THE ULTIMATE DIVIDEND PLAYBOOK PDF
Compre o livro The Ultimate Dividend Playbook: Income, Insight and Independence for Today's Investor na ppti.info: confira as ofertas para livros em. Editorial Reviews. From the Inside Flap. "Dividends may not be the only path for an individual. A book review of the Ultimate Dividend Playbook by Josh Peters of Morningstar.
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The Ultimate Dividend Playbook. gReceived over 1, dividends thus far from our active portfolio holdings—all of which reflect actual, trades. The ultimate dividend playbook: income, insight, and independence for today's . I should state up front that The Ultimate Dividend Playbookis about as far from. Read "The Ultimate Dividend Playbook Income, Insight and Independence for Today's Investor" by Josh Peters available from Rakuten Kobo. Sign up today and.
And typically, even before a dividend cut is announced, you are going to look at a long and deep slide in the share price that's going to result in a capital loss. So, that is something you really want to avoid. And in our history, in all of the stocks that we've owned in our portfolio over our first 10 years, you'll see a very tight correlation between the fate of the dividend and the fate of the stock.
Eighty-nine percent of the stocks that have increased their dividends while we've owned them have resulted in positive total returns. Eighty-one percent of those stocks have been losers, and those three stocks out of that group that have proven profitable [have become so] because their dividends have come back and we've continued to own them. Wells Fargo WFC , in the bar chart there, is that red line that is out on the far right side of the chart.
It shows that we have earned a good total return from Wells Fargo. It's back at a record high. So, it actually has been more of a dividend-growth story for us for the whole time we've owned it than a dividend-cut story, but I still would rather not have owned the stock when it cut its dividend. The share price, like that of almost every bank, suffered greatly in that late time period.
I want to make sure that when the next recession comes, I'm not caught with companies that are cutting their dividends. How do we do that? Here's where economic moats play into the story. These sustainable structural competitive advantages that we identify for individual businesses that we expect to last 10, 20, or more years, those are defending the profitability of the company.
And it's those profits and cash flows that are, in turn, needed to pay dividends. So, if you don't have an economic moat--you are a Dow Chemical DOW , for example--and you are just riding the cyclical waves up and down, and you can't really control the demand for your product, how much you can sell it for, or how much it costs to produce, that's not compatible with a safe and growing dividend.
In fact, Dow is a pretty good example of a high-yielding no-moat stock. The dividend growth has been very poor over the years. In , they had to cut their dividend. What I prefer, instead, would be something like a Coca-Cola KO , where they can influence demand for their product and have had terrific success over the years growing the demand for their product.
They have very good profit margins, and they have the opportunity to expand them further. They generate a tremendous amount of free cash flow, even in the tough times for their industry, even when the company, like right now, is in a little bit of a funk. It's not really performing up to its full potential. That wide economic moat--that tremendous competitive-advantage set that Coke has--defends the dividend and sees to it that we continue to be paid regularly on a quarterly basis as shareholders.
Also, playing into avoiding dividend cuts and finding safe dividends are healthy balance sheets. Remember that all creditors stand ahead of you in line for companies' cash flows, so you don't want too much debt on the balance sheet. It's very important for the company to have some excess borrowing capacity so that it can smooth out potential short-term shortfalls in cash flow, while continuing to invest in the business and maintain its dividend.
The payout ratio is really the key number in evaluating dividend safety, but it's not a magic bullet. So, you have to think about how a payout ratio--that proportion of earnings that is paid out as dividends--balances against the company's need to invest for internal growth, as well as providing that cyclical safety margin for future downturns.
Perhaps the best indicator of dividend safety is continued growth. If the company just raised its dividend, it's quite unlikely--unless it has a deliberately and obviously variable policy for paying dividends on a quarterly basis--it's very unlikely it's going to turn around and cut it immediately. But you also don't want to be faked out. This is not a perfect indicator. None of these factors are perfect indicators; you have to consider them all. Sometimes, companies go on raising their dividends for 30 or 40 years, and then they get cut because wrong set of circumstances come along.
The point here is not that you're going to be able to avoid every dividend cut; it's going to happen sooner or later. But in order to get those higher yields, you have the opportunity to try to maximize and optimize the safety of those dividends.
What you want is not "no dividend cuts at all"--that's the ideal and certainly what I'm shooting for--you really want to minimize it. You can't avoid all risks in pursuit of income and total return, but these are some guidelines to help you try to avoid as many dividend cuts as possible. The second--and this is now where we start talking about a key driver of total return--is the growth of the dividend over time. I like to think of total return as being a very simple formula; it's dividend yield plus dividend growth.
