X. But you'll also have room and there are some dividend payers. inside of Mac 7. All of those names already pay small dividends. In dollar terms, they're not small. They're big. They're huge companies. In percentage terms, they are small. And my point is just as free cash flow comes up, they're going to have the ability to return more of that to shareholders. And I wouldn't be surprised if you got some dividend growth out of some of those otherwise growth oriented names. This is a normal natural thing as companies mature, get larger, and return capital in that way. Okay, question in there today was about the DTC. This is the depository trust company.

DTC is basically what allow securities to be easily transferred and traded inside of your investment account. It holds them in a standard name from the investment firm rather than your individual name. And that sounds a little scary, but this is the way it's been since 1973. The idea was back in the day, you had a lot of paper flying around. And believe it or not, even just since I've been in the business 25 years ago, we still had paper tickets and a stamping machine where if you bought certain stocks below $5 a share, you had to write a ticket and stamp it with the timestamp and then submitted to the cage. I have someone else do the trade for you. A similar way back in the 70s, there was registration of securities and certificates.

From a transaction standpoint, it was really cumbersome for Wall Street to really function very efficiently. And so they created a way for these large custodial firms and broker dealers and things to own shares of companies in a standard company name and divvy them out in ownership and individual segregated client accounts. It was called DTC. This whole system was set up. It now deals with $100 trillion of securities assets. So it's enormous. It's integral to how the plumbing of Wall Street works. And the question is, technically, since customers don't own shares directly, but through this system, doesn't that mean the government could potentially seize assets and things like that and shouldn't it be redone? It's the way things work. It's very large and there

isn't a better way to fix it. If it needs to be fixing, I'm not sure it's broken. But if that were an endeavor. I don't know if I'd be opposed if it could be somewhat better and also protect customers for. Of course, those two, those are two good things. But the idea that the government would seize money I'm not into, I don't think that's worth a lot of thought power as a reality, both just legally, both politically, and then just why would we do that to ourselves? It doesn't even, it's not in our best interest. If the government was dealing with a wide scale collapse, remember, there's still a printing press and a large military, so they can do a lot of things with those two deals there. not sure they want your stocks. Plus, they'd be going down in value every second anyways in that

doomsday type scenario. But that's my feeling on it. All that to say, it isn't that crazy things can't happen. If you remember MF Global, this was the ex-Goldman CEO's company. It was a big future house. It actually did bust segregated client accounts and try to save its company from going bust. And the reason it was going bust, if you remember, in 2011 was that Europe was going bust. And if you remember the bond yields of sovereign nations of Italy, remember the pigs, Portugal, Italy, Greece, and Spain, they were yielding like 10, 11, 12 percent. And before Draghi came out with the bazooka and the ECB and bought all the debt, basically, but to make rates go back down. Anyways, MF Global had made a poor play on that and got caught in it and the company went bankrupt.

But in the meantime, they tried to take $1.6 billion of customer accounts to save it. That is illegal. And those things can happen. But my question and the answer is related to an intentional, systemic government-driven agenda to steal everyone's money. I don't see it. Okay, that's my comments for the day. I hope it's helpful. Again, this is Thursday. So have a great evening. And if I don't speak to you, a great weekend. That's been a dozy a couple weeks for me traveling. So I'm happy to be home here. Reach out and wish you well. Thanks again. Bye-bye. The Bonson Group is a group of investment professionals registered with Hightower Security LLC, member Finra and SIPC, with High Tower Advisors, a registered investment advisor with the

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