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

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1️⃣ Circle of Competence

The image illustrates Warren Buffett’s idea of Circle of Competence.

It is the mental boundary between what you actually understand and what you only think you know.

To be a successful investor, you don’ have to know the most.

You have to know the limits of your knowledge, and respect the boundary.

2️⃣ The Feynman Technique

The Feynman Technique can help you learn quickly, and figure out what you don’t know.

When you explain a complex idea in simple terms, you’ll immediately figure out the gaps in your knowledge.

These gaps also define the exact boundary of your Circle of Competence.

If you can’t explain a business or investment to a child, you don't understand it yet.

3️⃣ An Investing Quote

How do you make your Circle of Competence bigger?

Or make it easier to explain complex things in simple terms?

Charlie Munger says the answer is to read.

A lot.

4️⃣ Li Lu’s Reading List

For what to read, we can look to the man Munger famously called “the Chinese Warren Buffett.”

Li Lu is the founder of Himalaya Capital and the only outside manager Munger ever trusted to manage his family's personal wealth.

His book list is a great place to start if you want to learn about investing, the markets, and capitalism.

Click on the image to see the whole thing.

5️⃣ Example of a Dividend Stock

Our example stock is the only new buy on Li Lu’s latest 13-F filing.

It doesn’t pay dividends, but it does return a lot of capital to shareholders through buybacks.

That makes it a Cannibal Stock.

Crocs designs and sells foam footwear and casual shoes through a global network of wholesale partners and direct-to-consumer retail channels.

Key numbers from Fiscal.ai:

• FCF Margin: 16.3%

• Forward P/FCF: 8.5x

• Buyback Yield: 10.5%

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.

Today, let’s make it more practical - I ran a screen based on the article.

Let’s show you the complete results, how I’d filter them out and what companies look the most interesting.

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Screening Criteria

When I screen, I try to cast my net a bit wider than what I’m actually looking for.

If a great company has a Payout Ratio 3% higher than what I’m looking for, I still want to see it.

So I lowered the cutoffs we discussed on Wednesday.

Here’s what I used:

• Market Cap: $500 million or greater

• Revenue 10 year CAGR: 7% or greater

• EPS 10 year CAGR: 9% or greater

• 5 year average ROIC: 8% or greater

• 5 year average Gross Profit Margin: 35% or greater

• 5 year average Net Profit Margin: 8% or greater

• Dividend Yield: 2% or greater

• Payout Ratio: 70% or lower

That gave us 39 companies to look at.

The Screener Results

This is a strong list to start from.

Let’s look at some basic info about this group of 39 companies.

• Average 10 year Revenue growth: 15.3%

• Average 10 year EPS growth: 21.7%

• Average 5 year ROIC: 33.8%

• Average Gross Margin: 66.0%

• Average Net Margin: 31.5%

• Average Dividend Yield: 3.5%

• Average Payout Ratio: 42.0%

If you want a spreadsheet with all the results, you can get that here:

Download the spreadsheet here

We have a great starting place, but doing a deep dive into 39 companies would still take a lot of time.

Let’s run through our framework from Wednesday and see if we can narrow the list down even further.

Look At The Company Description

There are some industries that I would rule out right away.

In this list, those include:

• Metals and Mining - it’s too cyclical, and there’s no pricing power

• Marine Transportation - also cyclical with limited pricing power

There are some other companies I can pretty quickly rule out as well:

• Restaurant Brands International Limited Partnership - This is a subsidiary of Restaurant Brands International, I’d rather own the parent than a subsidiary

• Coterra Energy - is a U.S. shale oil company, if I’m buying an oil producer I want very low cost, which isn’t shale oil

• Marimekko Oyj - Finnish fashion is way outside my Circle of Competence

I can also rule out financially complex companies like WHSP Holdings Limited, or companies with lot of earnings from markets I don’t understand like Genpac Limited, who generate more than half their revenue from India.

After the first filter, I’m down to just 17 companies:

Look At The Profitability

We know the average margins of these companies meet our requirements.

But we need to look at how stable they are.

The most interesting companies when we look at the margins are:

• Rightmove

• Universal Display Corporation

• RLI Corp.

• Steadfast Group

• Interparfums

• AJ Bell

• Goodwin PLC

• Smartgroup

So in 2 steps, we’ve narrowed 39 companies down to 8.

Let’s keep going

Look At Capital Allocation

With 8 companies, we can use Fiscal.ai to chart the ROIC for these companies in one chart.

Let’s see how that looks:

Rightmove and AJ Bell are so high, they’re making the others difficult to see.

Let’s remove them and have a closer look at the remaining companies.

We can now see that RLI Group tends to consistently have low ROIC.

Steadfast Group had one very bad year in 2020, but otherwise meets our criteria.

Interparfums and Goodwin look like their numbers are improving.

Look For Proven Winners

Let’s see how these companies stocks have performed in the past 10 years.

Remember that winners tend to keep on winning.

We’re looking for companies that have compounded by at least 10% per year.

Out of the 39 companies we started with, only 3 passed the 'Proven Winner' test.

Unlock the rest of this article to see the 3 finalists, the deep dive into their growth, and the one company that survived the entire screen at an attractive price.

You can join us here:

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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 easy to get overwhelmed, or to start chasing hot stocks or sectors.

Let’s teach you how to quickly figure out which dividend growth stocks deserve your attention.

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Look At The Company Profile

The first step isn’t about profits, prices, or dividends.

It’s about understanding the business.

If you can’t explain what a company does, how it makes money, and why its customers love it in one sentence, move on.

Warren Buffett calls this staying inside your Circle of Competence.

This is important. You have to understand how the business makes money in order to:

• Understand its competitive advantage

• Understand the financial statements

• Know if you should sell or hold when the price drops

You should be looking for simple, durable businesses.

Rollins is a great example:

Look At The Profitability

Next, you want to make sure the business is profitable.

High margins mean the business has pricing power.

A company that can charge what it wants despite competition is a company built on something durable.

High margins also act as a cushion to protect the company during inflationary periods or economic downturns.

A good rule of thumb is to look for:

• Gross Margin: > 40%

• Net Margin: > 10%

You also want to see that the margins are stable or increasing over time.

Look At Capital Allocation

Management’s most important job is capital allocation.

A management team that consistently generates strong returns on every dollar it invests is compounding your wealth.

One that can't is diluting it.

Return On Invested Capital or ROIC is the gold standard for measuring how efficiently a company turns capital into profit.

8% to 10% is a good baseline to look for here, as it matches the long-term average of the stock market.

Look For Proven Winners

Great businesses tend to stay great.

They have the culture, the talent, and the scale to keep on winning.

Past performance is not a guarantee of the future, but it does indicate something has kept the business growing - structural advantages, loyal customers, or great reinvestment decisions.

Look for a business that has compounded shareholder value by at least 10% per year for the past decade.

Look For Growth

Stock prices follow intrinsic value over time.

Intrinsic value, and dividend payments grow with earnings.

Look for real, measurable growth in both the top and bottom line.

A rule of thumb to follow here is:

• Revenue Growth: > 8%

• Earnings Growth: > 10%

Look At The Payout Ratio

A dividend is only as reliable as the earnings behind it.

The Payout Ratio (Dividend Per Share / Earnings Per Share) tells you how much of the businesses’ profits are being paid out as a dividend.

A business paying out 90% of its earnings has almost no room to grow the dividend, survive a downturn, or reinvest in the business.

A good rule of thumb for dividend growth stocks is to look for a Payout Ratio of 60% or lower.

Look At The Valuation

A wonderful company at a terrible price is still a terrible investment.

Valuation is the last checkpoint.

The quickest and easiest check is to compare the current Dividend Yield to the company’s own five-year historical average.

If the stock is trading at a significantly lower yield than its own history, you’re likely buying at high price.

If the current yield is significantly higher than the past average, it might trading at a low price.

Conclusion

This framework won’t catch every winner.

No framework does.

What it will do is quickly filter out the losers.

If a business fails any of these checks, move on.

Your job isn't to find reasons to buy.

The stock market is a game of No-Called Strikes.

You can stand at the plate and let 1,000 pitches go by.

You only need to swing at the 2 or 3 that land perfectly in your sweet spot.

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.

Not always.

Check out Tesla.

You would think that if they sold more cars, and had more revenue that the stock price would go up.

And if they sold less cars, and revenue dropped that the price would go down.

Nope.

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What’s going on?

A stock price is a market outcome.

It’s a collective guess from millions of investors about what a company might be worth in the future.

Keep in mind that for different investors, ‘the future’ might be 10 seconds from now, 10 days from now, or 10 years from now.

Stock prices can be driven by headlines, interest rates, previous price moves, or FOMO.

Dividends are a business outcome.

They’re paid from the company’s profits.