This is kind of confusing because it doesn't necessarily line up with the exact experience of a stock over any one period of time.
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What you have to do is think about what is the impact on the share price of a rising per-share dividend rate over time? What you see in the chart here of General Mills' stock price relative to its dividend rate over time is actually a very tight correlation. This makes for a neat example: As that dividend has grown over the last 20 years, you see that the stock price is following right along with it. Now, what drives dividend growth? It's really two factors. One is growth of earnings for the company.
I like to think in terms of breaking this down into a couple of subfactors. For General Mills, are they growing volumes?
They've certainly sold me a lot more cereal in the last couple of years as I've got a house filled with small kids. And so much of that cereal seems to wind up on the floor that I feel like I'm single-handedly responsible for General Mills' last dividend increase. But it's not a fast-growing industry; people are only going to eat so much. But then you think about what builds on that.
Can they price in line with inflation? Can they expand their operating margins by becoming more profitable, particularly as this industry continues to consolidate? By the time we get down to the operating-income line, this is probably more of a mid-single-digit growth in net income as opposed to low-single-digit growth in revenues.
And then what does General Mills do with the cash that it doesn't spend on dividends? Most of the rest will go to share repurchases. So, what I just described were the drivers of earnings growth, but you also have to consider dividend policy.
Does the company raise its dividend in line with earnings? Is it raising the dividend more slowly because they don't perhaps want to prioritize the dividend so much? Or is the dividend becoming more generous over time, and at what point does that max out? In the lower right-hand corner of the screen, you see a year history of General Mills' earnings per share--this is being presented on a core or adjusted basis to exclude some unusual items--as well as the dividends paid in each of their fiscal years.
That's not, frankly, sustainable forever, and you see that the growth rate in the dividend has actually come down a little bit more recently.
Seven percent was the most recent dividend increase announced here for General Mills in this year of Or, if the company doesn't have a lot of reinvestment opportunities and is just generating lots of free cash flow, it can fund share buybacks or make acquisitions and grow earnings per share in that way. So, from here, I can think in terms of extending the trend. The relative trend here for the dividend of General Mills would be the earnings-growth rate.
Things are in a little bit of a slump right now, but people are still eating. General Mills is still innovating, still becoming more productive. The basic story hasn't changed. Now, when we think about total return, we are adding, as I mentioned earlier, the dividend-yield component, as well as the dividend-growth component; but there are a few more things to think about. Even for the lowest-risk businesses, I typically want that dividend yield plus dividend growth to be at least 7. And I think, in terms of a hurdle rate, this is what kind of total return I need to be able to count on from my individual-stock selections once I'm done analyzing them in order to meet my portfolio objectives.
But there is one more piece that you have to consider, and that is the stock's valuation. And here on the right, I show two examples that actually come right out of our own portfolio performance over time. When you buy a stock, you might see a good dividend-growth rate and a safe and decent yield, but if the stock can't keep up with the growth rate of the dividend over time, then you are going to earn less than you expected.
But because that dividend growth has slowed along with earnings growth slowing, the dividend yield has had to come up to compensate. That means the share price has gone up more slowly than the dividend rate. Not bad. It's a low-risk company. And, certainly, the dividend is much more generous now than it used to be, but I didn't get what I expected because I frankly paid too much when I bought the stock back in January What you hope for, instead, is the opposite, which is that the share price can go up even faster than the dividend.
That sounded good, but it was actually great. It was too high considering the subsequent growth potential of Realty Income's dividend--to say nothing of the fact that they are one of the few REITs that didn't cut their dividend but continue to grow it every quarter even through the trials of So, even though I think Realty Income is now a little bit of an expensive stock, most of that additional total return has been justified and is worthwhile and lasting.
That's the hoped-for outcome. So, the best way to get a sense--for me anyway--of the stock's valuation and whether or not it can sustain that valuation so that I get dividend yield plus dividend growth or better as my total return is to look for stocks that are trading at or below our Morningstar fair value estimates, which considers all of our research, all of our forecasting of the company's future financial performance, and condensing it down into that valuation.
I'm willing to pay a fair price for a very good business. For B-quality businesses, I want a bigger discount. For C-quality businesses, I wouldn't want them to own them at all. But the point here is that you don't want to overpay; you don't want to pay meaningfully more than the company is worth on a sustainable basis, because then, even if you are right about the dividend being safe and you cash those dividend checks, even if you're right about the dividend growth, you are still probably not going to get the total return you hoped for.
