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If you want behind-the-scenes updates and early access to our upcoming high-yield reports, join the High-Yield VIP List, and you’ll get the following immediately when you join for free:

• My high-yield stock watchlist

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Some of the best investing strategies are the simplest.

Lowell Miller’s The Single Best Investment boils investing down to three things that really matter: quality, cash flow, and time.

Here are 8 lessons from the book to help you build a compounding machine.

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1. The Single Best Formula

Compounding wealth over time boils down to a simple equation:

When you can find a company with all three, you have three engines working to build your wealth.

This kind of situation usually happens when Mr. Market gets very depressed about a temporary problem at a great company.

An Example:

In 2019 Mr. Market got very depressed about AbbVie’s top-selling drug, Humira, losing its patent protection.

The stock price went down and the yield went up to 6.5%.

Management replaced the revenue with new drugs, and investors who bought then now have:

• Total returns of around 375%

• A yield on cost of nearly 11%

• A Dividend CAGR of more than 7%

2. Dividends Don’t Lie

Earnings are always an estimate, but to pay dividends, a business needs cash in the bank.

There are lots of ways for accountants to make a business look more (or in some cases, less) profitable on paper.

But Miller says that “Dividends are the only thing you can truly know about a stock.”

3. Rising Dividends Pull Prices Higher

In the short term, the stock market is a voting machine driven by emotion.

In the long term, a stock’s price is tied to its dividend.

For a company to consistently raise the dividend, it has to be generating more and more cash.

That rising cash flow is like a magnet that pulls the value of the business higher too.

4. Bonds Aren’t As Safe As They Look

Fixed income feels safe.

But when you’re getting the same interest payment in 10 years, inflation reduces the purchasing power of that money.

High-quality companies that pay growing dividends compound your real purchasing power over the long run.

5. Financial Strength is Non-Negotiable

A dividend is only as safe as the balance sheet that supports it.

Never compromise on financial strength.

Make sure to have low debt levels and high free cash flow.

Strong balance sheets let your companies keep paying dividends, and take market share from weaker competitors when times get tough.

6. Embrace Volatility

Volatility isn’t risk.

It’s the price you pay for the higher returns of equites.

Stock prices are guaranteed to fluctuate wildly.

Focusing on the income stream and not the stock price makes it much easier to hold great companies through market ups and downs.

7. Time is the Most Powerful Force

The magic of dividend reinvestment is heavily back-loaded.

Remember that it’s exponential growth, so it doesn’t look like much is happening…at first.

But when compounding takes off, it does so quickly.

For those of you who like math, here’s a reminder of the exponential growth formula.

The amount of time invested is the exponent in the formula, meaning that it’s the most powerful driver of your returns.

8. Boring is Beautiful

The greatest compounding machines are usually boring and predictable.

Look for companies with products or services that customers are forced to buy no matter what the economy is doing.

Here are the Dividend Kings that have raised their dividends for at least 50 years in a row:

It’s full of industries with predictable, repeating sales that create predictable, rising dividends.

That’s It For Today!

Building a compounding machine takes time, but the rules are simple.

Here are the 8 lessons from The Single Best Investment we went over today:

1. The Single Best Formula: High Quality + High Starting Yield + High Dividend Growth = High Total Returns

2. Dividends Don’t Lie: Earnings are estimates, but it takes real cash in the bank to pay a dividend.

3. Rising Dividends Pull Prices Higher: Steadily growing cash flows (and dividends) pulls the value of the business up over the long run.

4. Bonds Aren’t As Safe As They Look: Fixed interest payments lose their purchasing power to inflation, growing dividends protect it.

5. Financial Strength is Non-Negotiable: A reliable dividend needs a solid balance sheet with low debt and high free cash flow.

6. Embrace Volatility: Price swings are normal, focusing on your growing income stream makes it easy to ignore Mr. Market’s mood swings.

7. Time is the Most Powerful Force: Compounding is exponential. The longer you leave your money alone, the faster it multiplies.

8. Boring is Beautiful: Predictable businesses selling essential products often make the most reliable wealth-building machines.

One Dividend At A Time

-TJ

P.S.

On June 23rd, we are kicking off a series all about high yield investing.

If you want to maximize your portfolio’s income without sacrificing business quality, jump on the VIP Waitlist.

You’ll get behind-the-scenes updates and the very first invite to download our brand-new high-yield special reports the minute we go live.

Join the VIP list

Don’t forget that you’ll also get the following just for joining the VIP list:

• My high-yield stock watchlist

• A Checklist of Dividend Investing Mistakes

• The Highest Yielding Dividend Aristocrats

Join the VIP list

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

Something special is happening on June 23rd that you won’t want to miss.

If you want behind-the-scenes updates and early access to our upcoming high-yield reports, join the High-Yield VIP List, and you’ll get the following immediately when you join for free:

• My high-yield stock watchlist

• A Checklist of Dividend Investing Mistakes

• The Highest Yielding Dividend Aristocrats

Get on the list by leaving your email here.

Today is Dividend Day.

The series where I teach you 5 things about dividend investing in less than 5 minutes.

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1️⃣ High Yield vs. Dividend Growth

When you invest for dividends, you face a fundamental choice:

Do you want a big paycheck today, or a smaller paycheck that keeps growing?

That’s the high-yield vs. dividend growth tradeoff in a nutshell.

Both strategies pay you income. But they do it differently.

This visual puts it in a very simple way:

2️⃣ Dividend Growers vs High Yielders

Is it better to own companies that grow their dividends or those that already offer high yields?

Tough question right?

Lets answer this with the help of the index performance.

• VIG invests in companies with a history of consistently increasing their dividends.

• VYM focuses on stocks with the highest dividend yields

Both are Vanguard funds and both charge the same low 0.04% expense ratio, but their approaches are very different.

In recent years, high yield has had the upper hand.

VYM outperformed VIG in 2021, 2022, 2024, 2025, and remains ahead year-to-date in 2026.

But over the long run, dividend growth has been the winner.

Since the launch of both funds, a $10,000 investment grew to $69,540 in VIG compared to $56,850 in VYM.

The lesson? Both can perform well, but the longer the time period, the more dividend growth matters.

3️⃣ An Investing Quote

Dividend growth investing rewards patience.

A 2% yield that grows 10% per year becomes a 13.5% yield on your original investment by year 20.

You just have to wait for it. That waiting is the whole strategy.

As the legend Warren Buffett says:

4️⃣ The data goes back to 1960

Dividend growers have dominated the market over the very long run.

Hartford Funds has done excellent research in this area.

One of the most interesting findings?

From 1960s, 85% of the S&P 500’s cumulative total return can be attributed to reinvested dividends and the power of compounding.

You can access their full report here.

5️⃣ Example of a Dividend Stock

Let’s look at Visa (V).

Visa operates the world’s largest payment network, processing billions of transactions every year.

The company earns a small fee on every card swipe and has increased its dividend consistently over time.

Key numbers from Fiscal.ai:

• Profit Margin: 51.7%

• Forward P/FCF: 24.1x

• Dividend Yield: 0.8%

• Payout Ratio: 21.9%

P.S.

On June 23rd, we are kicking off a series all about high yield investing.

If you want to maximize your portfolio’s income without sacrificing business quality, or dividend growth jump on the VIP Waitlist.

You’ll get behind-the-scenes updates and the very first invite to download our brand-new high-yield special reports the minute we go live.

Join the VIP list

Don’t forget that you’ll also get the following just for joining the VIP list:

• My high-yield stock watchlist

• A Checklist of Dividend Investing Mistakes

• The Highest Yielding Dividend Aristocrats

Join the VIP list

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

Something special is happening on June 23rd that you won’t want to miss.

If you want behind-the-scenes updates and early access to our upcoming high-yield reports, join the High-Yield VIP List, and you’ll get the following immediately when you join for free:

• My high-yield stock watchlist

• A Checklist of Dividend Investing Mistakes

• The Highest Yielding Dividend Aristocrats

Get on the list by leaving your email here.

High yield stocks are interesting because they give you more income right now.

Today we’re looking at 5 stocks with yields of 4% or more.

Some investors think that high-yield stocks are risky, low-quality companies, but they’re wrong.

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High-yield doesn’t always mean high risk.

Companies in the top 40% of dividend yields outperform the S&P 500 most often.

Another misconception about high yield stocks?

That they only pay big dividends because they’ve stopped growing.

Again, not true.

Many of the best high-yield companies actually pay out less than half of their profits, keeping plenty of cash on hand to keep growing the business.

When you have a growing company, and a high dividend yield, you can compound very quickly by reinvesting your dividends.

A High Yield Example.

Realty Income (O) runs a low-maintenance property model on a huge scale.

They own thousands of freestanding commercial properties under triple-net leases, which means the corporate tenants handle the taxes, insurance, and property maintenance.

All Realty Income does is collect the rent and pass it on to shareholders.

Realty Income is known as ‘The Monthly Dividend Company’ because they pay a high dividend every single month.

If you would have invested $10,000 25 years ago, and reinvested your monthly checks, that position would be worth over $172,000 today.

Better yet, that initial ten grand would now be handing you over $9,000 in purely passive dividend income every single year.

That’s a 90% (!) yield-on-cost.

That’s the magic of reinvesting high dividends.

Today, we’ll start with a screen of high yield candidates with growing businesses.

Then I’ll show you five high-yield companies from it that I think are interesting.

Our Screen

Today I’m going to start with a custom screen.

The Criteria

• EBIT / Interest Expense: > 3.8

• 5-year Revenue CAGR: > 3%

• 5-year EPS CAGR: > 3%

• Dividend Yield: > 4%

• Payout Ratio: < 85%

• 5-year DPS CAGR: > 4%

The Result? 90 companies fit all these criteria.

Some interesting facts from the group:

• Highest Yield: 26.6%

• Highest DPS Growth: 169.2%

• Average Dividend Yield: 6.05%

• Average Payout Ratio: 51.85%

Let’s Dive In!

Here are the 5 companies that I thought were the most interesting.

5. Coca-Cola FEMSA ($KOF)

How does the company make money?

Coca-Cola FEMSA is the largest franchise bottler of Coca-Cola products in the world by volume.

They buy syrup from the Coca-Cola Company, then handle the bottling, marketing, and distribution across Latin America.

Coca-Cola FEMSA owns the plants, relationships with retailers, and the distribution network that would cost billions to replace.

And because they sell Coca-Cola, just like the parent company, they have pricing power and brand dominance across Latin America.

What else makes Coke FEMSA interesting?

• Consistent, high growth rates in revenue (9.8% 5-year CAGR) and earnings (16.1% 5-year EPS CAGR).

• A solid payout ratio of 70.5%, giving the dividend plenty of safety and breathing room.

• A history of consistently raising the dividend with a 9.0% 5-year DPS CAGR.

4. TotalEnergies SE ($TTE)

How does the company make money?

TotalEnergies is an integrated oil and gas company that’s focused on maintaining low-cost oil and gas production globally.

They’re also aggressively investing in a diversified portfolio of renewables.

What else makes TotalEnergies interesting?

• Growing profits, with an EPS 5-year CAGR of 32.6%.

• A 4.7% dividend yield and a conservative payout ratio of just 59.0%.

• A disciplined capital allocator with a long history of increasing shareholder value.

3. Vinci SA ($DG.P)

How does the business make money?

If you like businesses with massive moats, you’ll love France’s Vinci.

It doesn’t get much better than owning toll roads, airports, and energy infrastructure.

Their concession model generates highly predictable, inflation-protected cash flow that funds a very healthy, growing dividend.

What else makes Vinci interesting?

• Strong profit growth with a 31.5% 5-year EPS CAGR.

• A 4.0% dividend yield backed by a low 57.1% payout ratio.

• High historical dividend growth, increasing their payout by 19.6% annually over the last 5 years.

2. Genuit Group plc ($GEN.L)

How does the business make money?

Genuit Group is based in the UK, and they are a leading provider of sustainable water and climate management solutions for the construction industry (think piping systems, ventilation, and heating).

As environmental regulations tighten and infrastructure ages, their essential building products are seeing sustained demand.

This is a great ‘boring but beautiful’ business.

What else makes Genuit interesting?

• A 5.1% dividend yield that is well-covered by a 71.0% payout ratio.

• Solid top-line growth (8.6% Revenue 5-year CAGR) and an even higher 16.2% earnings growth.

• A history of dividend growth, with a 21.9% 5-year DPS CAGR.

1. Comcast Corporation ($CMCSA)

How does the company make money?

Comcast is a global media and technology company.

Comcast is massive, spanning broadband, cable, NBCUniversal, and theme parks.

The important thing to remember about Comcast is that it generates a lot of free cash flow.

There are fears around cord-cutting fears, but its broadband infrastructure and theme park pricing power keep the cash rolling in.

What else makes Comcast interesting?

• A 5.6% dividend yield with a low payout ratio of just 25.7%.

• Strong historical earnings growth with a 15.2% 5-year EPS CAGR.

• Management that continually shrinks the share count through buybacks while raising the dividend (7.0% 5-year DPS CAGR).

That’s it for today!