Or more specifically, cash.

Let’s stay in the Mag 7 for example with a company that’s paid and grown dividends for a long time.

Microsoft.

Look at how the dividends and earnings grow together.

A company isn’t required to grow the dividend.

They could make more money and decide to do something else with it, like acquire another company, build another factory, or try out a new product line.

Growing Dividends Are A Signal

Dividends are a commitment.

Once a company starts paying them, investors expect them to keep coming.

One thing management hates is cutting a dividend.

When they raise the dividend, it’s a signal that they think their earnings are sustainable.

It’s a public bet on the company’s future earnings potential.

Compare Microsoft’s chart above with this one from Nutrien.

Nutrien is a cyclical company, so there are periods where the earnings go way up, but the dividend doesn’t follow.

That’s because management knows that next year, prices could crash and earnings could go back down.

Four Reasons Dividends Go Up

1. Earnings Growth

This is the most obvious path.

The company sells more products or raises prices, producing more profits.

• More revenue + stable margins = More cash.

• Stable revenue + growing margins = More cash.

Fastenal is a great example of this one.

They have steady revenue and earnings growth, and the dividend has grown right along with them.

The dividend spikes in 2020 and 2023 are due to special dividends paid out.

2. Buybacks

Management can give you a raise without actually earning a penny more in total profit.

• If a company buys back its own stock, there are fewer shares

• That means you own a bigger portion of the company

• The dividend per share can go up, while the total amount paid out in dividends stays the same because they are dividing the same pile of cash among fewer people.

A great example of this one is Lowe’s.

Their revenue doesn’t grow quickly, but the dividend does.

That’s because Lowe’s has reduced the share count by almost 40% over the past 10 years.

3. Debt Paydown

Interest is just a dividend paid to the bank.

• Less debt = lower interest payments

• That unlocks cash that can be paid to shareholders instead of the bank

Occidental Petroleum is an example of this dynamic.

In 2019 they took on a lot of debt to acquire Anadarko.

From 2020 to 2022, they decreased the dividend and focused on paying down debt.

Once the debt level was reduced, Occidental was able to start raising the dividend again.

4. Lower Growth, More Cash

Young companies need to spend every dollar they make building factories, hiring staff, or developing new products.

But eventually, the business matures and they don’t have to spend as much on growth.

• When a company stops spending billions on growth, that cash has nowhere to go but back to the owners.

• This is the transition from Growth Stock to Cash Cow.

An example of this dynamic is Old Dominion Freight Lines.

The green line is CapEx to Operating Cash Flow.

Old Dominion spent a long time building terminals and warehouses to create the most efficient Less Than Truckload network in the U.S.

As the network got built out, the amount of profit spent on growth dropped, and Old Dominion was able to initiate a dividend in 2017.

Conclusion

Dividends are business outcomes.

Growing dividends should come from growing profits and cash flow.

If they’re not, the dividend might not be sustainable and might be in danger of being cut.

Healthy reasons for dividends to grow are:

• Earnings Growth: Selling more products or raising prices creates more cash flow t

• Buybacks: Reducing the share count divides the profit into fewer, larger slices for the remaining owners

• Debt Paydown: Lowering interest expenses means more cash for dividends

• Lower CapEx: As building phase spending slows, the business transitions from reinvesting for growth to paying shareholders

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.

That’s because companies like Colgate-Palmolive provide stability and predictable dividend growth.

So, Is Colgate an interesting stock today? Let’s find out.

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Colgate-Palmolive

Colgate-Palmolive is a global leader in household and personal care, serving consumers in over 200 countries.

Colgate is one of the most trusted toothpaste brands in the world.

It controls over 40% of the market and is a Dividend King with 63 consecutive years of dividend increases.

Founded in 1806, Colgate has grown from a small starch, soap, and candle business into one of the world’s most recognizable brands.

• 🎯 Company Name: Colgate-Palmolive Company

• ✍️ ISIN: US1941621039

• 🔎 Ticker: CL

• 📚 Type: Dividend Growth Stock

• 📈 Stock Price: $83

• 💵 Market Cap: $67 billion

• 📊 Average Daily Volume: $300 million

Onepager

Don’t know Colgate-Palmolive?

Here are the basics (click on the picture to expand):

1. Do I understand the business model?

Colgate-Palmolive is a diversified consumer goods conglomerate.

People think of them as a toothpaste company, but they have four core categories:

Main Business Segments

• Oral Care: Includes toothpaste brands like include Colgate, Darlie, and elmex

• Personal Care: Includes soaps, deodorants, and shampoos from brands like Palmolive, Softsoap, Irish Spring, and Protex

• Home Care: Focuses on dishwashing liquids and household cleaners with brands like Ajax, Fabuloso, and Murphy Oil Soap

• Pet Nutrition: Operates through Hill’s Pet Nutrition, providing specialized nutrition for dogs and cats through the Science Diet and Prescription Diet lines.

These are all products people need, and have to buy over and over.

This creates stable demand - something we love to see.

Revenue Split

Most of the revenue comes from Oral, Personal and Home care segment.

Here is the revenue split for fiscal year 2025:

• Oral, Personal and Home care: $15.8 billion (77% of revenue)

  • Oral care: (43% of OPHC revenue)

  • Personal care: (17.8% of OPHC revenue)

  • Home care: (16.2% of OPHC revenue)

• Pet Nutrition: $4.6 billion (23% of revenue)

Geographic Split

The geographic revenue mix has stayed largely stable over the years.

Latin America is the largest market, with North America next in line.

Asia and Africa contribute the smallest share of revenue.

What is Colgate’s Moat?

Colgate’s moat is built on two main strengths:

Strong brand power

Colgate is often the first name people think of for toothpaste, which keeps customers loyal and supports pricing power.

That is why it consistently ranks among the bestsellers in Amazon.

Global distribution

Its products reach deep into small towns and rural markets where many competitors have limited presence.

2. Is management capable?

You want to invest in companies led by great managers.

Noel Wallace - Chairman, President & CEO

Mr. Wallace has been with Colgate since 1987 and was appointed CEO in April 2019

• Wallace has spent over 30 years at the company and has led major regions like North America, Latin America, and Africa–Eurasia

• He is the architect of the company’s current 2030 Strategic Plan, which focuses on integrating digital and physical retail, and aggressively expanding into premium health categories

• Under his leadership, annual sales crossed $20 billion in 2024, with organic sales growth continuing for six straight years through 2025

Colgate has consistently high ROIC numbers, showing us that management allocates capital well.

3. Has the company grown the dividend attractively?

You want to invest in companies with a history of growing their dividends.

The higher the dividend growth, the better.

We look for 2 things in the company’s dividend history:

1. At least 10 years of dividend growth

2. A 5-year record of growing dividends by 5% or more

Colgate:

Colgate is a Dividend King with 63 years of dividend growth

5-year dividend growth for Colgate is 3.3%, less then our target 5%.

4. Is the company active in an attractive end market?

You want to invest in companies that are in stable or growing market.

Here are a few characteristics we look for:

• The company sells a necessary product

• Recurring sales

• A secular tailwind

Colgate meets all 3 of these qualities:

• They sell necessary products like toothpaste, soap, and pet food

• These are high-frequency consumables that must be replaced every few weeks

• They benefit from people treating pets more like family through the Hill’s brand and from rising hygiene awareness in emerging markets

The market for consumer goods like toothpaste is slower growing, projected around 2% yearly growth.

But the pet food market is expected to grow more than 2x as fast, at around 5% per year.

5. What are the main risks for the company?

Competition

Colgate competes against massive global conglomerates with deep pockets:

• Procter & Gamble (P&G): Their primary rival in oral care (Crest, Oral-B) and personal care

• Unilever: A major threat in emerging markets with brands like Pepsodent and Dove

• Mars & Nestlé: Intense competition in the pet nutrition space (Hill’s vs. Royal Canin and Purina)

Input Cost Volatility & Currency Risks

Colgate has its presence accoss the globe.

This does give them diversification, but it also exposes them to some risks:

• Foreign Exchange (FX): When the U.S. dollar is strong, the money they earn abroad is worth less when converted back, which can eat into profits

• Commodity Prices: Fluctuations in the cost of raw materials like essential oils and resins for packaging can directly impact their margins

Mature Business & Growth Uncertainty

Colgate is a highly established global brand. While this creates stability, it also brings growth limitations:

• Slower Revenue Growth: Core oral care and personal care markets are already highly penetrated, limiting high growth potential

• Dividend Growth Uncertainty: With earnings growing slowly and the payout ratio growing, the dividend may not grow as fast as it has in the past

• Reinvestment Needs: Expansion into newer segments like pet care requires capital, which can temporarily reduce dividend flexibility

Now let’s dive into the most important part: the Fundamentals.