It's certainly a household name with tens of millions of customers across the country. You already know what business it's in, so let's look at it in terms of these three questions. Is the dividend safe? Well, Verizon, for one thing, has never cut its dividend in the past. That's a favorable sign. Dividend cuts in the past don't mean that dividend cuts are going to be there in the future, and the absence of a cut doesn't guarantee that the dividend won't be cut in the future.
But if you have a pattern of dividend cuts, it certainly raises important questions about the business. Maybe it's too volatile to sustain what you expect. Dividend coverage, on both an earnings and a free cash flow basis, you need to have about 1. That leaves you a big safety cushion, a big margin of safety for a potential short-term drop in cash flow. The dividend is still covered without the company having to choose between borrowing to maintain the dividend or cutting it.
And it helps, too, that this is a defensive business. People need their cellphones in thick or thin. It's a business that we think is competitively advantaged relative to rivals, especially the smaller wireless providers like Sprint S and T-Mobile TMUS.
It has a better customer base, a superior network, economies of scale to enhance their profitability, as well as a strong investment-grade credit rating. Then, we see the potential for their leverage to actually come down over time because most of the free cash flow they are not paying out as dividends right now is targeted to help reduce debt over the next couple of years.
With that, you have here, on an annual basis, in terms of some of the dividends paid in each calendar year, you've had a dividend increase from Verizon every year since They didn't actually announce an increase during , so if you are thinking about an increase being announced in the year, you could date it from Either way, you have a pattern here that the dividend has grown every year for a number of years.
That suggests that the trend should continue because companies typically that make a point of raising the dividend every year don't want to abandon a favorable track record on a whim.
More importantly, what we see is that the dividend-growth rate has picked up a little bit. It hasn't been real fast.
It's been 3. This is a favorable trend. I like to see dividend growth accelerating a little bit. It's mostly a function of how productive can Verizon be in reinvesting its excess free cash flow--first through debt reduction and maybe, down the road, through share repurchases, acquisitions, and other things.
What exactly are dividends?
The Ultimate Dividend Playbook: Income, Insight and Independence for Today's Investor
Basically, a dividend is a transfer of assets, almost always cash, from a corporation to its shareholders. Not all corporations, even those with enormous profits and sizable cash reserves, are willing to pay them out to shareholders, but many corporations do. Some pay out only a little, while others--the kind of companies this book tells you about--pay out a lot, thereby setting the investor free from fickle market prices and unreliable capital gains.
This practical resource focuses on three essential elements: income, information, and independence. Most investors are familiar with income, but what you may not know is that dividends convey crucial information like a company's financial health and growth prospects, and that an investment strategy using dividends and dividends alone offers rewards not subject to the whims of Wall Street. So let others chase capital gains, add up their statement values, and try to time the market.
Dividends are the ultimate source of a stock's value for shareholders. The Ultimate Dividend Playbook will help you frame an approach--emotional as much as intellectual or financial--and assemble a portfolio of well-chosen, dividend-rich stocks that can deliver the income and growth you seek. Chapter 1. From Stocks? Chapter 2. Dividends, Values, and Returns.
Chapter 3. Dividend Machines. Chapter 4. The reader should be aware that Peters is not a get rich quick practitioner. He does not oversell and does not claim as many of his competitors do that he is the greatest investor of all time.
Rather he humbly sets forth a strategy that involves purchasing dividend paying stocks where the stock appears to be undervalued, the dividend h As a subscriber to the author's Morningstar Dividend Investor publication, it was nice to see Peters have a chance to expand on his philosophies and strategies. Rather he humbly sets forth a strategy that involves purchasing dividend paying stocks where the stock appears to be undervalued, the dividend has been increasing and is supported by a favorable payout ratio, and prospects are good for continued growth the companies generally have a decent "moat" separating them from competitors.
This is a lifetime approach, not a fad of the week tactic.
The Ultimate Dividend Playbook: Income, Insight and Independence for Today's Investor
I highly recommend. My neighbor's stress has finally settled into the Alpine, a sharp drop from the ozone layer from which it was hovering. Seriously, this is a unique and simple look at investing that long-term investors should consider. While I openly disagree with Josh regularly on some utility issues, I immensely respect his opinions and infinitely independent point of view.The basic story hasn't changed. Undetected country.
Overall though, this is a good introduction to dividend investment. The second--and this is now where we start talking about a key driver of total return--is the growth of the dividend over time.
It's very important for the company to have some excess borrowing capacity so that it can smooth out potential short-term shortfalls in cash flow, while continuing to invest in the business and maintain its dividend. In The Ultimate Dividend Playbook: Would you like to tell us about a lower price?
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