High-yield stocks can be high-quality companies that give you a lot of cash now and fuel compounding for the future. The 5 highlighted today were:

• Coca-Cola FEMSA ($KOF): The world’s biggest Coca-Cola bottler with emerging-market growth.

• TotalEnergies SE ($TTE.P): An energy giant balancing traditional fuels with a renewable future.

• Vinci SA ($DG.P): An infrastructure company with massive moats and toll-road cash flows.

• Genuit Group plc ($GEN.L): A building products manufacturer with the tailwind of sustainable infrastructure behind it

• Comcast Corporation ($CMCSA): A broadband and media conglomerate offering a high yield with a low payout ratio.

One Dividend At A Time

-TJ

P.S.

On June 23rd, we are kicking off a series all about high yield investing.

If you want to maximize your portfolio’s income without sacrificing business quality, jump on the VIP Waitlist.

You’ll get behind-the-scenes updates and the very first invite to download our brand-new high-yield special reports the minute we go live.

Join the VIP list

Don’t forget that you’ll also get the following just for joining the VIP list:

• My high-yield stock watchlist

• A Checklist of Dividend Investing Mistakes

• The Highest Yielding Dividend Aristocrats

Join the VIP list

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

Well, they are wrong.

When we use options the right way, we can buy stocks at a discount and generate some income from the shares we already own.

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This is my first time writing about Options.

So I will try to keep it simple and beginner friendly.

Let’s cover some basics first.

What is an Option?

An option is a contract between two people.

It gives one person the right, but not the obligation, to buy or sell a stock at a specific price, before a specific date.

There are two types of options:

• Call Option – gives the buyer the right to buy a stock at a set price

• Put Option – gives the buyer the right to sell a stock at a set price

Every option contract covers 100 shares of a stock.

There are a few key terms you need to understand before going further.

Key Terms to Know

This visual covers the important key terms:

Beginner Options Strategies

There are two options strategies that every beginner should know.

• The Cash Secured Put

• The Covered Call

These two strategies are not about speculation or gambling on stock prices.

They are about generating consistent income, buying stocks at prices you are comfortable with, and getting paid while you wait.

Most people buy options to gamble on the direction of a stock price.

We’re not going to be doing that.

We’ll be selling the options to the gamblers, and collecting their premiums.

Now, let’s understand these two strategies more clearly.

Strategy One: The Cash Secured Put

What Is a Cash Secured Put?

A Cash Secured Put means you sell a put option on a stock you would be happy to own.

In exchange, you collect a premium upfront.

The word cash secured means you have enough cash set aside to actually buy 100 shares of the stock if required.

How Does It Work?

When you sell a put option, you are making a promise to another investor.

You are saying:

“If this stock falls to my strike price, I am happy to buy it from you at that price.”

In return, the buyer pays you a premium immediately.

Once you sell the put, there are two possible outcomes:

1. The stock stays above your strike price
   The option expires worthless. The buyer does not need to sell to you. You keep the premium as pure profit. No shares change hands
   

2. The stock falls to or below your strike price

   The buyer exercises the option. You buy 100 shares at the strike price, and you keep the premium, reducing your effective cost

Let’s use an example:

Simple Example

Imagine a stock called ABC is trading at $100.

You like ABC and would be happy to own it at $90.

You sell a put option with:

• Strike price: $90

• Expiration: 30 days from now

• Premium collected: $2 per share = $200 total (remember, one contract = 100 shares)

You set aside $9,000 in cash, which is enough to buy 100 shares at $90 if needed.

Scenario A: ABC stays above $90

• The option expires worthless and you keep the $200 premium.

• Your $9,000 cash is free to use again. That is a return of roughly 2.2% in just 30 days, without ever buying the stock

  • If you could do this every single month, you would make a return of more than 26% per year!

Scenario B: ABC falls to $85

• You are assigned and must buy 100 shares at $90. Your actual cost is $90 minus the $2 premium = $88 per share.

• You now own a stock you liked, at a price you wanted to pay.

Strategy Two: The Covered Call

What Is It?

A Covered Call means you sell a call option on shares you already own.

In exchange, you collect a premium.

The word covered means you already hold the shares.

How Does It Work?

When you sell a call option, you are making a different promise to another investor.

You are saying:

“If this stock rises to my strike price, I am happy to sell my shares to you at that price.”

In return, the buyer pays you a premium immediately.

This brings us to two possible outcomes:

1. The stock stays below your strike price

   The option expires worthless. The buyer has no reason to buy your shares at the strike price. You keep your shares and the premium.
   

2. The stock rises above your strike price

   The buyer exercises the option. You sell your 100 shares at the strike price. You miss out on any gains above that price, but you still keep the premium

Let’s take an example to this understand better.

A Simple Example

You own 100 shares of ABC, currently trading at $100.

You are happy to sell those shares if they reach $110.

You sell a call option with:

• Strike price: $110

• Expiration: 30 days from now

• Premium collected: $1.50 per share = $150 total

Scenario A: ABC stays below $110

• The option expires worthless. You keep your 100 shares and pocket the $150 premium

• That is extra income earned just for holding shares you already owned

Scenario B: ABC rises to $115

• You are assigned and must sell your 100 shares at $110.

• You miss the extra $5 per share above $110, but you still made a $10 per share gain on the stock plus the $1.50 premium. Your total gain is $11.50 per share, or $1,150

Use them together

Many investors combine these two strategies, known as the Wheel Strategy.

It works in three simple steps:

1. Sell a Cash Secured Put on a stock you’d like to own and collect a premium. If assigned, you buy the shares

2. Once you own the shares, sell a Covered Call and collect another premium. If assigned, you sell the shares

3. Repeat the process

The goal is simple:

• Get paid while waiting to buy

• Get paid while holding the stock

• Get paid again when you sell

What Are the Risks?

Options so have risks.

We need to aware of them:

Cash Secured Put Risk

• If the stock falls sharply and far below your strike price, you are still obligated to buy at the strike price

• Your effective cost is reduced by the premium, but you could be sitting on a loss if the stock keeps falling

• This is why you should only sell puts on stocks you genuinely want to own at that price. Never sell a put just for the premium on a stock you do not believe in

Covered Call Risk

• If the stock rises sharply above your strike price, you are obligated to sell at the strike price. You cap your upside

• For example, if you sold a call at $110 and the stock goes to $140, you must still sell at $110. You miss the extra $30 of gains

• This is why covered calls work best on stocks you hold for income, or stocks trading above their intrinsic values, not stocks you expect to double or triple quickly

Don’t Gamble

The biggest risk in options trading is losing control of yourself.

To keep our trades logical and without any emotional influence, we need to follow some rules:

1. Only use these strategies on stocks you want to own

   • These are not set and forget trades. You need to be comfortable owning the stock if assigned, or selling it if called away

2. Choose strike prices you are genuinely happy with

   • Do not sell a put at $90 if you would panic seeing the stock at $90. Only sell at prices where your honest reaction is “I am fine with that”

3. Start with liquid, well-known stocks

   • Stocks with high trading volumes have tighter bid-ask spreads on options, which means better prices for you

4. Pay attention to earnings dates

   • Option premiums spike around earnings announcements. Selling options just before earnings can be tempting because of the high premium, but the risk of a large move is also much higher

5. Keep position sizes reasonable

   • Never put all your cash into a single Cash Secured Put. Spread across a few positions so one bad trade does not wipe out your gains

Conclusion

• The Cash Secured Put and Covered Call are two of the most practical options strategies available to everyday investors

  • I think of them as getting paid to place limit orders

• They are not about predicting markets or taking big risks

• They are about getting paid to be patient, buying stocks you want at prices you choose, and earning extra income from shares you already hold

• Together, they form a simple, repeatable cycle that can generate consistent income month after month

• Options strategies have both risks with rewards

• Remember that we’re not gambling, we need to be logical with our trades

That’s it for today!

One Dividend At A Time,

-TJ

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

Something special is happening on June 23rd that you won’t want to miss.

If you want behind-the-scenes updates and early access to our upcoming high-yield reports, join the High-Yield VIP List, and you’ll get the following immediately when you join for free:

• My high-yield stock watchlist

• A Checklist of Dividend Investing Mistakes

• The Highest Yielding Dividend Aristocrats

Get on the list by leaving your email here.

Yes, the title of this article is a bit provocative.

But some seriously smart people agree with the idea that the market is becoming less efficient over time.

Let's dive into the evidence, and what that means for investors.

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Let’s start very quickly with what we typically mean by ‘markets are efficient’.

Because everyone has access to the same news and data, stock prices instantly adjust to reflect it.

That means that stocks are always correctly priced - if a stock were a good deal, investors would have already bought it and driven the price up.

Is the market really less efficient?

The efficient market hypothesis is difficult to test.

On the surface, it does make some sense that asset prices would reflect all the available information.

But the hypothesis assumes that everyone paying attention to the same information, weighting it the same, and inviting in the same way.

This obviously isn’t true.

One problem with testing the Efficient Market Hypothesis is that we don’t have a perfect market or model to compare the actual market to.

We don’t know what prices should be.

But, sometimes it’s pretty easy to spot what prices shouldn’t be.

SpaceX

SpaceX will IPO on Friday.

Apparently, the folks bringing this company public are very strong believers in the Efficient Market Hypothesis.

In a typical IPO, the price is set as a range - say $100 to $120 per share.

But SpaceX knows exactly what it’s worth, and has set the price at $135 per share.

That’s about $1.7 trillion for the whole company.

What do you get for that price?

A company that had $18.7 billion in revenue in 2025, and lost $4.9 billion.

That puts the IPO price at about 94x sales.

For perspective, here’s the Price/Sales of the Mag 7:

• Nvidia: 21.3

• Tesla: 15.1

• Alphabet: 10.7

• Apple: 10.3

• Microsoft: 10.0

• Meta: 7.5

• Amazon: 3.7

Some Quick AI Math

Let’s also quickly take the example of AI.

The buildout of data centers continues at a rapid pace, and 5 companies are expected to spend more than $600 billion on it in 2026.

That’s about 2% of GDP.

More than double what was spent at the peak of the dot com boom in 2000.

Contrast that with S&P Global’s projection of around $45 billion in AI revenue in 2026.

Eventually, all that spending needs to make a profit, so let’s just use $650 billion in 2026 spending as a starting place.

A 10% return on investment would require $60 billion in profit.

We don’t know the profit margin on AI yet, but let’s take a few guesses.

Google Cloud brought in about $66.5 billion in Revenue and had $18.3 billion in operating profits in the last 12 months.

That’s a 27.5% Operating Margin.

If we start there, then to get $60 billion in profit, AI needs to bring in about $218 billion in revenue.

That’s about:

• 50% of Google’s total revenue right now

• Equal to the revenue of:

  • Costco

  • JP Morgan

  • NVIDIA

  • BP

If we assume that AI is more capital intensive than the general cloud business - probably reasonable - and put a 20% margin on it, now we need $300 billion in revenue to get a 10% return on 2026’s AI CapEx.

These are massive numbers.

And the AI CapEx spending is only projected to go up from here.

Who Else Agrees?

Cliff Asness is a co-founder of AQR Capital Management, a quantitative investment firm known for its data-driven approach to asset management.

He’s also a respected researcher and publishes a lot of papers related to investing and markets.

He released a paper in August of 2024 called “The Less-Efficient Market Hypothesis”.

In it, he argues that the market has become less efficient over his 30-year career.

He makes the point that perfect efficiency probably isn’t a reasonable expectation.

But that we should be asking:

1. How efficient is the market currently?

2. Has this changed over time?

Instead of examples of excess like I just gave you, Asness looked at the value spread - the ratio of expensive stocks to cheap stocks.

He used a traditional price to book model:

And a more complex “quant” model using 5 different ratios:

• Price to book

• Price to cash flow

• Trailing PE

• Forward PE

• EV / sales

You’ll notice they both looked similar, showing pretty extreme spreads in 2000 and 2019-2020.

They looked for reasons that “this time was different”

• Were the spreads a function of tech stocks?

• Did intangibles drive the spread?

• Was it the FAANG or Mag 7?

• Was value less attractive because things like ROA, profitability, etc were lower?

• Was it the low interest rates?

The answer for all of them was “no”.

This was a 2024 paper, so you might wonder if that valuation gap has closed up at all since then.

Again, the answer is “no”.

If we use a 5-year moving average, things look even worse:

An efficient market is important for society.

Efficient markets matter.

The market’s job is to help allocate capital and resources to the best use.

A more efficient pricing system leads to a more effective economy.

Inefficient markets lead to inefficient and less innovative economies.

Conclusion

Right now, the market is voting for hype and narratives.

But as long-term dividend investors, we should remember that cash flow is what gives a business weight.

Here is what you should remember about market inefficiency:

• Capital is being misallocated: The market is currently funneling trillions into hype, narratives about the future, and momentum. A lot of this is capital destruction, but it does create opportunities for investors willing to look at the businesses that are being ignored.

• Stocks are pieces of businesses: Even though it may not seem like it now, eventually, the cost of capital matters. Debt comes due. Investors want a return. The narrative must eventually produce cash, or it collapses.

• Cash flow is financial weight: If the market completely ignores excellent businesses, management will use their free cash flow to buy back their own undervalued shares and pay consistently compounding dividends. Let the business fund your return, not the market.