6. Does the company have a healthy balance sheet?

We always want to invest in financially healthy companies.

A strong balance sheet helps companies share profits with shareholders, stay flexible, and take advantage of opportunities.

We typically like to see a Debt/Equity ratio of < 0.5.

Colgate’s has consistently been above this.

Part of the reason this level looks so high?

Colgate consistently spends $1 billion+ every year on buybacks, which lowers the equity portion of the calculation - this is a good thing!

Are the debt levels safe?

The reason we’re interested in debt is because it can bankrupt a company.

We look at a few ratios to get an idea to see if the debt levels are dangerous:

• Interest coverage ratio: this tells us if GPC can afford the interest payments

• Current ratio: tells us if they might have trouble meeting upcoming debt obligations

• FCF / Debt: Tells us how easy it would be to pay off the debt with existing cash flow

Here’s how they look for Colgate:

• Interest coverage ratio: 16.1x

• Current ratio: 1.0x

• FCF / Debt: Net Cash Position (-2.8x)

Overall, the balance sheet still looks safe.

The unusual FCF to net debt figure is due to a one-time accounting impact.

• Non-cash impairment charge reduced reported earnings
• Buybacks and dividends lowered cash during the period
• Debt stayed elevated after refinancing and strategic spending

Historically, this ratio averages 0.4x, which is healthy.

7. Is the company a great capital allocator?

Capital allocation is management’s most important task.

That’s as far as we can go with this free preview.

Want the rest of the investment case, and to find out if Colgate-Palmolive has great capital allocation, or earns a spot in the Compounding Dividends or High Yield Portfolio?

You can join us here:

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.

Steady yields. Low volatility. No drama.

Then AI arrived, and suddenly everyone wanted to know: what’s actually in these loans?

Howard Marks just released a memo trying to answer that question.

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And the most interesting part isn’t where we are, it’s how we got here.

Nothing in finance happens in isolation.

One Thing Leads to Another

Before late 70’s, companies without an investment grade rating almost couldn’t issue bonds.

They had to borrow from banks, or borrow from insurance companies through ‘private placements’.

But Michael Milken is credited with the idea of letting these companies issue bonds if the interest rate was high enough.

Junk bonds allowed Leveraged Buyouts or LBOs to start taking place in the 80’s.

A Leveraged Buyout (LBO) is the purchase of a company using a small amount of your own cash and a very large amount of borrowed money.

How LBOs Work:

• An investment firm (private equity) identifies a company they want to buy.

• They borrow massive amounts of money, often in the form of high-yield bonds or private loans, to fund the purchase.

• The firm uses the assets and future cash flows of the target company to guarantee and service that debt.

• Using leverage allows the firm to acquire much larger companies than they could afford with their own capital alone.

Leveraged Buyouts eventually turned into the Private Equity industry we know today.

As buyouts got bigger, the financing had to get bigger too.

That’s why Wall Street came up with ‘broadly syndicated loans’.

Before these, if a company wanted to borrow more money than one bank could provide, three or four banks might come together to share the loan.

In the 90’s, Wall Street realized they could sell these loans to institutional investors (like pension funds, insurance companies, and huge investment firms) instead of just other banks.

Instead of 4 banks splitting a loan, a broadly syndicated loan is hundreds of different investors buying small pieces of it.

This made even more money available for Private Equity to really take off.

When the tech bubble popped in 2000, the S&P 500 declined for 3 years, and investors stayed away from stocks.

At the same time, central banks reduced interest rates, meaning government bonds couldn’t give investors the yield they were looking for.

Where’d they go?
Private equity.

Another thing that investors were buying up?

‘Structured credit’ products like Mortgage Backed Securities and Collateralized Debt Obligations, or CDOs.

The demand was so great that mortgage lenders were incentivized to create all the ‘liar loans’ or NINJA (no income, no job, no assets) loans to provide the raw material to create the CDOs that eventually caused the 2008 Great Financial Crisis.

How 2008 Led to Today’s Private Credit

The banks jumped on board the CDO craze in the 90’s, and ended up needing bailed out in 2008.

That led to way more regulation and an unwillingness to loan to Private Equity and private companies.

Investment managers were all too happy to fill this liquidity vacuum.

This gave birth to the modern era of direct lending, a specific subset of private credit where non-bank lenders provide capital directly to mid-market companies.

After 2008, interest rates were slashed again, meaning government bonds hardly yielded anything.

Direct lending offered higher yields than public bonds with the added (false) benefit of low price volatility.

Because these are private deals, they aren’t marked to market daily, which made their prices look stable.

But stability and safety aren’t the same thing.

Investor demand led hundreds of new investment firms to join the space, and a race to the bottom began:

• Too much money was chasing too few high-quality deals.

• To win deals and put capital to work, lenders began competing by accepting lower yields and narrower interest spreads.

• Lenders began stripping away covenants, the rules and safety nets in loan documents that protect the lender if a company’s performance falters.

For years, a benign economic environment hid these weakening standards.

But as Warren Buffett likes to remind us:

The 400-basis-point increase in rates since 2022 is what’s pulled the tide out from the direct lenders.

The first cracks happened in the middle of 2025 when companies like First Brands and Tricolor, went bankrupt.

This raised some red flags about potential fraud and poor underwriting.

But the market seemed to accept these as isolated incidents.

The release of Claude Code changed that.

Here’s how Howard Marks put it in his memo:

To understand what's happening now, it helps to separate two things:

1. The changes in the fundamentals of borrowers and the safety of the loans

2. The reactions and emotions of investors

Let’s look at what Marks says about each.

The fundamentals of the loans

Most software companies are still making money.

The problem is that their future is suddenly uncertain, causing multiple compression in the stock market and falling stock prices.

Here’s how that affects the credit investments in software companies:

• When a firm lends money to a company, they rely on the equity cushion. This is the value of the company that sits below the debt. If a company is worth $100 million and has $60 million in debt, there is a $40 million cushion of equity.

• Because investors are now worried about AI disruption, they have marked down the equity value of these software companies. As the equity value drops, that safety cushion for the lenders disappears.

Marks summed it up with a quote from an internal Oaktree memo:

“The disruptions and headlines are largely flow- and sentiment-driven rather than the result of credit deterioration.”

The reaction of investors

The market is rarely a cold, calculating machine.

Instead, it’s a pendulum that swings between two extremes.

When it comes to investor sentiment, the pendulum usually swings between flawless and hopeless.

For years, sentiment around private credit was flawless.

But when the mood shifted in February, the pendulum swung hard:

• Investors went from ignoring risks to seeing them everywhere.

• Private credit funds aren’t like stocks. You can’t always sell them instantly. When investors got scared and asked for their money back, many funds hit their redemption limits (gates).

• That of course caused panic, and even more people to line up at the exit, creating a self-fulfilling prophecy of illiquidity.

The safety and standards that were stripped away during the good times are being missed now that the tide has gone out.

Marks reminds us that the “new thing” rarely pays off as expected when people stop asking questions and start chasing easy profits.

How Private Equity and Direct Lending will impact each other going forward

Direct lending has become a primary source of the debt PE firms use to buy companies.

For much of the last 40 years, falling interest rates provided a massive tailwind for private equity.

Low rates made it cheap to borrow money and increased the value of the companies being bought.

This created a virtuous circle:

• PE firms used cheap direct loans to buy companies.

• A strong stock market made it easy to sell those companies at a profit.

• Investors got large payouts, which they immediately reinvested into new PE funds.

The rise in interest rates since 2022 has disrupted this cycle.

Both sectors have seen issues from this:

• Lower Profits: Portfolio companies now have higher interest costs, and lower profits, making them less valuable to future buyers.

• Refinancing Issues: Companies are struggling to refinance low rate debt because their earnings don’t cover the higher interest costs as easily.

• Slower Payouts: Because companies are harder to sell in this environment, investors (Limited Partners) are receiving fewer distributions. This makes it more difficult for them to commit capital to new funds.

Going Forward

Success will depend more on the actual skill of the managers, how they select and run companies, instead of just relying on falling interest rates.

Lenders who performed good due diligence, kept high standards and made good decisions will be fine.

Lenders who lowered standards, lent to less strong companies, or took lower positions in the repayment stack will have more trouble.

Direct lending is expected to remain a permanent source of funding, it may have to go through a difficult credit cycle, with some loans failing before the market reaches a healthier state.

As Howard Marks has written before, you can't judge the quality of a decision by its outcome alone.

The decisions made during the boom years of private credit are only now being graded.

For many lenders, it will be a difficult test, not because the market has changed, but because it has finally started paying attention.

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.

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

Subscribe now

1️⃣ The Royalty Model

Do you know about Royalty Companies?

They are businesses that finance miners, drillers, or music producers and collect a percentage of their revenue forever.