You don’t need a perfectly efficient market to build wealth.

In fact, an inefficient market is a great advantage, even if it creates short term pain and frustration.

Just keep buying high-quality businesses with durable competitive advantages, great management, and strong cash flow.

Let the underlying business do the work, and ignore the market.

Coming Next: Part 2

If the market is less efficient than it was a few decades ago, we still need to talk about why?

That’s exactly what we’ll talk about in Part 2!

One Dividend At A Time

-TJ

P.S.

On June 23rd, we are kicking off a series all about high yield investing.

If you want to maximize your portfolio’s income without sacrificing business quality, jump on the VIP Waitlist.

You’ll get behind-the-scenes updates and the very first invite to download our brand-new high-yield special reports the minute we go live.

Join the VIP list

Don’t forget that you’ll also get the following just for joining the VIP list:

• My high-yield stock watchlist

• A Checklist of Dividend Investing Mistakes

• The Highest Yielding Dividend Aristocrats

Join the VIP list

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

Something special is happening on June 23rd that you won’t want to miss.

If you want behind-the-scenes updates and early access to our upcoming high-yield reports, join the High-Yield VIP List, and you’ll get the following immediately when you join for free:

• My high-yield stock watchlist

• A Checklist of Dividend Investing Mistakes

• The Highest Yielding Dividend Aristocrats

Get on the list by leaving your email here.

A new month, a new Best Buys List.

Each month, I’ll give an overview of my favorite stocks of the month.

Let’s dive into this update and show you some of my favorite stocks.

May 2026

The S&P 500 rose +4.97% in May.

Investors are greedy today according to the Fear & Greed Index:

Best & Worst Performers

This overview shows you the best and worst performers in our investable universe.

Worst performers

The cheaper we can buy great companies, the better.

The biggest decliner this month? Zoetis, losing 32%.

Zoetis is a leading animal health company that develops and provides medicines, vaccines, and diagnostic products for pets and livestock.

Zoetis fell this month due to weakening pet care demand and intensified competition:

• U.S. Companion Animal Weakness: The company reported an 11% decline in U.S. companion-animal sales during the first quarter

• Earnings Miss and Guidance Cut: The company earned $1.53 per share, missing the $1.61 analysts had expected, and management lowered 2026 guidance

• Intensifying Competition: Competitors have introduced new drugs in Zoetis’ categories and are using aggressive pricing and incentives

Best Performers

Xerox Holdings was this month’s best performer, more than doubling!

f you want proof that AI hype is driving the market, look no further than this month’s best performers.

Three of our top five gainers shot up for AI-related reasons.

• Qualcomm: Known for smartphone chips, Qualcomm shifted its narrative overnight by securing a major hyperscaler customer for its custom data center processors

• NetApp ($NTAP): NetApp had record revenue in its flash storage and cloud segments due to customers trying to clean up and organize unstructured data for AI training

• United Microelectronics Corp. ($UMC): Had strong monthly sales and progress on its joint 12nm chip program with Intel

But not winner was fueled by artificial intelligence.

Xerox ($XRX) grew revenue by 27% after integrating its Lexmark acquisition.

Michael Burry summed up what happened here well: “My strategy isn’t very complex. I try to buy shares of unpopular companies when they look like road kill, and sell them when they’ve been polished up a bit”.

Expectations for Xerox went from absolute roadkill to “not so bad,” shooting the stock price up very quickly.

Finally, PSB Holdings went up because it is getting acquired by Bank First.

Spotlight: Roper Technologies ($ROP)

Roper Technologies is a Dividend Aristocrat that has historically been valued at a premium by the market.

But the company got sold off in the ‘Saaspocalypse’.

How does Roper make money?

Roper acquires, develops, and manages technology and software businesses.

They operate a decentralized model, allowing each company to run independently, but all excess free cash flow goes back to the parent company to fund more acquisitions.

Roper splits their business into three segments:

• Application Software: This includes critical, niche platforms like Deltek (government contracting software) and Aderant (legal software) and makes up more than 50% of Roper’s total revenue

• Network Software: This segment includes industry-standard marketplace platforms, like DAT Freight & Analytics. DAT matches truckload carriers with brokers and shippers in North America.

• Technology-Enabled Products: This division focuses on specialized hardware-software solutions, like Verathon’s medical visualization systems.

Why does it deserve to be in the spotlight?

$1.5 Billion in Q1 Repurchases

Roper typically uses excess cash to acquire new businesses.

However, management is incredibly disciplined.

Private market software companies haven’t seen their values collapse the same way public ones have.

At the same time, management views shares of Roper as extremely cheap, so they changed their capital allocation strategy.

Roper spent $1.5 billion on buybacks in Q1 and the board authorized another $3 billion.

Low Valuation

Between the ‘Saaspocalypse’ and a slowdown at Deltek, Roper is now trading at a much higher dividend than normal (indicating a correspondingly low valuation).

Will AI kill Roper?

The market is afraid that AI will allow clients to build solutions in-house or erode software pricing power.

I think this idea completely misses the structural advantages of Roper’s businesses:

• Switching Costs: Roper’s systems handle complex, highly regulated workflows. The operational risk, retraining costs, and disruption required to rip out a system is huge.

• Network Effects: Platforms like DAT Freight & Analytics get better as they grow. Shippers go where the carriers are, and carriers go where the shippers are. AI can generate code, but it can’t recreate a marketplace.

• AI Integration: Roper is already successfully monetizing AI. Management said that “AI-influenced” features were responsible for 75% of all new business at Central Reach.

The Bottom Line

The market has cut Roper’s stock nearly in half.

Management is telling us very clearly that they think it’s cheap by stopping acquisitions and buying back 5% of the company.

For long-term investors looking for quality at an attractive price, Roper is worth a look.

June Best Buys

I scanned our Buy-Hold-Sell List for great quality compounders and dependable dividend payers trading at attractive discounts.

Let’s dive into 5 of our favorite income ideas for this month!

5. Kimco Realty ($KIM)

How does Kimco make money?

Kimco is a retail REIT and the largest operator of open-air, shopping centers in the United States, managing a portfolio of 565 properties.

80%+ of Kimco’s rent comes from major metropolitan sunbelt and coastal growth markets.

Most of Kimco’s shopping centers are anchored by grocery stores, which creates consistent traffic, and repeat spending.

REITs have been trading at low valuations recently because of high interest rats.

But Kimco’s business is doing just fine.

The occupancy rate is over 96%.

High-quality retail real estate is in short supply, giving Kimco pricing power.

Renewing tenants had their rent increased but 12% on average in the first quarter.

And brand-new tenants signed leases with rents 23.8% higher than what the old tenant was paying.

4. Howden’s Joinery ($HWDN.L)

How does Howden’s make money?

Howden’s Joinery is the dominant supplier of kitchen products like cabinets, sinks, and countertops in the UK market.

Unlike traditional retailers that try to attract fickle retail consumers, Howden’s has a rigid rule: they only sell directly to trade professionals (builders, contractors, and local carpenters).

This is a much better business model.

For a local builder, time is money.

Every project delay because a cabinet door, hinge, or other part is missing hurts their profitability.

Howden’s local depots maintain massive, 100% in-stock inventory availability.

That means builders go to Howden’s first, and trust them to have what they need.

That gives Howden’s a local moat, the majority of the local market share, strong pricing power, and an ability to reinvest in the business at a high Return On Invested Capital.

Howden’s is a very profitable business, so they can’t reinvest all of their excess cash into the business.

Management uses the excess to both buy back shares and pay a rising dividend to shareholders.

Right now, you can collect a 2.8% dividend yield with a conservative 43% payout ratio, leaving the business lots of cash to keep building new depots.

You’ve just seen two of my favorite income stocks for June, but paid Partners get three more.

Our top three picks for June include the leader in a global medical device duopoly trading at a discount because of overblown headline fears, a Wide-Moat financial software leader that is actively winning contracts from its largest competitors, and an iconic restaurant giant trading at a steep discount to its historical valuation.

Don’t Miss Our High Yield Content.

On June 23rd, we are kicking off a series all about high yield investing.

If you want to maximize your portfolio’s income without sacrificing business quality, jump on the VIP Waitlist.

You’ll get behind-the-scenes updates and the very first invite to download our brand-new high-yield special reports the minute we go live.

Join the VIP list

Don’t forget that you’ll also get the following just for joining the VIP list:

• My high-yield stock watchlist

• A Checklist of Dividend Investing Mistakes

• The Highest Yielding Dividend Aristocrats

Join the VIP list

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

Something special is happening on June 23rd.

If you want behind-the-scenes updates and early access to our upcoming high-yield reports, join the High-Yield VIP List, and you’ll get the following immediately when you join for free:

• My high-yield stock watchlist

• A Checklist of Dividend Investing Mistakes

• The Highest Yielding Dividend Aristocrats

Get on the list by leaving your email here.

👋 Howdy Partner,

Our investable universe currently contains 173 stocks rated ‘buy’.

Last month there were 157.

Let’s look at this month’s Buy-Hold-Sell list update and see what interesting opportunities we can find!

Buy-Hold-Sell List

The Buy-Hold-Sell List filters our very large Investable Universe.

We look for cheap Dividend Stocks based on three valuation methods:

1. The PEG Ratio

2. Current Yield vs Historical

3. Reverse Dividend Discount Model

Based on this, we give each company a Buy, Hold, or Sell recommendation.

Update May 2026

Some Interesting Stats:

• 173 companies total receive a ‘buy’ rating

  • That’s up from 157 last month

  • And 175 the month before

• 41 moved from ‘hold’ to ‘buy’

• 59 have moved up from ‘sell’ to ‘hold’

• 14 made the jump from ‘sell’ directly to ‘buy’

  • 1 did so last month.

Recommendation Changes

31 companies went from Buy to Hold due to increasing stock prices.

Here’s a sample of a few:

• Darden Restaurants (DRI): A premier full-service restaurant operator boasting a portfolio of well-known brands, most notably Olive Garden and LongHorn Steakhouse. Their scale gives them purchasing power and operational efficiencies, leading to high free cash flow and steady dividend growth.

• Brookfield Infrastructure (BIP): A premier global infrastructure company that owns and operates high-quality, long-life assets in the utilities, transport, midstream, and data sectors. Their businesses are highly defensive, with inflation-linked contracts and high barriers to entry, which translates into predictable, growing cash flows to support their attractive distribution.

• Agilent Technologies (A): Makes critical instruments, and provides software and services for laboratories worldwide. Their transition toward more recurring service and consumable revenues makes the company a stable dividend grower.

• Verisk Analytics (VRSK): A leading data analytics provider serving the global insurance industry. By maintaining deep, proprietary databases and embedding their predictive analytics directly into underwriting and claims workflows, they have pricing power and high customer retention, making the company a capital-light compounder with very high margins.

The Full List is Reserved for Partners

The stocks above are just the tip of the iceberg. In the full update, we dive deep into the rest of the universe, including:

• The Undervalued Dividend Growers: We highlight companies where the Reverse DDM shows the market is significantly underestimating their growth potential. This includes a dominant index toll booth with a 19.78% 5-year dividend growth rate and a high-margin software serial acquirer with a 33-year dividend increase streak.

• 32 Interesting Cannibals: These are high-quality companies aggressively buying back their own shares. This month’s selections include a premium closed-loop payment network, a critical healthcare sterilization leader, and a major defense giant backed by multi-decade government contracts.

• The High-Yielders: 42 high-yield companies currently carry a ‘Buy’ rating. We break down a global customer experience leader trading at a dirt-cheap 0.40 PEG ratio with a 7% yield, alongside a defensive medical office REIT yielding over 13%.

If those High-Yielders are interesting to you…

On June 23rd, we are kicking off a series all about high yield investing.

If you want to maximize your portfolio’s income without sacrificing business quality, jump on the VIP Waitlist.

You’ll get behind-the-scenes updates and the very first invite to download our brand-new high-yield special reports the minute we go live.

Join the VIP list

Don’t forget that you’ll also get the following just for joining the VIP list:

• My high-yield stock watchlist

• A Checklist of Dividend Investing Mistakes

• The Highest Yielding Dividend Aristocrats

Join the VIP list

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

Something special is happening on June 23rd.

If you want behind-the-scenes updates and early access to our upcoming high-yield reports, join the High-Yield VIP List by leaving your email here.

You’ll get the following immediately when you join for free:

• My high-yield stock watchlist

• A Checklist of Dividend Investing Mistakes

• The Highest Yielding Dividend Aristocrats

Today is Dividend Day.

The series where I teach you 5 things about dividend investing in less than 5 minutes.

Subscribe now

1️⃣ S&P 500’s record low dividend yield

There’s been a shift in the S&P 500 over the past few decades.

Before the 1990’s, the minimum dividend yield of the S&P 500 was about 3%.

Since then, it’s only crossed above 3% at the bottom of 2008 crash.

Today the dividend yield sits barely above 1%, around the same level as at the peak of 2000 dot com bubble.

2️⃣ If you’re not buying income, what are you buying?

The S&P 500’s profit margins are very high right now.

But the dividend yield above shows that when you buy the S&P 500, you’re not buying a very big slice of those profits.

What are you buying?

Increasingly, you’re buying the Magnificent 7, and AI-related companies.

And the hyperscalers are now spending more on CapEx than they make in Free Cash Flow.

When you buy the S&P 500, you’re placing a large bet on the future of AI.

3️⃣ An Investing Quote

I think today’s market looks similar to the market during the dot com bubble.

In his 2000 Chairman’s Letter, Warren Buffett reminded us about the dangers of heavily betting on an uncertain future.

The market is betting that there will be a lot of birds in the bush.

Here’s a sample of headlines about Warren Buffett from the 1999/2000 era.

4️⃣ You’ll also soon be buying SpaceX

SpaceX could go public this month in an IPO.

Its market cap is expected be around $1.5 trillion, and indexes are expected to make rule changes to allow SpaceX to be included much sooner than would be typical.

That means that people holding S&P 500 or NASDAQ 100 ETFs will likely soon be buyers of SpaceX.

The company released its S-1 filing a few weeks ago, and it had some interesting information.

• SpaceX is unprofitable: In 2025 SpaceX had $18.7 billion in revenue but had a $4.9 billion net loss

• It’s complex: SpaceX includes the rocket company you think of, Starlink (satellite internet), and xAI

• Starlink is the best business (for now): In 2025, Starlink had $11.4 billion in revenue, and it’s profitable

• AI Spending is Very High: In the first quarter, SpaceX spent $1 billion on space, $1.3 billion on Starlink, and $7.7 billion on AI

You can read the entire filing here.

5️⃣ Example of a Dividend Stock

Today’s example Dividend Stock has nothing to do with AI, a dividend yield 3x the S&P 500, and is profitable now.

Ingredion is a supplier that turns grains and plants into the starches, sweeteners, and textures used in thousands of everyday packaged foods.

The company earns steady profits by supplying these essential ingredients to major global brands and has slowly increased its dividend over time.

Key numbers from Fiscal.ai:

• Profit Margin: 9.5%

• Forward P/FCF: 13.7x

• Dividend Yield: 3.3%

• Payout Ratio: 31.3%

P.S.

If you'd rather own a slice of predictable cash flows than gamble on the AI hype cycle, I have something special coming your way.

On June 23rd, we are kicking off a series all about high yield investing.

If you want to maximize your portfolio’s income without sacrificing business quality, jump on the VIP Waitlist.

You’ll get behind-the-scenes updates and the very first invite to download our brand-new high-yield special reports the minute we go live.

Join the VIP list

Don’t forget that you’ll also get the following just for joining the VIP list:

• My high-yield stock watchlist

• A Checklist of Dividend Investing Mistakes

• The Highest Yielding Dividend Aristocrats

Join the VIP list

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

Something special is happening on June 23rd.

If you want behind-the-scenes updates and early access to our upcoming high-yield reports, join the High-Yield VIP List by leaving your email here.

You’ll get the following immediately when you join for free:

• My high-yield stock watchlist

• A Checklist of Dividend Investing Mistakes

• The Highest Yielding Dividend Aristocrats

👋 Howdy Partner!

Investing is tough. But what if you could legally copy the moves of the best investors in the world?

That’s the power of 13-F filings.

These SEC-mandated reports let you peek into the portfolios of top investors each quarter. It’s like getting a free cheat sheet for investing success.

Subscribe now

Mohnish Pabrai put it best:

With that in mind, let’s take a look at the stocks recently bought by legendary superinvestors in Q1 2026, grouped by the underlying themes that make their cash flows so attractive.

1. Cannibals

These companies use their free cash flow to shrink their share counts.

Every time they retire a share, your ownership stake gets a little bigger, and a little more valuable.

Fiserv (FISV)

Why invest?

• Fiserv provides the processing that banks use to maintain their deposit and loan accounts, and post daily transactions - that’s very sticky revenue with very high switching costs

• After a CEO change and reset in expectations, the stock looks cheap

• Management expects to return the business to growth in 2027

• Fiserv has a history of consistently reducing the share count, and buybacks at this valuation are very attractive

Roper Technologies (ROP)

Why invest?

• Roper is a Dividend Aristocrat with 32 years of dividend growth

• It’s a very cash-generative business, with consistent FCF margins of 30%+

• Fear that AI will disrupt Roper’s software business have driven the valuation down

• Management is buying back shares like crazy, reducing the share count by 6% in just 6 months.

Adobe (ADBE)

Why invest?

• Subscriptions are sticky, recurring revenue

• Adobe has switching costs as the platform that every professional is trained on, and the platform used by nearly every large creative business

• Adobe is adding AI right into its products, with AI related revenue tripling year over year in Q1

• The massive cash flow easily funds ongoing share repurchases, with nearly $4 billion currently remaining authorized

2. Oligopolies

These businesses have limited competition, giving them a lot of pricing power.

Fair Isaac Corp (FICO)

Why invest?

• FICO scores are the standard across consumer lending

• The company has incredible pricing power, raising the price of a score 10x over the past 4 years

• The market is afraid that AI will disrupt FICO’s business, pushing the stock price down nearly 50% from its high

S&P Global (SPGI)

Why invest?

• Operates in a highly lucrative oligopoly (alongside Moody’s and Fitch)

• Capital-light, recurring revenue model

• S&P Global is a Dividend King and also regularly returns capital through share repurchases

Accenture (ACN)

Why invest?

• Accenture is the top IT consulting firm giving them a strong brand, high trust, and high switching costs

• Their scale means they’re the only firm that can be a one stop shop for any project, anywhere in the world

• Fear that AI will reduce Accenture’s billable hours has pushed the stock price down, but the company has already moved more than half of its work to fixed-price contracts

• Accenture has raised its dividend for more than 20 years, and is now trading at more than 2x its historical average dividend yield

Cash Cows

What this group lacks in growth, it makes up for with stability and cash generation.

Comcast (CMCSA)

Why invest?

• Comcast’s broadband infrastructure is nearly impossible to replicate and is an absolute cash cow

• The parks business (Universal Studios and Islands of Adventure) is growing quickly and has very high margins

• Comcast’s dividend has grown for 18 years, yields 5%+, and is very well covered by earnings

Ferguson Enterprises (FERG)

Why invest?

• Ferguson is boring but beautiful - people will always need running water and working heat

• They operate in a highly fragmented market, and their scale gives them cost advantages that competitors can’t match

• Because their main customers are contractors who need a network of physical stores, Ferguson has limited exposure to online competition

• Ferguson has a very clear (and sensible) policy on how to returns a lot of the cash they generate to shareholders

4. Healthcare

Superinvestors are finding value in the healthcare sector as well. Let’s highlight two companies we already own:

Novo Nordisk (NVO)

Why invest?

• Novo Nordisk has launched several excellent products recently

  • Wegovy HD offers weight loss on par with Eli Lilly’s Zepbound

  • The Wegovy Pill has been incredibly successful

• The market for Novo Nordisk’s products continues to expand very rapidly, giving them a long runway for growth

• The market still hasn’t full bought into the growth story around oral GLP-1 medications, leaving Novo Nordisk trading at nearly 1/4th of Eil Lilly’s P/E multiple

Zoetis (ZTS)

Why invest?

• The fundamental thesis of pet humanization and livestock health hasn’t changed

• The stock is way cheaper right now than when many of these superinvestors were buying it

• Zoetis is in a temporary period of slow growth, but has more than 12 potential blockbuster medications in its pipeline

Final Thoughts

There’s no shame in copying the best.

These investors have spent decades perfecting their craft, and now you can piggyback off their hard work.

Just remember: Do your own research before making any investment.

Even the best investors aren’t right 100% of the time.

One Dividend At A Time
-TJ

P.S.

On June 23rd, we are kicking off a series all about high yield investing.

If you want to maximize your portfolio’s income without sacrificing business quality, jump on the VIP Waitlist.

You’ll get behind-the-scenes updates and the very first invite to download our brand-new high-yield special reports the minute we go live.

Join the VIP list

Don't forget that you’ll also get the following just for joining the VIP list:

• My high-yield stock watchlist

• A Checklist of Dividend Investing Mistakes

• The Highest Yielding Dividend Aristocrats

Join the VIP list

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

Something special is happening on June 23rd.

If you want behind-the-scenes updates and early access to our upcoming high-yield reports, join the High-Yield VIP List by leaving your email here.

Closed end funds are interesting because of their high yields and because they often let you buy a basket of stocks or bonds at a discount to their true value.

But what exactly is a closed end fund, and how do you pick the right ones?

Let’s teach you everything you need to know.

Subscribe now

What is a Closed End Fund?

A closed end fund is similar to a mutual fund.

• A mutual fund is a pool of money where many investors put money together, and the fund manager invests it in things like stocks or bonds

• A closed-end fund works similarly because it also owns a collection of investments, such as bonds, dividend-paying stocks, or other assets

But there’s one big difference.

A mutual fund keeps creating new units when people invest and removes units when people withdraw money.

Each unit gets priced at the end of the day, based on the value of the assets within the mutual fund.

A closed-end fund does not do that.

It creates a fixed number of shares at the beginning through an IPO (Initial Public Offering).

After that, those shares trade on the stock market like regular stocks.

So when you buy a closed-end fund, you are buying shares from another investor, not directly from the fund itself.

Because of this, the share price moves based on supply and demand, which means it can trade above or below the actual value of the investments inside the fund.

How Do Closed End Funds Make Money?

A closed-end fund does not make money like a normal company that sells products or services.

Instead, investors earn returns in three main ways.

1. Income From Investments

The fund owns investments like bonds and dividend-paying stocks.

These investments generate income through:

• Interest from bonds

• Dividends from stocks

After expenses are paid, the fund distributes this income to shareholders.

2. Capital Gains

If the fund buys an investment at a lower price and later sells it at a higher price, the profit is called a capital gain.

Some of these profits may also be paid out to investors.

3. Discount Narrowing

This is one of the most unique features of closed-end funds.

Sometimes the fund’s shares trade below the value of the investments it owns.

For example:

• Imagine the fund owns $1 worth of assets

• But the market price is only 90 cents

That means you are buying $1 of assets for 90 cents.

If the discount later becomes smaller, your investment gains extra value even if the underlying investments do not change.

Why Investors Like Closed End Funds

Investors tend to like Closed End Funds due to the following reasons:

High distribution yields

Because closed end funds can use borrowed money and buy higher yielding assets, their payouts are often much larger than ordinary mutual funds.

Discount to net asset value

You can sometimes buy 1 dollar of assets for 90 or 85 cents. That gives you a margin of safety.

Leverage

When borrowing costs are low, a fund can borrow cheap money and buy bonds that pay a higher yield. The extra income goes to shareholders.

No forced selling

Mutual funds must hold cash to meet redemptions. Closed end funds do not. Their managers can stay fully invested, even in less liquid assets that offer higher returns.

Intra day liquidity

Unlike a mutual fund, you can sell your shares at any time during market hours.

Types of Assets Closed End Funds Hold

What a closed-end fund owns plays a big role in determining its risk and potential returns.

Different funds invest in different types of assets:

• Taxable Bond Funds – Invest in corporate bonds, high-yield bonds, and bank loans. These usually focus on generating income.

• Municipal Bond Funds – Invest in state and local government debt. The income from these funds is often tax-free.

• Equity Funds – Hold investments such as dividend-paying stocks, preferred shares, REITs, and utility companies.

• Multi-Asset Funds – Own a mix of stocks, bonds, and sometimes options to create a more balanced portfolio.

One important concept to understand is leverage.

Leverage means the fund borrows extra money to buy more investments.

This can increase returns, but it also increases risk.

If the investments rise in value, a leveraged fund can gain more than a regular fund.

But if the investments fall, losses can also become larger.

For example, the BlackRock Enhanced Equity Dividend Fund holds:

• Around 60% large-cap U.S. dividend stocks

• Around 20% international stocks

• Around 10% preferred shares

• Around 10% convertible bonds

• Uses roughly 22% leverage

This shows how a closed-end fund can combine different investments while using leverage to potentially boost returns.

Analyzing a Closed End Fund

Closed-end funds are analyzed a little differently from regular stocks.

Here are the key things to understand.

1. Net Asset Value (NAV)

NAV stands for Net Asset Value. It represents the actual value of everything the fund owns after subtracting its debts.

In simple words, NAV tells you the fund’s true value per share.

NAV is usually calculated once every day after the market closes.

2. Market Price vs NAV

The market price is the price investors actually pay to buy shares on the stock exchange.

This price can be different from NAV.

The difference between the two is called a discount or a premium.

• A negative number = discount

• A positive number = premium

Example:

• NAV = $20

• Market price = $18

The fund is trading at a 10% discount.

This means you are buying $20 worth of assets for only $18.

Buying at a discount is often attractive because you are paying less than the value of the assets.

Buying at a premium can be riskier because that premium can disappear quickly if investor sentiment changes.

3. Distribution Yield vs NAV Yield

Closed-end funds have two important yield measures.

Market Yield

This shows what you actually earn based on the price you paid.

NAV Yield

This shows the yield based on the value of the underlying assets.