To earn a royalty stream, a company provides upfront capital to an operator.

Operators do all the work → Royalty company collects a % → Pays you as a dividend.

2️⃣ Royalty Companies vs The Market

Tech stocks are getting a lot of attention.

But royalty companies can be very interesting investments.

The reason is simple:

• No operational costs

• No capital expenditure

• Recurring cash flows that compounds over time

That’s why royalty companies are generating strong free cash flow margins.

An example? Topaz Energy

3️⃣ An Investing Quote

Building a royalty portfolio is about owning the toll road, not the trucks.

Companies like Franco-Nevada, Wheaton Precious Metals, and Royal Gold collect royalties from hundreds of mines worldwide.

The most important part is making sure that the traffic will continue to use your toll road.

4️⃣ The Music Royalty Boom

Real assets are no longer just gold or oil.

Today, music is a global asset class generating nearly $30 billion a year in revenue.

About 69% of that now comes from streaming.

So as streaming grows, royalty income grows with it.

This trend is supported by:

• More music being recorded, and more music being streamed

• Growth of global music subscriptions and royalty collections

• Growing investor interest in buying and monetizing catalogs as predictable cash streams

That’s why Bill Ackman wants to buy Universal Music Group.

Want to learn more?

Access the IFPI Global Music Report here.

5️⃣ Example of a Dividend Stock

Let’s look at Wheaton Precious Metals (WPM).

They called the gold standard of royalty investing.

Wheaton owns royalty agreements on 40+ operating mines worldwide.

Key numbers from Fiscal.ai:

• Profit Margin: 54.7%

• Forward P/FCF: 66.5x

• Dividend Yield: 0.4%

• Payout Ratio: 29.4%

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.

Despite record profits, it’s got a yield over 6% because of worries about rising claims inflation and new regulatory pressures.

Is this industry leader a buy? Let’s find out!

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Admiral Group PLC

Admiral is a leading insurance provider that uses technology to keep costs low.

It then passes those savings along to customers.

While they are famous for car insurance, they have spent the last few years branching out into home insurance, pet insurance, and personal loans.

They share a lot of the risk with other big global insurance partners through reinsurance agreements.

That allows Admiral to focus on what they do best - using data to pick the safest drivers and give them great customer service.

• Company name: Admiral Group PLC

• ✍️ ISIN: GB00B02J6338

• 🔎 Ticker: $ADM

• 📚 Type: High yield stock

• 📈 Stock Price: £32.39

• 💵 Market cap: £9.8 billion

• 📊 Average daily volume: £34 million

Onepager

Don’t know Admiral Group?

Here are the basics (click on the picture to expand):

Now let’s dive into the full investment case!

1. Do I understand the business model?

Admiral makes most of their money from selling car insurance, but it’s really a data company.

They use over 120 different AI and machine learning models to pick the safest drivers, and figure out exactly how much to charge each person based on their risk of having an accident.

Unlike traditional insurers that keep all the risk on their own books, Admiral uses reinsurance.

In 2025, they used reinsurance deals to pass 78% of their UK car insurance risk to other partners.

This makes the business much safer and allows them to pay out most of their profits as dividends to shareholders.

Revenue Split

Most of the revenue (which they call turnover) comes from UK car insurance.

Here is the split for the 2025 fiscal year:

• UK Insurance (Motor, Home, Pet): £5 billion (85% of turnover)

• European Insurance (Italy, France, Spain): £674 million (11% of turnover)

• Admiral Money (Personal Loans): £226 million (4% of turnover)

Geographic Split

The vast majority of the revenue comes from the United Kingdom.

They have a dominant position in the UK, but they are growing steadily in Europe, particularly in Italy (under the brand ConTe) and Spain.

They recently exited the US market, where they were losing money, to focus on where they are most profitable.

Who are the customers?

Admiral’s customers are individual people looking for insurance for their cars, homes, or pets.

They have 11.8 million policies active.

A growing number of these customers are multi-product, meaning they might have both their car and home insurance with Admiral.

These customers are much more likely to stay with the company for a long time.

Another great thing to see?

Admiral has very high customer satisfaction scores.

What’s the moat?

Admiral’s moat comes down to low costs.

Insurance companies make money on the difference between what they collect in premiums and how much they have to pay out in claims and expenses.

The percentage of premiums spent on claims and expenses is called the Combined Ratio.

Most insurance companies spend about 95p to £1.00 on claims and expenses for every £1 they collect in premiums.

Admiral only spends about 80p.

This comes down to a few things.

First, Admiral has a structural cost advantage.

They are much leaner and more efficient than older insurance companies.

Second, Admiral has invested heavily in data and AI.

They have 20 years of proprietary data that helps them spot good drivers that other companies might miss, process claims faster, and have lower fraud rates.

In 2025 alone, they estimate their AI models added £100 million in value to the business.

These two things work together to drive Admiral’s operating costs down, and reduce the amount they have to pay out in claims.

Third, their reinsurance model means that if there is a huge spike in accidents across the country, Admiral’s partners absorb most of the hit.

That keeps Admiral’s balance sheet safe and healthy.

Put those together, and you have a company that consistently has higher margins than its competitors.

2. Is management capable?

Milena Mondini de Focatiis - CEO

Ms. Mondini de Focatiis has been the CEO since 2021, but she has been with Admiral since 2007.

• Was previously Head of UK and European Insurance

• Founded ConTe.it, Admiral’s Italian insurance business in 2008 and was previously the CEO

Geraint Jones - CFO

Mr. Jones has been the CFO since 2014 and has been with the company since 2002.

• He has overseen a period of massive dividend growth and helped navigate the company through major regulatory changes

The leadership team has reinvested in the business at attractive returns.

Another great sign?

Insiders own a significant portion of the business.

3. Has the company grown the dividend attractively?

We look for:

• At least 10 years of dividend growth

• 5-year dividend growth >5%

Admiral does have a very strong track record of returning cash to shareholders.

They pay regular dividends 2x per year, but also return extra capital via special dividends.

Over the last 5 years, the dividend has grown at an average rate of about 6% per year.

But Admiral’s dividend growth has not been in a straight line.

Here’s Admiral’s base Dividend Per Share:

And total Dividends Per Share:

Admiral did reduce their dividends in 2022 and 2023, but after a very large payout in 2021.

Let’s look at what happened.

2021

• Dividend: 279.0p (The highest ever)

• Business Sale: Admiral sold its price comparison websites (like Confused.com) and gave almost all the cash (£500m) back to shareholders in special dividends

• COVID Effects: Because of lockdowns, people weren’t driving. Fewer cars on the road meant almost no accidents, so Admiral kept nearly all the premiums as profit.

2022

• The Dividend: 157.0p ( -44%)

• Inflation: As the world reopened, the cost of car parts, paint, and labor spiked. Used car prices also rapidly increased, making total loss payouts much more expensive.

• Normal Driving: People started driving again, accidents went back to normal levels, and the COVID profit disappeared.

• Final Windfall: Shareholders received the last bit of cash from the Confused.com sale (45p).

2023

• Dividend: 103.0p

• Taxes & Accounting Rules: The UK government raised corporation tax from 19% to 25%, and new accounting rules (IFRS 17) changed how profits were reported. At the same time, the extra cash from the business sale was gone.

• Lagging Profits: Admiral was raising its prices, but it takes time for those higher prices to turn into business profit.

While we don’t like to see dividend cuts, if we think like business owners, Admiral’s reduction in dividend payments makes a lot of sense.

Some years you might make a lot of profit - like when you sell off a portion of your operations.

Others years, things outside of your control (like a pandemic and supply chain disruptions) might temporarily hurt your profits.

Admiral responded well after this, spending 2024 aggressively raising its prices ahead of the rest of the market.

This did result in them losing some customers, but I like that management made the tough choice here.

Other insurers kept selling cheap insurance that wouldn’t cover the rising cost of repairs.

Because of this, 2024 and 2025 have returned Admiral’s dividend to growth.

4. Is the company active in an attractive end market?

The UK insurance market is very attractive because it is compulsory.

If you want to drive a car, you must have insurance.

This creates a base level of demand that never goes away, even in a recession.

It’s also got several tailwinds:

• Rising Prices: After a few years of low prices, insurance premiums are rising across the market to catch up with inflation.

• Technology Shift: As cars get “smarter,” companies with the best data (like Admiral) can price risk much better than traditional players.

• Diversification: People are increasingly looking for “all-in-one” providers for their car, home, and pet needs, which plays directly into Admiral’s multi-product strategy.

That market is expected to grow at around 4% per year.

But Admiral is also active in other markets.

In the UK, they are active in:

• Home, pet, and travel insurance

• Lending and car finance

• Commercial motor and small business insurance

These are all expected to grow at between 4% and 6% per year, and Admiral has a very small market share in each.