Imagine a fund has:

• Market yield = 9%

• NAV yield = 7%

This means that the fund is trading at a discount to NAV, meaning you can buy a larger income stream.

Where Do Distributions Come From?

This is one of the most misunderstood parts of closed-end fund investing.

When a fund pays a distribution, the money can come from three different sources:

1. Net Investment Income

This comes from the income generated by the fund’s investments.

Examples include:

• Interest from bonds

• Dividends from stocks

This is usually the most reliable and sustainable source of distributions.

2. Capital Gains

This comes from profits made when the fund sells investments at a higher price than it originally paid.

This can support distributions, but it may not happen consistently because market conditions change.

3. Return of Capital

This happens when the fund gives investors back part of their own money.

This can be a warning sign, especially if it happens repeatedly.

If a fund keeps paying return of capital while its NAV keeps falling, it may be slowly shrinking or “paying itself away.”

But not all Return of Capital (ROC) is bad.

It can be a very clever tax-saving strategy.

Funds buy and sell hundreds of assets.

Smart fund managers will purposefully sell certain assets at a loss to offset their winning trades.

By doing this aggressively, they can legally reclassify the cash they pay you from Capital Gains into Return of Capital.

Here’s how:

Imagine a Closed-End Fund (CEF) needs to pay out a $2 million distribution to its shareholders. The fund’s portfolio has a mix of winners and losers:

• ABC: Sitting on massive profits.

• DEF: Sitting on smaller profits.

• XYZ & GHI: Currently sitting at a loss, but the fund managers still believe in their future potential.

If the fund simply sells its winning ABC stock to pay the $2 million dividend, that triggers a taxable capital gain.

To prevent that, the fund manager uses a combination of trades to zero out the tax liability.

1. Take the profit: The manager sells a portion of ABC stock, raising $8 million in cash. This sale realizes a $3 million profit.

2. Harvest the loss: To offset that profit, the manager sells some XYZ stock, raising $5 million in cash and intentionally realizing a $3 million loss.

3. Reallocate: The manager immediately takes $2 million of that cash and invests it into DEF and GHI to capitalize on their growth potential.

Because the fund perfectly offset its $3 million profit with a $3 million loss, it has zero net capital gains on paper.

This is known as Tax Loss Harvesting.

When the fund distributes the $2 million to you, the IRS considers it a Return of Capital rather than a taxable profit.

You get your dividend without the immediate tax bill.

How to Check if a Distribution Is Safe

Not every high distribution is a good distribution.

A fund may offer an attractive yield, but the important question is:

Can it keep paying it?

Here are a few things to look for in a healthy closed-end fund:

• Net investment income + capital gains should cover the distribution.
  Ideally, the fund should generate more money than it pays out.

  Coverage above 100% is a good sign

• If there’s return of capital, ask why?
  If the fund is just handing you back your own cash, that’s a warning sign. If it’s a tax strategy like we talked about above, it might be ok.

• NAV should be stable or growing over time.
  Check the fund’s NAV over the last 3–5 years.

  A stable or rising NAV suggests the fund is creating value. A falling NAV may indicate the fund is struggling to support its payouts.

For example, BlackRock Science and Technology Trust reported:

• Net investment income + realized gains: $3.10 per share

• Distributions paid: $2.80 per share

That means the fund generated more than it paid out.

Coverage was 111%, which suggests the distribution was well supported and safe.

Leverage

More than 70% of closed-end funds use leverage, which simply means borrowing money to buy more investments.

Funds may borrow through loans or issue preferred shares to increase the amount they can invest.

The goal is simple: use extra money to generate higher returns.

But leverage works both ways.

• If investments go up, gains become larger.

• If investments fall, losses also become larger.

A common measure is the leverage ratio:

For example:

A 30% leverage ratio means for every $1 of investor money, the fund borrows 30 cents and invests $1.30.

What to Check

• Borrowing cost
  How much interest is the fund paying? Higher interest rates can reduce profits.

• Type of debt
  Fixed-rate borrowing is generally more stable. Variable-rate borrowing can become expensive if rates rise.

• Asset coverage
  This measures whether the fund has enough assets to support its debt. Higher coverage provides a larger safety cushion.

A well-managed fund should keep borrowing costs under control so that most investment income still goes to shareholders.

Fees

Closed-end funds have expenses, and these usually come from two sources:

• Management and operating fees
  These cover portfolio management and administrative costs.

• Interest expense
  This is the cost of borrowing money for leverage.

Because leveraged funds use debt, their expense ratios can sometimes appear higher than expected.

Do not judge a fund by the number alone.

Always compare it with similar funds in the same category.

Discount History and Z-Score

A fund trading at a discount may look cheap, but not always.

Imagine a fund trades at a 12% discount today.

That sounds attractive.

But if its average discount over the last five years was 14%, the fund is actually trading more expensively than usual.

This is where the Z-score helps.

The Z-score compares today’s discount with the fund’s historical average.

• Z-score below -2 → Discount is unusually large and could signal an opportunity.

• Z-score above +2 → Discount is unusually small or the fund trades at a premium. This can be a warning sign.

The Z-score helps investors understand whether a fund is cheap or expensive relative to its own history.

Looking at the Capital Structure

Many closed-end funds issue debt or preferred shares.

As a common shareholder, you want to make sure there is enough protection if markets become volatile.

A useful measure is the asset coverage ratio:

Higher asset coverage generally means lower risk.

Conclusion

Investing in closed end funds can seem confusing if you are used to simple ETFs or mutual funds.

But once you understand NAV, discounts, distribution sources, and leverage, a closed end fund becomes just another tool in your income toolbox.

Here is why you may want to consider closed end funds in your portfolio:

• High current income – Yields of 6 to 10 percent are common. That is much higher than ordinary bond funds.

• Opportunity to buy at a discount – You can buy assets for less than they are worth.

• Professional leverage management – Most investors cannot borrow at institutional rates. Closed end funds can.

• Access to less liquid assets – Like municipal bonds or middle market loans, without locking up your money for years.

• Liquidity – Buy and sell any trading day, unlike private funds.

Just remember that not all closed end funds are the same.

Always check:

• Distribution source: Make sure you understand where your distributions come from and if they’re sustainable

• Distribution coverage: Look for Net Investment Income and capital gains to be covering the distribution (remember that the capital gains may be classified as ROC if the manager is using Tax Loss Harvesting)

• Leverage: Make sure it’s conservative, with low borrowing costs

• Portfolio: Look for high-quality, well-diversified holdings

One Dividend At A Time
TJ

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

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As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

That happened to me just the other day - the topic that did it?

Predators.

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I love most things related to nature and the outdoors.

This summer I’m looking forward to mountain biking, spending time by the pool, and the newest thing I’m learning - fly fishing.

But I was recently reading about the relationship between predators and prey animals.

On the surface, it seems pretty simple - predators eat prey.

More prey brings in more predators, the prey population drops, and the predator population follows.

Then the cycle repeats.

For a long time, scientists had a very simple model.

• If a deer gets eaten by a mountain lion, that’s predation

• If a deer starves to death, that’s environmental

But it turns out that there’s a lot more to it than that.

The understanding changed when wolves were brought back to Yellowstone National Park.

Because it has been protected for over 150 years, Yellowstone is one of the few places in the Northern Hemisphere where the original ecosystem is still completely intact.

It’s full of free-roaming wildlife that you rarely see anywhere else.

Elk are one of Yellowstone’s most abundant animals.

When wolves were reintroduced to the park in the 1990’s, the Elk population dropped, which was no surprise.

What was surprising is that more and more elk started starving during mild winters.

Why?

Because before there were wolves in the park, the elk could spend as much time in the meadows as they wanted, eating as much grass as they wanted.

With wolves present, they moved up the mountains where they could escape the wolves, but that limited food.

And some started starving to death in what was previously considered a mild winter.

Nature is a complex ecosystem, where one change can have unexpected secondary and tertiary effects.

Mountain Lions and Deer

Mountain lions and deer exist in predator-prey relationships throughout the western United States.

When scientists look at what deer mountain lions kill, there are some patterns.

• Male deer: Mountain lions target them much more often than you would expect based on how many males are actually in the herd.

• Females and young deer: Mountain lions hunt them at normal, expected rates, without preferring one over the other.

This is probably less about mountain lions preferring male deer, and more about the behavior of male deer.

They tend to move around more than female deer, and they tend to be by themselves or in small groups, making them a bit more vulnerable.

But that’s not the important part.

This is.

Most of the time, mountain lions and deer can exist in a relative balance.

But if the number of young deer gets too low, then mountain lions can have a huge impact on the deer population.

Why?

Remember that they’ll hunt females and young deer at about the same proportions they represent in the herd.

Less young deer mean that mountain lions kill way more female deer.

Less female deer this year means less baby deer next year.

Which means even more female deer get hunted by mountain lions the next year.

Linear Habitat

One more example before I tie this to investing.

Biologists have found that linear habitat can have an outsized impact on predator-prey relationships.

Let me explain what this means.

Imagine a lake or pond where a narrow dyke is constructed for flood control.

If ducks nest on that dyke (the linear habitat) then it’s very easy for a single raccoon to walk down it and find every single duck nest (and duck egg) there.

A change in the environment can completely change the ecological balance.

What’s This Have to Do With Investing?

The Market is an Ecosystem

Just like Yellowstone or a mountain lion’s territory, the stock market is a complex ecosystem.

Prices are determined by the constant interactions of completely different species of participants.

• Long-term investors

• Short-term day traders

• High-frequency algorithms

• Passive index funds

• Short sellers.

Each type has their own goals, their own time horizons, and their own hunting strategies.

And just like in nature, when the environment changes, the balance of the ecosystem shifts. Often in ways we can’t immediately see.

Right now, the financial ecosystem is going through some massive, structural changes.

Ecological Changes in Investing

Think about the major shifts in going on in the market today.

The rise of passive investing.

The majority of money in the market is now invested in passive strategies.

That’s never been the case in the past.

The Magnificent 7 and the momentum phenomenon.

A handful of large stocks have been driving the performance of the market.

As those stocks rise, the S&P 500 goes up, attracts more capital into the index and drives the price of the largest stocks up further.

The rise of 0DTE Options

Options contracts that expire on the same trading day now make up a majority of the options traded on indexes like the S&P 500.

This forces market makers to aggressively buy and sell the underlying stocks to hedge their own books, completely independent of the actual fundamental health of those companies.

The rise of pod shops.

These multi-manager hedge funds are a new breed of highly-leveraged, hyper-fast traders.

They don’t care about what a company will look like 10 years out, or how predictable the earnings will be.

They only care about the next quarter’s earnings beat.

Unseen Consequences

In a simple model, we can guess what these individual changes do on the surface.

But markets aren’t simple.

They are complex, adaptive systems.

If a deer population can unexpectedly crash when the doe-to-fawn ratio got a little out of whack, where’s the tipping point for assets invested in passive strategies?

What happens when we have a mild winter (like a slight economic slowdown), and the pod shops all hit their risk limits at the same time and rush for the exits?

We don’t know.

The secondary and tertiary consequences of these changes are still playing out.

In complex environments, small changes can cause big, unintuitive chain reactions.

As investors, we have to recognize that the investing landscape is changing.

The environment we are investing in today is different than it was ten years ago.

I don’t know how it will all play out, or what the extra effects will be.

But I do know that I’m glad that a portion of my returns comes directly from the company’s profits to me in the form of a cash dividend.

One Dividend At A Time,

-TJ

P.S.

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Something special is coming on June 23rd, so make sure you don’t miss it by clicking the button below.

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Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

$100 invested in Berkshire in 1965 became more than $6 million (!) at his retirement.

Buffett is known as a value investor, but his top holdings have one thing in common…

Dividends.

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In our last article, we looked at the changes that Greg Abel made to the Berkshire portfolio.

Today we’re going to look at the dividend portfolio that Warren Buffett left him.

Here’s all of Buffett’s dividend stocks at his retirement.

Warren Buffett's Dividend Picks

Berkshire Hathaway collected 3.45 billion dollars in dividends last year from just 5 stocks

Buffett’s Top Dividend Payers

Let’s look a bit deeper into each of these companies.

1. Chevron Corp. (CVX)

How does the company make money?

Chevron is an integrated oil company.

They handle everything from finding and producing crude oil to transporting it, and refining it into products like the gas you use in your car.

They make money from:

• Upstream: They find and pump oil and gas globally. This is their biggest money-maker

• Downstream: They turn that oil into gasoline, jet fuel, and chemicals at their refineries

• Renewable Energy: They are investing heavily in green hydrogen and renewable fuels to stay relevant for the future

What’s the moat?

• Scale and Integration: Because they own the wells, the pipes, and the refineries, they save money at every step

• Advantaged Assets: Their recent acquisition of Hess gives them a huge stake in Guyana, one of the most profitable oil discoveries in decades

• Financial Strength: They have one of the strongest balance sheets in the world, allowing them to survive when oil prices drop

Why is it an interesting dividend stock?

• Current dividend yield: 3.8%

• Payout ratio: 120.7%

• 2-Year Forward Dividend Growth: 4.2%

• 2–Year Forward Revenue Growth: 4.7%

2. Coca-Cola Co. (KO)

How does the company make money?

Coca-Cola is one of the world’s most iconic beverage brands.

They make money from:

• Selling Syrup: They sell the secret sauce (concentrate) to bottling partners

• Licensing: They charge others for the right to use their famous logos and brands

• Diversification: They also make money from Costa Coffee, Fairlife milk, and Powerade

What’s the moat?

• The Brand: Coca-Cola is one of the most recognized words on Earth. This lets them raise prices without losing customers

• Distribution: You can find a Coke in almost every village in the world. No competitor can match that Shelf Space dominance

• Pricing Power: Even with inflation, people still pay a little extra for their favorite soda

Why is it an interesting dividend stock?

• Current dividend yield: 3.2%

• Payout ratio: 80.1%

• 2-Year Forward Dividend Growth: 4.6%

• 2–Year Forward Revenue Growth: 2.0%

3. American Express (AXP)

How does the company make money?

American Express makes money by charging cardholders annual membership fees and charging merchants a swipe fee on every transaction.

Unlike Visa and Mastercard, which only connect banks, Amex operates a closed-loop system, meaning they act as the payment network, the card issuer, and the bank all at once.

This makes them more profitable because they keep the entire merchant fee without splitting it.

They make money from:

• Swipe Fees: They take a small cut every time a member swipes their card at a store

• Card Fees: Members pay annual fees (like for the Platinum Card) just for the privilege of carrying the card

• Interest: They earn interest from cardholders who carry a balance

What’s the moat?

• The Country Club Effect: Amex customers are typically wealthier. Merchants pay higher fees to Amex because they want access to these Big Spenders

• Closed-Loop Data: Since Amex is both the bank and the network, they see every detail of the transaction, helping them prevent fraud better than anyone else

• Customer Loyalty: Their rewards program is so good that people rarely switch to other cards

Why is it an interesting dividend stock?

• Current dividend yield: 1.1%

• Payout ratio: 20.9%

• 2-Year Forward Dividend Growth: 13.3%

• 2–Year Forward Revenue Growth: 9.4%

4. Bank of America (BAC)

How does the company make money?

Bank of America is one of the largest banks in the United States. They serve both retail and commercial customers with checking and savings accounts, as well as loan products.

They make money from:

• Net Interest Income: They take your deposits (pay you 1%) and lend it out as mortgages (charge 7%). They pocket the difference

• Investment Management: They help individuals make and manage investments

• Wealth Management: Through Merrill, they manage money for very rich individuals

What’s the moat?

• Switching Costs: Once you have your direct deposit, bill pay, and mortgage with one bank, it’s a huge pain to leave

• Low-Cost Deposits: They have trillions in sticky deposits, which is like getting free fuel for their lending machine

• Technology: Their app is so good that they can close physical branches and save billions in rent

Why is it an interesting dividend stock?

• Current dividend yield: 2.2%

• Payout ratio: 31.9%

• 2-Year Forward Dividend Growth: 9.6%

• 2–Year Forward Revenue Growth: 5.9%

5. Kraft Heinz Co. (KHC)

How does the company make money?

The Kraft Heinz Company owns a large portfolio of consumer food brands.

They make money from:

• Condiments: Heinz Ketchup is the global gold standard

• Cheese & Dairy: Kraft Mac & Cheese and Philadelphia Cream Cheese

• Emerging Markets: They are aggressively selling Ketchup in Asia and Brazil to drive growth

  

What’s the moat?

• Number 1 or 2: In almost every category they compete in, they are either the first or second-best brand

• Cost Efficiency: They have a massive Efficiency Program that saves them $2.5 billion a year, allowing them to keep prices competitive

• Innovation: They are launching healthier versions (like high-protein Mac & Cheese) to keep younger parents buying

Why is it an interesting dividend stock?

• Current dividend yield: 6.7%

• Payout ratio: -32.9%

• 2-Year Forward Dividend Growth: 0.2%

• 2–Year Forward Revenue Growth: -0.7%

Buffett’s Highest Yielders

Let’s also look at the top 5 highest yielding companies Berkshire owned at Buffett’s retirement.

1. Kraft Heinz Co. (KHC)

Kraft Heinz tops Buffett’s list in Dividend Yield.

Since we just looked into it, we will move on to the next one.

2. Lamar Advertising (LAMR)

How does the company make money?

Lamar is one of the largest landlords for outdoor advertising on things like billboards, logo signs, and other outdoor advertisements.

They make money from:

• Billboard Rentals: They own over 360,000 billboards across North America. Companies pay them monthly rent to show ads

• Logo Signs: They are the largest provider of those Gas/Food/Lodging signs you see on highways

• Transit Ads: They place ads on buses, benches, and airport terminals

What’s the moat?

• Location, Location, Location: They own the best spots on the busiest highways. In most cities, new billboards are restricted by law, meaning Lamar’s existing spots are irreplaceable

• Digital Transformation: They are converting traditional billboards into digital screens. This allows them to sell the same spot to 8 different companies at once, skyrocketing their profit from a single pole

• Local Focus: Unlike big tech ads, Lamar focuses on local businesses (lawyers, hospitals, car dealers) who must advertise to people driving by

Why is it an interesting dividend stock?

• Current dividend yield: 4.3%

• Payout ratio: 120.1%

• 2-Year Forward Dividend Growth: 4.1%

• 2–Year Forward Revenue Growth: 4.3%

3. SiriusXM Holdings Inc. (SIRI)

How does the company make money?

SiriusXM provides satellite radio and music streaming services.

They make money from:

• Subscriptions: People pay a monthly fee to listen to ad-free music, Howard Stern, and live sports in their cars

• Pandora: They own Pandora, which makes money through ads on its free music streaming service

• Advertising: They sell ad spots on their non-music channels (news, talk, and sports)

What’s the moat?

• Factory Installation: SiriusXM is built into almost every new car sold in the US. It is the first thing you see when you turn on your dashboard

• Exclusive Talent: You can’t get Howard Stern or certain live sports coverage anywhere else. This creates must-have content

• Satellite Tech: Unlike Spotify, which needs a cell signal, SiriusXM works in the middle of a desert or a mountain range

Why is it an interesting dividend stock?

• Current dividend yield: 4.0%

• Payout ratio: -102.5%

• 2-Year Forward Dividend Growth: 3.8%

• 2–Year Forward Revenue Growth: 0.7%

4. Diageo ADR (DEO)

How does the company make money?

Diageo owns the Top Shelf of the bar. They sell premium spirits globally.

They make money from:

• Scotch & Whiskey: Famous brands like Johnnie Walker and Buchanan’s

• Beer: They own Guinness, which is growing fast in Africa and Europe

• Premium Spirits: Brands like Don Julio (Tequila) and Tanqueray (Gin)

What’s the moat?

• Brand Heritage: You can’t just invent a 200-year-old Scotch. Their brands have Status that people are willing to pay extra for

• Global Reach: They sell in 180 countries. If one country has a bad economy, another (like Mexico or India) usually makes up for it

• Scale: They have the best distribution. If a new bar opens anywhere in the world, Johnnie Walker is almost guaranteed to be on the shelf

Why is it an interesting dividend stock?

• Current dividend yield: 5.0%

• Payout ratio: 95.3%

• 2-Year Forward Dividend Growth: -25.0%

• 2–Year Forward Revenue Growth: -1.9%

5. Constellation Brands (STZ)

How does the company make money?

They are the King of Mexican Beer in the United States.

They make money from:

• Beer: They own the exclusive rights to sell Corona and Modelo in the US

• Wine & Spirits: They sell premium wines like The Prisoner and Meiomi

What’s the moat?

• Cultural Tailwinds: The Hispanic population in the US is growing, and Modelo Especial recently became the #1 selling beer in America

• Import Exclusivity: No one else can sell Corona or Modelo in the US. This is a legal monopoly on some of the most popular beers

• Premiumization: They focus on High-End drinks. People might buy less beer, but they are buying more expensive beer

Why is it an interesting dividend stock?

• Current dividend yield: 2.7%

• Payout ratio: 42.4%

• 2-Year Forward Dividend Growth: 4.0%

• 2–Year Forward Revenue Growth: 0.8%

Conclusion

Warren Buffett spent decades building a cash machine.

Between these dividend payers and the float from Berkshire’s insurance operation, Buffett had a constant stream of income that he could reinvest and compound.

As we discussed in our last article, Greg Abel is already making changes.

He recently sold some of these higher-yielding positions, including Constellation Brands, Lamar Advertising, and Diageo.

But today’s article was strictly about the foundation Buffett left behind.

He built a portfolio focused on one simple thing: owning high-quality businesses with wide moats that pay you to hold them.

It’s a great blueprint for dividend investors like ourselves to follow.

One Dividend At A Time,

-TJ

P.S.

If the high yield stocks from Buffett’s portfolio caught your attention, you’re not going to want to miss what’s coming in June.

We’re doing something special, all about high yield investing.

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Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

This year, Berkshire Hathaway’s 13F was particularly interesting.

It represents the first quarter since Greg Abel took over and there were some big changes, and some big lessons we can take away - let’s dive right in!

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First, let’s look at the changes made to the Berkshire Hathaway portfolio.

In the first quarter, Greg Abel:

• Added to 4 existing positions

• Bought 2 new companies

• Reduced holdings in 6 companies

• Completely sold out of 16 (!) companies

This looks dramatic - it’s rare for Berkshire to completely exit so many businesses in a quarter.

There was lots of chatter on social media about it.

But this is a great example of needing to have a deep understanding of what’s going on.

For anyone following the company, we knew a month ago that there would be positions that were completely sold.

Todd Combs’ Exit

What looks like a sudden portfolio housecleaning is really the result of a shift in Berkshire’s investment team.

Todd Combs departed Berkshire Hathaway to lead a new $10 billion Strategic Investment Group at JPMorgan Chase in December.

For a quick refresher: Todd Combs was one of Warren Buffett’s two hand-picked investment lieutenants, working alongside Ted Weschler for 15 years.

In addition to managing a multi-billion dollar portion of Berkshire’s equity portfolio, Combs was also the CEO of GEICO.

When he left, Greg Abel and Ted Weschler were left holding an equities portfolio sprinkled with legacy positions they didn’t personally pick.

Why Abel Cleaned House

Looking down the list of the sold positions, you might find yourself scratching your head.

Berkshire fully dumped companies like Amazon, Visa, Mastercard, and Atlanta Braves Holdings.

If you look at the fundamentals, these are world-class operations:

• Visa and Mastercard have a virtually unbreakable global payments duopoly

• Amazon remains an absolute juggernaut in e-commerce and cloud infrastructure

• The Atlanta Braves are a unique, one-of-a-kind sports franchise asset

So, why did Abel sell? Did these businesses suddenly turn into bad investments?

Absolutely not.

The problem isn’t the underlying businesses, it’s that he doesn’t own the investment thesis.

Greg Abel and Ted Weschler obviously understand how Visa or Amazon work.

But they didn’t initiate these specific positions, they were Todd Combs’ picks.

If you inherit someone else’s stocks without doing the work on them yourself, you simply don’t have the conviction to defend them when the market gets volatile.

They didn’t build the original valuation models or live and breathe the day-to-day thesis of these specific holdings the way Combs did.

Which creates a serous problem - they won’t know when to sell.

They may not recognize exactly when a core thesis is breaking, or when the valuation is completely ridiculous.

Instead of holding assets they don’t closely track, Berkshire’s remaining team decided to sell them.

They cleared out any positions they didn’t have 100% intellectual ownership of.

What Abel Is Buying

Abel did redeploy capital into businesses where the current team does have conviction.

This quarter, Berkshire made a few large moves:

• Delta Air Lines (DAL): Berkshire has been wary of airlines in the past, and got surprised by the Covid pandemic the last time they invested in them, but they’ve built a $2.65 billion stake in Delta, betting heavily on the carrier’s surging premium cabin and loyalty revenue.

• Alphabet (GOOGL) & The New York Times (NYT): They added significantly to their positions in Google and built a $1 billion+ stake in the Times.

Meanwhile, what they didn’t deploy into equities went straight to the balance sheet.

Berkshire’s cash hoard is now a record $397.38 billion.

That means cash is now nearly 60% of Berkshire’s investable assets.

There was one other notable buy - Greg Abel personally bought $15 million worth of Berkshire Hathaway stock.

Again, not a surprise for anyone following the company as Abel announced that he planned to spend his salary on Berkshire stock a while ago.

But it does show that he is aggressively eating his own cooking.

You Can’t Borrow Conviction

This brings us to the important lesson that every investor needs to remember.

13F filings are an incredible tool for idea generation.

Seeing what the brightest minds in finance are buying can help you find businesses that you otherwise might have completely overlooked.

But that is where the utility of a 13F begins and ends.

You can easily borrow an investment idea, but you can never borrow conviction.

When you buy a stock because Berkshire (or any other money manager) is holding it, you are outsourcing your critical thinking.

• What happens when the stock drops 20% (or more)? If you don’t know the exact thesis, you could panic and sell at the worst possible time.

• What happens when the competitive landscape shifts? If you didn’t do your own research, you won’t know if the company’s moat is still intact.

You have to do your own homework, develop your own deep understanding of the business, and make your own informed decisions.