Their share of the insurance market in the rest of Europe is also much smaller than in the UK, giving Admiral room to grow.

5. What are the main risks for the company?

Regulatory Scrutiny

The UK regulator (FCA) is looking closely at how insurers charge for monthly payments and add-on products. If they force companies to lower these fees, it could hurt Admiral’s other revenue.
Mitigation: Admiral has already lowered its interest rates (APR) on monthly payments and maintains very high customer service scores (rated #1 on Trustpilot) to prove they are providing fair value.

Claims Inflation

The cost of car parts, paint, and labor is going up. If claims become more expensive faster than Admiral can raise its prices, profits could shrink.
Mitigation: Admiral uses real-time data to spot inflation early. They started raising their prices in early 2026, ahead of much of the market, to stay profitable.

Competition

The UK market is fragmented, meaning there are lots of small companies fighting for business. Some might lower prices to an unsustainable level to win customers.
Mitigation: Admiral is disciplined in its underwriting. If prices in the market get too low, Admiral is willing to grow more slowly to ensure every policy they sell is actually profitable.

6. Does the company have a healthy balance sheet?

Because Admiral is an insurance company, we need to change how we look at the balance sheet.

So what do we look at instead?

That’s as far as we can go with this free preview.

Want the rest of the investment case, and to find out if Admiral earns a spot in the Compounding Dividends or High Yield Portfolio?

You can join us here:

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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.

Today we’re looking at a AH Realty Trust, a company undergoing a massive change.

For years, this REIT built buildings, financed other people’s projects, managed apartments, and owned offices.

It’s become much simpler recently, but is it an interesting company?

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AH Realty Trust is the new name for Armada Hoffler Properties.

Armada Hoffler ran differently from most other REITs.

It used a development-first model, building high-quality mixed-use, multifamily, office, and retail assets, then selectively keeping only the best properties long-term.

That made it difficult to figure out.

And complex companies often trade at a discount.

That was part of the problem for Armada Hoffler Properties.

The other part?

The market hated the lumpy earnings from the property development business.

Shawn Tibbetts took over as CEO last year, and after a review of the company, decided to simplify it.

Want to see the new look?

Keep reading.

Company Overview

Armada Hoffler officially became AH Realty Trust on March 2, 2026.

The new name is align with the new strategy to:

• Move away from unpredictable construction income

• Focus on steady, reliable income from high quality properties

• Reduce debt and secure stronger financing

• Own fewer, higher-quality properties instead of growing for the sake of growth

If they pull it off, we’re looking at a simplified, focused REIT that strictly owns high-quality Retail and Office assets.

By the time the dust settles, they will have exited the multifamily (apartment) sector, shuttered their construction business, and wound down their real estate financing arm.

The Portfolio

AH Realty Trust will own retail buildings:

And office properties:

94% of their Net Operating Income (NOI) comes from mixed-use communities like the Town Center of Virginia Beach and Baltimore’s Harbor Point.

The Transformation: What’s Changing?

The goal here is simple: predictability.

Management is trading lumpy fee income for recurring, contractual rent checks.

They’re also planning on reducing debt.

“The days of being a sprawling, complex octopus are behind us.” — Shawn Tibbetts, CEO

Financial Performance & Outlook

Dividend Reset

In March 2025, the company made the “difficult but necessary” choice to reset the dividend to a sustainable level.

They cut the quarterly dividend from $0.205 to $0.14 per share.

Normally we don’t like to see a dividend cut.

But sometimes it’s the right business decision.

• The payout is now fully covered by recurring cash flow.

• 2026 should have an AFFO payout ratio of approximately 95%.

• Management isn’t in a hurry to hike it, they’re focused on deleveraging first.

Ultimately, this should set AH Property Trust up to be a stronger, more stable business.

2026 Guidance

2026 is going to look a bit messy on paper because it’s a transition year.

• FFO Guidance: Expected between $0.50 and $0.54 per share for 2026.

• Debt Reduction: They plan to use proceeds from selling their apartments to pay down roughly $670 million in debt.

• Acquisitions: They plan to buy about $50 million in retail properties in the second half of this year

Valuation

AH Realty Trust has seen the share price drop by more than 50% over the past few years.

That puts it close to a 10% dividend yield, even after the cut.

It also means that it’s trading well below its usual Forward P/AFFO.

We can also compare the valuation to competitors like:

• Federal Realty Trust: Own high-quality, urban mixed-use properties like AH Realty Trust’s Virginia Beach Town Center

• Cousins Properties (CUZ): A Sun Belt office REIT that with a very similar strategy to AH

• Highwoods Properties (HIW): A direct peer in the office sector that’s active in AH’s high-growth secondary markets

When we do this, we see that AH Realty Trust is at a much lower multiple.

However we choose to look at it, the company looks cheap.

Risks and Considerations

AH Realty Trust is currently in the middle of a serious shift in strategy.

That makes it more risky than some other REITs because of things like:

• Execution Risk: They are currently under LOI for 11 of 14 multifamily assets. If these deals fall through or the pricing is worse than what they expect, they may not be able to pay down as much debt as they hope.

• Office Headwinds: While their office occupancy is high, they are facing vacancies in Durham and Baltimore that will weigh on growth in the short term.

• Dilution: Selling assets to pay down debt is dilutive (meaning lower FFO per share in the short run), but it does seriously de-risk the company.

Final Thoughts

AH Realty Trust was complex company that financed and developed property, owned office buildings, retail centers, and apartments.

By exiting the construction business and the less profitable apartment world, they are betting that investors will reward them with a higher valuation for being a pure-play commercial REIT.

If you believe in the company’s pivot, you’re getting a seat at the table while the stock is in the bargain bin compared to peers like Federal Realty or Cousins Properties.

The bull case is simple: a leaner balance sheet, a fully covered dividend, and high-quality mixed-use assets that are currently 94-96% occupied.

However, the bear case is just as simple.

This transformation is dilutive in the short term, and management still has to finalize the sale of their multifamily portfolio and navigate office vacancies in Durham and Baltimore.

Whether AH Realty Trust is a buy or a wait-and-see depends entirely on your confidence in Shawn Tibbetts and his team’s ability to simplify AH Realty Trust without hurting the core business.

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.

Most investors spend all their time looking at spreadsheets and financial statements.

They forget that their greatest asset isn’t their capital, it’s their mindset.

Jason Zweig shared “The 7 Virtues of Great Investors” in the latest edition of The Intelligent Investor.

Here is how you can use them to build long-term wealth.

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1. Curiosity

Great investors are learning machines.

They don’t just look at a dividend yield, they look at the business model.

They ask why a company is able to pay a dividend for 50 years straight.

The more you learn, the more you earn.

2. Skepticism

If a stock offers a 15% dividend yield, be defensive.

In investing, if it looks too good to be true, it usually is.

Skepticism protects your principal from permanent loss.

3. Independence

If you do what everyone else does, you’ll get the same results as everyone else.

It’s easy to get swept up in momentum and excitement when it looks like everyone else is making easy money.

As a dividend growth investor, you’ll be buying boring companies while others are chasing bubbles.

But in the long run, it’s a great strategy to build wealth.

4. Humility

You can’t control everything.

There’s an element of luck in every investment.

Humility means admitting you might be wrong, and that things are uncertain.

Great investors recognize this and do things like diversify and buy with a margin of safety to protect themselves.

5. Discipline

Most people invest when they’re excited and stop when they’re scared.

That’s the opposite of what works.

Think of saving and investing like another monthly bill, you pay it automatically, no matter what the market is doing.

If you wait until it feels like the perfect time to invest, you’ll be waiting forever.

6. Patience

Most people want to get rich fast. Those people usually end up poor.

The real payoff in investing comes after 10, 20, 30 years.

That’s when compounding really kicks in.

Stop looking for shortcuts and let time do the work.

7. Courage

Investing is easy when things are going well.
The real opportunity comes when everyone else is scared.

When the headlines are screaming recession, that’s often the best time to buy.

That’s it for today!

Here’s what you learned:

1. Curiosity – Keep learning to spot great investments

2. Skepticism – If returns sound too good to be true, they probably are

3. Independence – Don’t just follow the crowd

4. Humility – Luck plays a role, so always leave a buffer for being wrong

5. Discipline – Stick to your process every time

6. Patience – Time does most of the work for you

7. Courage – Don’t panic when the market does

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.

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.

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March 2026

The S&P 500 declined by 5.3% in March.

Investors are in Extreme Fear 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? Estée Lauder, losing 38%.

Estée Lauder is a prestige beauty company that makes and sells high-end skincare, makeup, fragrance, and hair care products under brands like La Mer, Clinique, and M·A·C.