Knowing what you own and why you own it is what keeps you rational during market volatility.

Build your own conviction, map out your own circle of competence, and invest accordingly.

One Dividend At A Time,

-TJ

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

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The things that could have changed your life.

If you’ve been thinking about joining… now’s the moment.

Join today, and you still get all the exclusive bonuses I prepared for you:
📘 E-book with one-pagers of all our stocks
📊 Spreadsheet with the dividend growth of the portfolio
🎥 Video course: How to find great dividend stocks
🛒 Report: 3 Dividend Stocks to Buy
⭐ Report: Pieter’s 3 Favorite Stocks
🔍 Report: How to find 100-baggers
💵 10 Dividend Stocks to Own Forever
🏗️ Masterclass: Build Your Dividend Machine

But once the clock hits midnight?

They’re gone.

The price is also going up.

• Right now: $399/year

• After tonight: $499/year

And the best part?

You can test it out risk-free.

Not happy with what you get?

Let me know within 90 days, and I’ll fully refund you.

No questions asked.

Test out Compounding Dividends

This is about real income.

Our Portfolio will generate over $50,000 in yearly dividend soon:

Where are you waiting for?

⛔ You have until midnight. ⛔

We’re just getting started.

👉 Join Compounding Dividends Now

One Dividend At A Time

TJ

PS This is your last chance to test Compounding Dividends risk free. The best investment is always one in yourself. And today you can test everything risk free

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

This is your last chance to join Compounding Dividends and save $100.

You had the chance to test out Compounding Dividends risk-free.

And yet you didn’t do it.

If you don’t invest in yourself when you can do it for free, you never will.

At 11:59 PM ET tonight, the offer expires.

❌ No late entries
❌ No exceptions
❌ No replays

So, if you like the idea of:

✅ Getting paid while you sleep
✅ Holding stocks with 12%, 15%, even 18% dividend growth
✅ And building a portfolio that pays you more every single year

Now’s the time to act.

💸 1. $100 discount

Join before midnight and get $100 off.

Pay just $399/year.

🛡️ 2. 100% risk-free

But it gets even better!

You get a 90-day money-back guarantee.

Not happy after joining?

Just email us via support@compoundingquality.net.

I’ll send you a full refund. No questions asked.

So yes, this is a risk-free investment in yourself.

And honestly?

I’m 100% sure you’ll love it.

Here’s what you get when you join:

• 📈 My Personal Dividend Portfolio

• ✍️ Three articles per week (Mondays, Wednesdays & Saturdays)

• 📚 Full access to our entire library of data-driven articles

• 🔎 Full investment cases about exciting companies

• 📊 Access to the Private Community

Grab your $100 discount with the 90-day guarantee right here.

Test out Compounding Dividends

Where are you waiting for?

This could change your life forever.

Don’t Miss Out on Compounding Dividends

Once you’re inside, you’ll get:

And if you join today, you’ll still get the exclusive bonuses:

📘 E-book with one-pagers of all our stocks
📊 Spreadsheet with the dividend growth of the portfolio
🎥 Video course: How to find great dividend stocks
🛒 Report: 3 Dividend Stocks to Buy
⭐ Report: Pieter’s 3 Favorite Stocks
🔍 Report: How to find 100-baggers
💵 10 Dividend Stocks to Own Forever
🏗️ Masterclass: Build Your Dividend Machine

In just a few hours, it all disappears.

The tools. The bonuses. The opportunity.

When these dividend stocks double (or more), will you already own them?

Or will you regret waiting?

👉 This is one of your last chances to join Compounding Dividends

One Dividend At A Time

TJ

PS After tonight, your only way in will be to pay more, and you won’t get the exclusive bonuses. Why wait and pay more if you can lock in everything now?

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

I am still in the afterglow of the Berkshire AGM.

I think Greg Abel has the world’s biggest shoes to fill.

The new Berkshire CEO won’t ever be like Warren Buffett.

However, Warren Buffett truly admires Greg Abel.

Here’s what Warren recently said: “I’d rather have Greg handling my money than any of the top investment advisors or CEOs of the United States.”

As an investor, I find this very important.

The most important task of management is capital allocation.

You can measure this by the ROIC as an investor.

And you know what?

A high ROIC consistently translates into incredible returns for shareholders.

It’s easy to see why Buffett would trust a smart capital allocator like Greg.

Smart capital allocators are contrarian at heart.

They are fearful when everyone else is greedy.

They’re not in a hurry to buy overvalued businesses they don’t understand.

Instead, they wait for world-class businesses to drop below their fair value.

This can sometimes mean doing nothing when other CEOs are buying.

Or, as Charlie Munger would say:

It could mean sitting on your ass for a very long time.

This conservative approach doesn’t appeal to investors looking for constant action.

However, as Berkshire’s superior historical returns prove…

Investors who trust smart capital allocators win in the long run.

That’s why I’m so confident in the companies inside our portfolio.

Our Companies are run by some of the smartest capital allocators in the world.

That would explain the high returns on invested capital (ROIC).

(And the steady growth in shareholder value since we bought them).

Take the Consumer Staple Stock we added to our portfolio in January 2025.

It’s the perfect example of a serious cannibal.

That’s a company that eats itself by buying back shares aggressively.

If you’re an investor with a long-term view, this can be a good thing.

Why?

Because when a company eats itself by retiring shares…

Your percentage ownership of the business grows automatically.

Your Dividends Per Share (DPS) also increase because there are fewer shares outstanding.

That’s been the case with the Consumer Staple I mentioned earlier.

The stock is up 77% since we started buying it in early 2025.

The company also pays a 5% dividend yield.

That’s nearly 3x the market average.

But its new buyback program could create even more value for shareholders.

Around $1.7 billion has been set aside for share buybacks through the end of 2026.

It is a high-margin, consistent cash-cow business that fits our value investing criteria.

And as a Consumer Staple, it’s positioned to perform well even during economic downturns.

With a little guidance, you can buy the stock at a discount while it increases dividends annually.

How?

Give Compounding Dividends a try.

With a risk-free trial, you’ll get the full case study of the stock I just told you about.

We focus on companies that consistently increase dividends for shareholders.

How are they able to do this regardless of economic conditions?

There are several reasons, but I’ll give you 3.

Industry dominance, low costs, and high-profit margins.

This unique combination lays a strong foundation for incredible long-term returns.

That’s why I’m so confident in the 18 companies we own.

The moment you start your risk-free trial, you get full access to our portfolio.

You’ll get detailed investment cases for all our positions.

You’ll also get the reports for any new investments we make.

This way, you can follow along and be up-to-date on everything we do.

So, how much are you investing today?

Normally, you pay $499 for access to Compounding Dividends.

But Pieter and I returned from Omaha feeling very inspired.

Personally, I’ve learned a lot from Warren Buffett.

He’s been the biggest inspiration for my most successful investments.

And to show my gratitude, I want to give you a serious discount.

Here’s what this means.

If you act now, you pay only $399 for Compounding Dividends.

Test out Compounding Dividends

And to make it even better, I’m giving you these Exclusive Bonuses.

📘 E-book with one-pagers of all our stocks
📊 Spreadsheet with the dividend growth of the portfolio
🎥 Video course: How to find great dividend stocks
🛒 Report: 3 Dividend Stocks to Buy
⭐ Report: Pieter’s 3 Favorite Stocks
🔍 Report: How to find 100-baggers
💵 10 Dividend Stocks to Own Forever
🏗️ Masterclass: Build Your Dividend Machine

This gives you a full year to follow our research on Dividend Growth Companies.

In addition, your subscription is covered by our money-back guarantee.

If you’re not completely satisfied after 3 months, you’ll get a full refund.

That’s how confident I am in Compounding Dividends.

The worst that can happen is you get your money back (and leave a little wiser about investing).

Test out Compounding Dividends

But the best-case scenario?

I’ll leave that to your imagination.

IMPORTANT REMINDER:

Your $100 discount will expire anytime now.

So if you’re interested in this offer, please take advantage of it while you can.

Click here to start your risk-free trial of Compounding Dividends.

Join Compounding Dividends and Save $100

One Dividend At A Time,

-TJ

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

No wonder Berkshire CEO, Greg Abel, said, Buffett is a tough act to follow.

I’ve been thinking about this since I returned from the 2026 Berkshire AGM.

Just look at the numbers in the chart below.

It shows your returns if you had invested $100 in Berkshire 60 years ago.

Indeed, in his prime, the Oracle was one tough customer.
Institutional investors found it nearly impossible to match his performance.

However, there’s one area where you could easily emulate Buffett.

I’m talking about collecting a steady income from Dividend Growth Companies.

The irony is that Buffett’s company, Berkshire, maintains a no-dividends policy.

However, a significant portion of his wealth is driven by dividend payouts.

If you start with his favorite sectors, you could enjoy reliable cash flows for decades.

Here are some examples to begin with (payout profiles included).

A Consumer Staple.

Buffett began buying Coca-Cola (KO) stock in 1988.

He accumulated 400 million shares at a total cost of $1.3 billion.

This gave the Oracle a cost basis of roughly $3.25 per share.

At the time, Coca-Cola offered a standard market yield of approximately 3.0%.

If you bought the stock today, you would get a similar yield.

However, Buffett locked in his low purchase price decades ago.

As of 2026, the beverage giant has increased its dividend for 64 consecutive years.

These continuous hikes have driven Buffett’s yield on cost to over 65% annually.

The KO payouts now generate over $800 million in annual dividends for Buffett’s company.

Moral of the story?

You do not need a high starting yield to build lasting wealth.

Instead, just focus on high-quality companies capable of growing their payout year after year.

These are sound companies that tend to do well even during economic downturns.

Their ability to consistently increase payouts is driven by solid business fundamentals.

Some of these are industry dominance, low costs and high profitability.
And while a 3% starting yield may seem small to most investors…

It’s usually a different story when it comes from a world-class Dividend Grower.

Why?

Because over time…

The steady increase in payouts compounds your wealth significantly.

Let me show you another example from Buffett’s portfolio.

Tech Royalties.

Yahoo Finance published an article with this headline:

You Won’t Believe How Much Money Berkshire Hathaway Gets From Apple Dividends

Let’s look at the numbers.

Buffett initiated Berkshire’s position in Apple in early 2016.

Since then, Apple has consistently increased its payout, resulting in significant dividend growth.

Now, Apple’s current dividend yield is low.

It is around 0.4%–0.5% at current market prices.

However, the yield on Berkshire’s cost basis is much higher.

Berkshire’s average purchase price is around $36 to $40 (split-adjusted).

Apple’s current annual dividend payout is over $1 per share.

So the yield on cost for Buffett and Berkshire is over 2.5%.

The result?

Despite selling a large portion of the stake…

Berkshire still collected roughly $280 million in dividends from Apple in 2025 alone.

Bottomline:

Apple’s yield may seem unimpressive compared to the broader market.

However, two powerful forces make it a top-tier income generator for Berkshire.

Steady dividend growth paired with astronomical capital appreciation.

In addition, Apple aggressively buys back its own stock.

As such, Berkshire’s stake, and its share of the payout, grows automatically.

As an income investor, you should look for smaller, cash-rich companies on a similar trajectory.

A High-Yield Energy Play.

In late 2020, Berkshire began building a major stake in Chevron.

Around this time, the company was navigating the COVID meltdown.

However, its dividend yield was also approaching 8%.

Since then, it has consistently compounded…

Rewarding shareholders with high-yielding income.

In early 2026, the oil and gas giant marked its 36th year of raising dividends.

That’s partly due to two benefits from its acquisition of Hess Corp.

It caused an increase in production and significant cash flow growth.

These factors strengthen the company’s ability to raise dividends.

Further, it continues to maintain a low break-even price of around $50 per barrel.

This allows it to buy back shares aggressively, boosting total value for shareholders.

Over the past five years, Chevron has increased its dividend by 5%–6% per year.

And like Coca-Cola, it remains a key high-yield component of Berkshire’s portfolio.

Now, of course, Coca-Cola, Apple, and Chevron are high-quality stocks.

However, they have drawbacks for income-focused investors.

• Coca-Cola has limited growth potential

• Apple offers a low dividend yield (often below 0.5%)

• And Chevron relies on oil price fluctuations

This can affect its ability to grow its dividend steadily for decades.

A trillion-dollar company like Berkshire Hathaway can afford to wait.

But if you’re an individual investor, there are better opportunities to consider.

My suggestion?

Start with less popular Dividend Growth companies.

Not all of them are as big as Coca-Cola.

But these are sound companies that consistently raise their dividends.

They operate in sectors that outperform during recessions or high inflation.

A good example is a Consumer Discretionary Company we bought in November 2024.

The company has increased its payout for 14 consecutive years.

In the past decade, it has maintained a compound annual growth rate (CAGR) of over 15%.

The 2026 dividend hike also reflects strong free cash flow and attractive shareholder returns.

That’s a good example of a dividend growth company you could rely on.

There are many more like this in our portfolio.

Right now, we own 18 Dividend Growth Companies.

The cash flow has been very steady since we bought them.

And we’re confident they’ll continue to increase dividends over the long term.

If you’d like to see our positions, it’s easy.

Start with a risk-free trial of Compounding Dividends.

The regular subscription fee is $499 for a full year.

But if you act now?

You can get a $100 discount.

This means you pay only $399 annually.

Join Compounding Dividends and Save $100

On top of that, your subscription is covered by our money-back guarantee.

Here’s how it works.

If you’re not happy after 90 days, just let me know.

You’ll get a full refund.

That’s how confident I am in Compounding Dividends.

Here’s a summary of what you get when you join us today.

• 📈 Full access to our Portfolio of Dividend Stocks.

• 📚 Access to our entire library of data-driven articles.

• 🔎 New investment cases about interesting Dividend Growers.

As Buffett said, Dividends can make you rich.

But to make it happen, you need to own high-quality dividend stocks.

Our primary objective is to help you find the best of the best.

We’re confident you’ll love our research in Compounding Dividends.

That’s why we’re offering you a 90-day money-back guarantee.

Test out Compounding Dividends

You’ll also get these Exclusive Bonuses.

📘 E-book with one-pagers of all our stocks
📊 Spreadsheet with the dividend growth of the portfolio
🎥 Video course: How to find great dividend stocks
🛒 Report: 3 Dividend Stocks to Buy
⭐ Report: Pieter’s 3 Favorite Stocks
🔍 Report: How to find 100-baggers
💵 10 Dividend Stocks to Own Forever
🏗️ Masterclass: Build Your Dividend Machine

But please note:

This offer expires shortly.

So if you’re interested, don’t wait until it’s too late.

Click here to get started.

Join Compounding Dividends and Save $100

One Dividend At A Time,

-TJ

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

This is the second year in a row that I’ve gone to Omaha.

It was interesting seeing Greg Abel take the lead for the first time.

The emphasis remained firmly on value investing and operational excellence.

And I wasn’t surprised that he did not introduce a dividend, as some speculated.

The thing is, Berkshire has maintained a No Dividends policy since 1967.

The company believes it can create more than $1 of market value for every $1 retained and reinvested.

This strategy has consistently outperformed dividend payouts for Berkshire shareholders.

What makes it interesting is that BRK’s portfolio contains many dividend-paying stocks.

Coca-Cola alone pays around $816 million in yearly dividends to Berkshire.

That’s in addition to billions in yearly payouts from its portfolio companies.

Now, that cash doesn’t flow directly to investors.

But there’s another side to this story.

One ETF makes it possible to earn a yield from Berkshire’s holdings.

The VistaShares Target 15 Berkshire Select Income ETF launched in May 2025.

Quite a mouthful. But the pitch is straightforward:

The ETF provides exposure to Berkshire’s top holdings while using options to generate income.

The ETF targets a 15% annual yield, paid monthly at roughly 1.25%.

This may sound attractive.

But as an investor, there are a few things you should keep in mind.

First, the ETF charges a 0.95% annual fee.

So you pay $95 for every $10,000 you invest.

That’s high for most investors.

Second, a large portion of the fund’s payouts may come from “return of capital.”

Why should you care about this?

Here’s what it means.

Part of the money paid out is simply you getting some of your capital back.

Over time, this can reduce the fund’s net asset value (NAV).

If the market crashes, a lower NAV makes recovery very difficult.

Third, the 15% yield target is very ambitious.

Maintaining a payout that high over long periods could be difficult.

The fund may have to rely heavily on return of capital or aggressive options strategies.

This increases the risk of value erosion for investors.

So, overall, it is a tempting proposition.

But very few investors can live with those tradeoffs.

This brings us to a very important question:

How do you generate a high-yield income with less risk

Here’s a suggestion.

Focus on Dividend Growth companies.

These are sound companies that consistently raise their dividends.

As an investor, you may like them because they have certain characteristics.

• Strong balance sheets, low debt levels and high cash reserves.

  • This signals financial health, ensuring they can weather economic challenges.

• Sustainable payout ratios:

  • This indicates they don’t overextend themselves, leaving room for future growth.

• Most Dividend-Growers are in sectors that do well even during economic downturns.

  • A few examples are consumer staples, utilities, healthcare, energy, and industrials.

In other words… What happens when you invest in the right dividend growers?

You have a rising, reliable cash flow that stands the test of time.

If you’re seeking a hedge against inflation, dividend growers also offer a benefit.

As prices rise, so do your dividends.

This ensures your purchasing power remains intact.

What’s more?

Historically, companies that consistently raise their dividends outperform the market.

That’s because they combine regular income with the potential for capital appreciation.

On top of that, you can enjoy the full power of compounding with dividend growth companies.

How?

Warren Buffett is the perfect example.

He reinvests his earnings to boost annual returns over time.

You can apply this principle too when you invest in Dividend-Growers.

As these companies consistently increase their dividend payouts…

Reinvesting your dividends accelerates wealth accumulation faster.

As an example, consider our next buy in Compounding Dividends.

This company uses its cash flow to aggressively buy back shares.

It has retired over 52% of its shares since 2020.

As an investor, here’s what this means for you.

When a company eats itself by retiring shares…

Your percentage ownership of the business grows automatically.

Your Dividends Per Share (DPS) also increases.

Just like a pizza, the fewer slices you cut the business into, the bigger each slice is.

Companies that operate like this are wonderful Dividend-Growers.

They may not appeal to some investors.

But the payout can be great if you stay the course.

Our Recent Buy

That’s why we’re excited about our recent Buy in Compounding Dividends.

It’s a market leader, with more than 60% market share.

It pays a 2%+ dividend, but the Payout Ratio is below 15%.

It uses the rest of its cash to buy back shares at low valuations.

And when you combine market dominance with aggressive share buybacks?

You get a powerful compounding machine you can rely on for many years.

Just think about NVR:

NVR is a homebuilder in the United States.

Between 1993 and 2024, NVR bought back more than 80% of its shares.

• Shares outstanding 1993: 17.9 million

• Shares outstanding 2024: 3.1 million

• 82.7% of shares bought back

• Zero dividends, no stock splits

The result?

The stock price went from $5.50 to over $9,000.

That is a 1,600-bagger - the kind of wealth creation that changes lives.

But it gets better.

The company is trading at a discount while management keeps buying back shares.

So if you invest today, you’ll be buying a compounding machine at a bargain.

Want the full story on this company?

Give Compounding Dividends a try today.

As a partner, you’ll get the investment case for the 18 Dividend Stocks we own.

That includes the one I just told you about.

But that’s not all.

In addition to Portfolio access, you’ll also get:

📚 Full access to our library of articles on dividend investing.
🔎 Investment cases about new Dividend Growers on our watchlist.
💰 Access to the High Yield Portfolio
🔎 Access to our private community.

The regular subscription fee is $499 per year.

But if you act now, I’ll give you a $100 discount.

You pay only $399.

And I want to make your decision as easy as possible.

So here’s the second part of the deal.

Try Compounding Dividends for 90 days.

If you’re not happy, we’ll refund the entire cost of your subscription.

That’s how confident I am in the dividend stocks we write about.

And there’s one more part of the deal…

The Exclusive Bonuses.

You’ll get:

📘 E-book with one-pagers of all our stocks
📊 Spreadsheet with the dividend growth of the portfolio
🎥 Video course: How to find great dividend stocks
🛒 Report: 3 Dividend Stocks to Buy
⭐ Report: Pieter’s 3 Favorite Stocks
🔍 Report: How to find 100-baggers
💵 10 Dividend Stocks to Own Forever
🏗️ Masterclass: Build Your Dividend Machine

But please note:

Your discount and chance to get all of these exclusive bonuses expires at the end of this week.

So if you want big savings on your subscription, don’t delay.

Click here to start your risk-free trial of Compounding Dividends.

Join Compounding Dividends and Save $100

One Dividend At A Time,

-TJ

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

It’s got a great underlying business that undergoing a massive cleanup.

Management is selling off non-core divisions to wipe away hundreds of millions in debt, leaving behind a lean cash machine.

Here is why this opportunity is so exciting:

• 8%+ Starting Yield: A huge payout that is safely covered by recurring cash flows.

• Hidden Growth: This company has revenue under contract that hasn’t started flowing yet.

• Aggressive Buybacks: Management is skipping expensive new projects to buy back their own cheap shares instead.

When the market finally wakes up to the improved balance sheet, simplified business, and safe dividend yield, the multiple re-rating could be significant.

But with the starting dividend yield we’re buying at, we don’t need multiple expansion to generate attractive returns.

Whenever you’re ready

Whenever you’re ready, here’s how I can help you:

✍️ Three articles per week (Monday, Wednesday, and Saturday)
📚 Full access to our entire library of data-driven articles
📈 An insight into our Portfolio full of interesting Dividend Stocks
🔎 Full investment cases about interesting companies

Join Compounding Dividends

One Dividend At A Time,

-TJ

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

As a reader of Compounding Dividends, you agree with our disclaimer. You can read the full disclaimer here.

You sell because you are scared, you buy because everyone else is making money.

By the time you realize your mistake, your portfolio drops 20% again!

Today, I will teach you 7 habits that will help you improve as an investor.

Subscribe now

1. They Stay Inside Their Circle

Ted Williams, the last baseball player to hit over .400 in a season, divided the strike zone into 77 cells.

He only swung at pitches in his best cells.

You should do the same with stocks.

There are over 10,000 publicly traded companies. You don’t need to understand all of them.

You only need a few stocks that fit inside your circle of competence.

If you can’t explain a business in a few sentences to a friend, don’t buy it.

2. They Think Independently

Here’s an uncomfortable truth: Experts can be very wrong.

Economists have failed to predict any of the last four recessions.

Analysts’ two‑year earnings forecasts are wrong by 94% on average.
In 2008, they predicted a 24% price gain.

Of course 2008 turned out to be one of the largest stock market crashes in history.

Following random tips without proper research is one of the fastest ways to lose money.

Spend less time guessing what the business will do next year, and more time deciding if this is a business you want to own for the next 10 years.

3. They Play The Long Game

Stock prices are very volatile. They can be up +20% tomorrow or -30% the next day.

Nobody knows what’s going to happen.

But in the long-term stock prices tend to follow the intrinsic value of the company.

That’s why you should think in terms of decades and not days.

When one of your holdings drops 10% or more, ask yourself:
Has the business changed, or is the market just being moody?

Most of the time, it’s just being moody.

That’s not a reason to sell.

In fact, it might be a reason to buy more.

Trading activity is the enemy of performance.

Paul Samauelson says it best:

4. They Master Their Emotions

The financial world has good characters and bad characters.

The bad ones promise market‑crushing returns, brag about recent performance, and push risky stocks with little research.

Ignore them.

The stock market is not a get‑rich‑quick machine.

You need to be patient to let the magic of compounding work.

Even the best fund managers are wrong 40% of the time. You will be wrong too.

5. They Understand The Power of Growth

A high yield is very tempting for impatient investors.

An 8% yield today looks better than a 4% yield.

But if that 8% yield stays flat while inflation rises, you are actually losing purchasing power every year.

Meanwhile, a 4% yield that grows your dividend payment by 8% annually will give double your dividend check in less than 10 years.

This is the power of Yield on Cost (YOC):

High-yield stocks aren’t bad.

They’re excellent tools if you need cash to pay your bills today.

But if you have a long time horizon, dividend growth can help you build real wealth.

• High yield pays for your life today.

• Dividend growth buys your freedom tomorrow.

Don’t just look at the size of the check today, look at how much bigger that check will be in a decade.

6. They’re Inactive

I once saw a tweet from an investor who said he checked his holdings every hour.

That’s not investing.

That’s a recipe for burnout and bad decisions.

Let me simplify it with a soccer example (football if you’re not an American like me).

Goalies in soccer dive left or right 94% of the time, trying to guess the direction of a penalty kick.

But their save rate is highest when they stay in the center.

They’d be better off doing nothing.

Managing a dividend portfolio is the same.

Most of the time, the best move is to do nothing.

Choose your stocks carefully as if you’ll hold them forever. Then check in periodically.

Let compounding do the heavy lifting.

7. They Know What They Own

Warren Buffett said it best:

“Unless you are willing to put in the effort to learn accounting – how to read and interpret financial statements – you really shouldn’t select stocks yourself.”

You don’t need a fancy degree to select stocks.

But buying a stock without understanding the company’s balance sheet or cash flow statement is reckless.

Financial data is everywhere today. Fiscal.ai is a great tool to begin with.

You can learn the basics in a weekend and start your research.

But if you are still reading this, then you have some help!

At Compounding Dividends, we write company deep dives, explain our approach, the fundamentals and most importantly, we eat what we cook.

If we put a stock in the portfolio, we buy it ourself too.

That’s it for today!

Here’s what you learned:

• Stay in the Circle: Only swing at pitches you understand.

• Think Independently: Ignore the experts and trust your own data.

• Measure in Decades: Treat volatility as Mr. Market’s mood.

• Master Emotions: Realize the market isn’t a get-rich-quick scheme.

• Prioritize Growth: Choose long-term purchasing power over high starting yields.

• Resist Action: Stop checking the score and let the game play out.

• Know What You Own: Write down your investing reasoning before you buy.

One Dividend At A Time,

-TJ

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

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