Estée Lauder fell this month due to merger uncertainty and macroeconomic headwinds:

• They confirmed they are in discussions for a potential merger with Puig and investors are afraid of dilution or distraction while the company is trying to turn itself around

• Management warned that tariffs could cost $100 million, bringing expected profits down

• Weakness in China continues to be a problem

Best Performers

APA Corporation was this month’s best performer, rising 46%!

APA Corporation is an oil and gas exploration and production company. They have operations in the U.S., Egypt, and the North Sea.

APA had a lot of good things come together all at once:

• Better Earnings: They earned $0.91 per share, versus analysts’ expected $0.62 by lowering their costs and pumping more oil.

• War and Oil Prices: Conflict in the Middle East caused oil prices to rise. Higher oil prices mean higher profits for APA.

• Buying Back Shares: The company has been aggressively buying back shares, retiring over 28% of outstanding shares since 2018.

Spotlight: Lower Prices Mean Higher Paychecks

Today’s headlines are scary.

Oil over $100, inflation fears, recession worries, falling stock prices.

It feels like everything is falling apart.

But I’m not panicked, and you shouldn’t be either.

The secret to staying calm?

Think like a business owner, not a speculator.

Thinking Like an Owner

Imagine that you own the busiest gas station in town. It’s been paying your bills and supporting your family for years.

Then a recession hits. You notice:

• Customers are choosing regular gas instead of premium

• Fewer people are grabbing snacks or coffee inside

• Your monthly profit drops about 10% for a few months

Now a local investor knocks on your door and offers to buy your gas station for half of what it was worth last year.

Do you sell?

No way. People still need to drive. Recessions end. Inflation cools down.

You wouldn’t give away a perfectly good business at a bargain price just because things are temporarily slow.

But that’s exactly what happens in the stock market.

In 2022, Netflix saw a small drop in subscribers.

It barely had an effect on Revenue, but the stock went from around $70 a share down to $17.

The headlines were scary then too.

But if you bought Netflix at $20 a share in 2022, you’ve gained 46% on your investment every single year since then.

And that includes another -40% drawdown related to the attempt to buy Warner Bros. Discovery.

That’s the difference between an owner and a speculator.

• Owners look at long-term cash flow

• Speculators look at today’s price

Lower Prices Mean More Income

When the stock market panics, it puts good companies on sale.

For income investors, that’s actually a raise.

Every dollar you invest buys more income than it did before.

Here’s what $100,000 buys you at different price levels:

Buying a great company at a 25% discount doesn’t mean you’re losing money.

It means you’re locking in 33% more passive income. Permanently.

Watch the Business, Not the Price

Instead of checking your stock prices every day, track what the business is actually earning for you.

You can use the Owner’s Earnings Formula:

If a company keeps growing its earnings and keeps paying its dividend, the business is fine.

The daily price is just noise.

What You Should Remember

Speculators see a falling price and think something is broken.
They sell in a panic.

Owners see a falling price and ask: is the business still running well?
If the answer is yes, they see a sale, and they buy more.

While everyone else worries about the next headline, we’ll keep buying more income at better prices.

April Best Buys

I scanned the Buy-Hold-Sell List for great dividend payers at attractive prices to highlight for you this month.

Let’s dive into 5 of the most interesting ones I found!

By monthly tradition, here are our five favorite income stocks for April.

What’s happening in the markets? Where is the income? Let’s get a little bit wiser today.

5. Ingredion (INGR)

If you’ve eaten a salad dressing or protein bar recently, there’s a good chance an Ingredion ingredient was in it.

It’s one of the most boring companies you’ll ever come across.

That’s exactly why we love it.

The moat here is simple: scale and switching costs.

Ingredion is one of the only companies with the global reach to supply the world’s largest food brands.

And once a food manufacturer locks in a starch supplier, they almost never switch.

Why?

Because a tiny change in starch quality can ruin the taste of a billion-dollar product.

That’s a powerful reason to stay put.

The result? 16 consecutive years of dividend growth.

Why is the stock cheap?

Two reasons. First, fluctuating corn prices have spooked some investors about near-term revenue.

Second, nobody talks about Ingredion when there are AI stocks to chase.

That neglect has left the stock at just 10 times earnings.

That gives us the opportunity to buy a defensive staple at a value price.

You get to collect a safe 3% yield today.

With plenty of room for continued dividend hikes as earnings grow, and room for the multiple to expand as well.

4. Coca-Cola FEMSA (KOF)

Think of KOF is the last mile of Coca-Cola’s empire in fast-growing markets.

They own the trucks. They own the relationships. And they own a distribution network that would cost billions to replicate.

Just like their parent company, Coca-Cola FEMSA has pricing power.

When inflation rises in Mexico or Brazil, KOF simply raises the price of a Coke.
Customers keep buying.

A cold Coke is one of life’s affordable pleasures, recession or not.

Why is the stock cheap?

The stock has fallen about 13% in the past month.

• Earnings Miss: Coca-Cola FEMSA missed both revenue and profit targets from Wall Street.

• Rising Costs: Geopolitical tensions and high oil prices made it more expensive to make bottles and ship products.

• New Taxes: Investors are worried about a new excise tax in Mexico.

• Leadership Change: The broader Coca-Cola system is changing CEOs

But here’s what matters: the profits are real.

The business hasn’t changed, but the price tag has.

Coca-Cola FEMSA has a 4.3% yield backed by one of the most recognizable brands on Earth.

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

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.

Our investable universe currently contains 175 stocks rated ‘buy’.

Last month there were 161.

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

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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 March 2026

Some Interesting Stats:

• 175 companies total receive a ‘buy’ rating

  • That’s up from 161 last month

  • And 149 the month before

• 49 moved from ‘hold’ to ‘buy’

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

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

  • 6 did so last month.

Recommendation Changes

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

Here’s a sample of a few:

• Westlake Corp (WLK): A global manufacturer of essential materials used in everything from food packaging to modern construction. They are one of the world’s largest producers of PVC and polyethylene, vertically integrating their chemical production to create the high-demand building products like piping, siding, and window frames.

• CF Industries (CF): A critical player in global food security and the world’s largest producer of ammonia-based fertilizers. By utilizing low-cost natural gas, they supply the nitrogen nutrients needed to boost crop yields worldwide, while increasingly pivoting their massive infrastructure toward clean ammonia to power the next generation of carbon-free shipping and industrial fuels.

• Insperity (NSP): A high-end human resources provider that helps small and medium-sized businesses operate with the sophistication of a Fortune 500 company. Through a co-employment model, they take over the administrative heavy lifting of payroll, benefits, and compliance, allowing business owners to focus on growth while giving their employees access to top-tier health insurance and perks.

• Equinor ASA (EQNR): Norway’s energy giant and a leader in the transition from traditional fossil fuels to offshore wind. While they remain a dominant supplier of natural gas to Europe, they are leveraging their decades of experience in the harsh North Sea to build some of the world’s largest floating wind farms and pioneering carbon-capture projects.

Undervalued Growers on the Reverse DDM

This month’s top picks include a high-margin alternative asset manager, a 53-year Dividend King, a “moat of steel” railroad, and a tech-driven global exchange.

31 Cannibals

31 companies are rated ‘Buy’ for their aggressive share buybacks, including a premium payment network, a critical insurance data provider, and a dominant cell tower REIT.

The High Yielders

64 high-yield opportunities are currently on the ‘Buy’ list - highlights include an Australian logistics backbone, a global automotive distributor, and a leaner, restructured retail REIT.

Our Portfolio

Major moves this month: a European Industrial company has crossed into ‘Buy’ territory. There’s heavy institutional interest in an American healthcare company and Terry Smith has started buying several of our holdings.

Conclusion

There are always attractive dividend investment opportunities out there.

Buying strong companies at good prices is always a good idea.

Want Full Access?

You can get it here:

Become a Partner

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.

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

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1️⃣ The Spinoff Rule

Do you know about Corporate Spinoffs?

A spinoff is when a large company separates one of its divisions into a brand new, independent business.

When that happens, the newly independent company has one job:

Prove itself to shareholders.

And the fastest way to do that is cash.

To attract serious investors, most spinoffs initiate a dividend almost immediately after listing.

2️⃣ Spinoffs vs The Market

Wall Street often underestimates spinoffs.

When a spinoff begins trading, many institutional investors who owned the parent company quickly sell the new stock.

They did not choose to own the spinoff and often do not want to analyze or hold a smaller, unfamiliar business.

This selling pressure creates an opportunity.

An academic research has shown that corporate spinoffs have historically outperformed the S&P 500 significantly during the first few years after the separation.

3️⃣ An Investing Quote

Spinoffs are one of the few places in the market where a good business can trade below its true value simply because investors aren’t paying attention yet.

Investors like Joel Greenblatt built much of their early track record by buying spinoffs before the market recognized their value.

🚨 Bonus Resource: 10 Lessons from You Can Be A Stock Market Genius 🚨

Joel Greenblatt’s book highlights spinoffs as a great place to find returns.

Get a visual with 10 lessons from it here.

4️⃣ Corporate Portfolio Simplification

Houlihan Lokey’s studied 73 spinoffs completed between 2019 and 2025.

They found that companies are increasingly using separations to restructure portfolios and unlock shareholder value.

Spinoffs help with this in a few different ways:

• Separates businesses with different growth profiles

• Management teams of the new companies get independent capital allocation and strategy

• Investors often reward the move because focused companies are easier to value

You can access the report here.

5️⃣ Example of a Dividend Stock

Let’s look at Kenvue (KVUE).

Kenvue was formed in 2023 after separating from Johnson & Johnson.

Today, Kenvue owns several of the world’s most recognized consumer health brands, including Tylenol, Neutrogena, Listerine, and Band-Aid.

J&J wanted to focus on pharmaceuticals. So they handed Kenvue its independence along with billions in stable, recurring cash flows.

Kenvue initiated a dividend almost immediately after listing.

Key numbers from Fiscal.ai:

• Profit Margin: 9.7%

• Forward P/E: 16.3x

• Dividend Yield: 4.5%

• Payout Ratio: 107.6%

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.

They have to pay out most of their income to shareholders, which is why they often offer some of the highest yields around.

Today we'll compare the important metrics of the five BDCs I highlighted on Wednesday to find the best opportunities today.

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As a reminder, the 5 BDCs highlighted were:

• Blue Owl Capital Corp (OBDC)

• Sixth Street Specialty Lending (TSLX)

• Hercules Capital (HTGC)

• Ares Capital (ARCC)

• Main Street Capital (MAIN)

We’ll rank these five based on:

• Portfolio Construction

• Financial Growth

• Balance Sheets

• Valuation

We’ll assign points based on objective benchmarks.

The best-scoring stock is our top opportunity today.

Let’s dive in!

Loan Portfolios

Since BDCs are lenders, the first thing to look at is what kind of loans they hold.

There are three main types:

1. First lien loans – backed by assets, first to be repaid if a borrower fails. Lowest risk, but also the lowest interest rate.

2. Second lien/mezzanine loans – repaid after first lien loans. Higher risk, but these come with higher rates.

3. Unitranche loans – a mix of both in one package.

The lower you sit in the repayment order, the more risk you take on, but you can also earn more interest.

We also want to see a diverse portfolio.

A BDC lending to many different types of businesses across different industries is safer than one that's heavily concentrated in just one area.

Let’s look at the loan portfolios of our 5 BDCs.

Blue Owl Capital Corp

Blue Owl’s portfolio includes:

• 234 Companies

• 30 Industries

• 73% First lien loans

• 5% Second lien loans

• 2% Unsecured debt

They also give us a picture of their diversification.

• Internet software and services is the largest industry at 11.1%

• Healthcare is next at 9%

• Associa is the largest borrower at 3.9%

• The top 10 positions are 23% of the portfolio

Blue Owl has a lot of secured loans spread over 234 companies in 30 industries.

This is a conservative and diversified portfolio.

Sixth Street Speciality Lending

Sixth Street is a bit different than other BDCs.

They often invest in special situations like challenged businesses with good assets or good businesses with challenging capital structure that other lenders often avoid.

That leads them to very disciplined in their underwriting.

They tend to have first lien positions, and voting control, which means if a borrower needs to change its loan terms or restructure, TSLX's vote is often required, giving them massive leverage.

Sixth Street’s portfolio includes:

• 143 companies

• 89% first lien loans

• <1% second lien loans

They are more concentrated in certain industries.

• 18.3% of their portfolio is in internet services

• 13.4% is in business services

But each company is a smaller position than in Blue Owl’s portfolio.

• Beto Ace Purchaser is 2.4% of the portfolio

• ExtraHop Networks is 2.3%

• The top 10 positions are 21% of the portfolio

So Sixth Street has a little less diversification in their portfolio, but they have a very high number of first lien loans, and voting control to protect themselves.

Hercules Capital

Hercules is another unique BCD.

• They invest in fast growing, venture-backed technology and life science companies

• Their investments often include warrants (giving them the right to buy stock) or equity instead of only debt

• Their debt investments tend to be short term (36-48 months)

Their portfolio includes:

• Debt investments in 127 companies

• 85.5% is first lien debt

• Warrant holdings in 108 companies

• Equity holdings in 74 companies

We know they’re concentrated in technology and life science companies.

• 24.3% of the portfolio is in application software

• 23.3% is in drug discovery and development

Hercules is even more concentrated than Sixth Street, but they protect themselves with a lot of short term first lien loans, and the potential upside that comes with warrants and equity.

Ares Capital Corporation

Ares is a more traditional BDC than Sixth Street or Hercules.

They’re also the largest BDC.

Their portfolio consists of:

• 603 companies

• In 35 different industries

• 61% first lien secured loans

• 5% second lean secured loans

• 9% preferred equity

Ares does have some industry concentration.

• 24% of the portfolio is in software and services

• 11% is in healthcare equipment and services

• 9% is in commercial and professional services

But the average position size of a portfolio company is only 0.2%.

• 8% of the portfolio is Ivy Hill Asset Management

  • This is an asset manager that Ares Capital owns 100% of

• 3.8% is in Ares’ Senior Direct Lending Program

• Position sizes quickly get smaller after that with the top 15 investments making up 25.4% of the portfolio

Ares Capital has its risk spread across more than 600 companies.

Even though there’s some industry concentration, the average loan-to-value is 44%.

When you combine this with the average position size of 0.2%, the Ares portfolio looks reasonably conservative and diversified.

Main Street Capital

Main Street Capital focus on very small companies where they can get higher interest rates and significant equity ownership.

Their portfolio includes:

• 189 companies

• 99% first lien debt

• Across more than 30 industries

• The largest individual position is 3% of the portfolio

• The average company makes up less than 1% of the portfolio

Main Street Capital is well diversified across industries.

• 8% of the portfolio is in machinery

• 7% is in commercial services and supplies

• 6% is in construction and engineering

Main Street Capital has a very diversified portfolio across industries and companies.

99% of their loans are first lien, which significantly reduces risk.

Scoring the Portfolios

We want a portfolio that is safe (seniority), diverse, and has a competitive advantage.
We’ll award points for:

1. Seniority: One point if >80% of the portfolio is First Lien debt.

2. Reach: One point if the BDC lends to >150 companies.

3. Stability: One point if the largest industry concentration is <15%.

4. The Moat: One bonus point for a unique structural advantage (Voting control, warrants, or equity upside).

Main Street Capital is the only company to sweep this category.

Blue Owl earns points for its massive reach and industry stability, while TSLX, HTGC, and ARCC each earn points for their high seniority or unique advantages.

• 4 Points = Main Street Capital (+4)

• 2 Points = Blue Owl (+2), Sixth Street (+2), Hercules (+2), Ares Capital (+2)

Financial Growth

BDCs must grow to keep up with inflation. We’ll award one point for any growth in NAV/Share and NII/Share, and a bonus point if that growth is at least 3% (beating the inflation average).

NAV/Share

NII/share

Main Street Capital earns the maximum 4 points here, showing strong growth in both asset value and earnings.

Blue Owl and Hercules both earn 3 points for strong earnings growth and positive (though lower) NAV growth.

Ares and Sixth Street each pick up 2 points.

• 8 Points = Main Street Capital (+4)

• 5 Points = Blue Owl (+3), Hercules (+3)

• 4 Points = Sixth Street (+2), Ares Capital (+2)

So which of these five BDCs is actually worth buying right now?

We still have three categories left…

• dividend coverage

• balance sheet strength

• valuation

…and that’s where things get really interesting.

The leader board shifts, a surprise contender emerges, and one well-known name falls short on a metric that matters a lot for income investors.

Paid subscribers get the full scorecard, including our final rankings and the specific opportunities we’d consider today.

You can join Compounding Dividends here.

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.

They typically have high yields because they must distribute at least 90% of their taxable income to shareholders.

In this article, we’ll rank BDCs using different metrics.

At the end, I’ll share 5 of my favorites.

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Download the BDC List

I created a spreadsheet for you with all the major publicly traded BDCs.

The spreadsheet includes:

• Price

• 52-Week High and Low

• Dividend Yield

• Return on Equity

• Debt / Equity

• Market Cap

Download the BDC Spreadsheet Here

Highest Dividend Yields

The 5 BDCs with the highest current yields are:

1. Horizon Technology Finance Corporation (HRZN): 32.67%

2. Investcorp Credit Management (CMB): 26.53%

3. Great Elm Capital Corp. (GECC): 24.34%

4. Oxford Square Capital Corp. (OXSO): 24.00%

5. BCP Investment Corp. (BCIC): 23.68%

Strongest Balance Sheets (Lowest Debt-to-Equity)

The 5 BDCs with the lowest debt-to-equity are:

1. Rand Capital Corp (RAND): 0.0%

2. Phenixfin Corp (PFX): 0.1%

3. Bain Capital Specialty Finance Inc (BCSF): 0.13%

4. EQUUS Total Return Inc (EQS): 7.3%

5. SuRo Capital Corp (SSSS): 16.6%

Highest ROE

The 5 BDCs with the highest Return on Equity are:

1. Gladstone Investment Corporation (GAIN): 24.70%

2. Main Street Capital Corp (MAIN): 16.94%

3. Hercules Capital Inc (HTGC): 15.88%

4. Horizon Technology Finance Corp (HRZN): 14.87%

5. Trinity Capital Inc (TRIN): 14.09%

I went through the sector and picked out 5 BDCs that could be interesting for a long-term income portfolio.

Here is why they are interesting, their valuation relative to book value, and their track record.

5. Blue Owl Capital Corp (OBDC)

Blue Owl Capital is one of the largest BDCs in the world, mainly focusing on upper-middle-market companies with high EBITDA.

Why is it an interesting company?

• Direct Lenders: They have deep relationships with private equity sponsors, giving them steady access to high-quality deals

• Defensive Portfolio: They focus on recession-resistant industries like software, healthcare, and insurance.

• Shareholder Aligned: They have a history of aggressive share buybacks when the stock trades below NAV.

Valuation

• Dividend Yield: 13.5%

• Price-to-NAV: 0.74x (Trading at a discount)

4. Sixth Street Specialty Lending (TSLX)

Sixth Street is known for being one of the most disciplined underwriters in the business. They often take first-lien positions to protect their principal.

Why is it an interesting company?

• High ROE: Consistently delivers Return on Equity in the low-to-mid teens.

• Variable Dividends: They pay a reliable base dividend plus special dividends whenever they have a big exit or high income.

• Niche Expertise: Sixth Street will invest in special situations like challenged businesses with good assets or good businesses with challenging capital structure that other lenders often avoid.

Valuation

• Dividend Yield: 10.4% (Base + Supplemental)

• Price-to-NAV: 1.06x

3. Hercules Capital (HTGC)

Hercules provides venture debt to high-growth, innovative companies in technology, life sciences, and renewable energy.

Why is it an interesting company?

• Venture Upside: Unlike traditional BDCs, Hercules often gets warrants (options to buy stock) in the startups they lend to, providing huge upside if a client goes public.

• Floating Rate Exposure: Their portfolio is almost entirely floating rate, which has been beneficial as rates have increased.

• High-Quality Client Base: They lend to companies backed by top-tier Venture Capital firms.

Valuation

• Total Dividend Yield: 13.4%

• Price-to-NAV: 1.16x (Investors pay a high premium for this management team)

2. Ares Capital (ARCC)

Ares is the largest BDC out there. With the largest market cap in the sector, they have the scale to do deals that no one else can.

Why is it an interesting company?

• Long-Term Track Record: Since their IPO in 2004, they have outperformed the S&P 500 and the broader BDC index.

• Diversification: They have over 600 different portfolio companies, meaning no single company failure can sink the ship.

• Access to Capital: Because of their size, they can borrow money at lower rates than their competitors, widening their profit margins.

Valuation

• Dividend Yield: 10.6%

• Price-to-NAV: 0.91x

1. Main Street Capital (MAIN)

Main Street is widely considered the Gold Standard BDC. They are unique because they are internally managed, meaning they don’t pay high management fees to an outside firm.

Why is it an interesting company?

• Lower Cost Structure: Because they are internally managed, their operating costs as a percentage of assets are significantly lower than peers.

• Monthly Dividends: MAIN is one of the few high-quality companies that pays its shareholders every single month.

• Small Cap Specialists: They focus on very small companies where they can get higher interest rates and significant equity ownership.

Valuation

• Dividend Yield: 5.7% (Regular) + Special Dividends (Total 7.9%)

• Price-to-NAV: 1.64x (Always expensive, but for a reason)

Conclusion

BDCs are a fantastic tool for income, but you have to understand how to analyze them.

If you want to learn more about that, you can read our Ultimate Guide to BDCs next.

Here are the five we highlighted today:

• Blue Owl Capital Corp: An institutional-grade lender trading at a discount

• Sixth Street Specialty Lending: A disciplined, high-ROE underwriter.

• Hercules Capital: A high-growth tech specialist with warrant upside.

• Ares Capital: The largest BDC, with a 20+ year track record.

• Main Street Capital: The monthly-pay gold standard.

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.

Watching tickers move up and down every day.

But there’s a problem with that…

in the short and medium term, price just reflects the market’s mood.

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As Ben Graham told us:

The ‘long run’ can be much longer than you think.

Watching price is volatile, it’s emotional, and it often has very little to do with what a business is actually worth.

It sets you up to make emotional decisions - buying high and selling low.

This is a lot of the reason that the average investor tends to underperform.

If we want to build lasting wealth without the stress, we need to focus on more than price.

Total Return

Total return looks at more than price.

It’s generally defined as Capital Gains (Price Growth) + Dividends.

The financial industry treats these two things as equal, but there are important differences.

Price appreciation is theoretical, until you sell your shares.

It’s paper profit that changes constantly while the markets are open.

Dividends are the only tangible link between you and the business’s earnings.

They are cash in your hand.

They represent an actual business outcome.

Profit delivered to your account.

Just look at the difference between the dividends and price for Genuine Parts Company.

The stock price at the beginning of the chart is $85.

If you bought then, between 2015 and 2025 you could have sold those shares for anywhere between a 43% loss and a 120% gain.

But you got paid a bigger dividend every single year.

Multiple Roads to Rome

Even though I think these differences are important, the investment industry doesn’t.

If we look at things through their lens, then there are multiple ways to get to the same place.

If your goal is a 10% return, then there’s a lot of ways to get there.

At the extremes we have:

1. A stock that grows its price by 10% per year and pays no dividend (making you 100% dependent on market prices)

2. A security that pays a 10% dividend yield. (You are now 0% dependent on the market’s mood to hit your target).

Of course, any combination of the two that adds up to 10% will get you to the same place. (9% growth + 1% dividends, 5% growth + 5% dividends, etc.)

The more yield you have, the less dependent on the market you are.

In the higher yield scenarios, you don’t need growth in the traditional sense.

You just need to keep getting paid.

A Note on Taxes

I know some reading this are thinking ‘dividends are taxed, unrealized capital gains aren’t. True, but I don’t think you should let the tax tail wag the investment dog. Taxes are an individual puzzle, and many use tax-free accounts (like a Roth) or tax-advantaged tools like MLPs to minimize taxes. Focus on the math of the engine first, figure out where you’re going to put your investments later.

Reinvestment is Your Growth Phase

When you focus on the yield, your growth doesn’t come from a rising stock price, it comes from reinvestment.

Even when we look at the S&P 500, we see that dividend reinvestment makes up a large portion of the total return over time.

Every time you take a dividend and buy more shares, you are growing your income machine.

This creates a beautiful paradox: Lower prices are actually better for you.

If the market drops and the price of your holdings goes down, your paper value takes a hit.

But for an income investor, that lower price means a higher yield.

Here’s GPC again.

As price (gold) goes down, yield (blue) goes up and the other way around.

When prices are low, your dividends buy even more shares than they did last month.

You aren’t realizing a loss, you’re getting a raise.

Choose Your Path

Ultimately, there are multiple roads that lead to Rome.

If you have the stomach to focus on price and weather 50% drawdowns in the next growth stock, that is a perfectly valid path to building wealth.

But it isn’t the only path.

If you don’t want to rely on the whims of Mr. Market, increasing the portion of your return that comes from dividends can do that.

It shifts the focus from the market back to the business.

• Price changes are market outcomes: They are driven by sentiment, interest rates, and headlines. They are fickle.

• Dividends are business outcomes: They are driven by cash flow, profitability, and management. They are tangible.

For a lot of investors, it’s easier to stay the course emotionally when you see a stream of cash rolling into your account every month or quarter, regardless of whether the ticker is red or green.

When you stop obsessing over paper profits and losses and start focusing on your growing cash machine, you stop being a gambler and start being a business owner.

Pick the road that lets you sleep at night.

For me, that’s the one paved with steady, 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.

The S&P 500 is one of the most popular indexes in the world.

But in the last 6 months, S&P Global’s stock went down -22%.

Is this an interesting opportunity for us? Lets find out.

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S&P Global is a major U.S. financial data and analytics company that generates more than $14 billion in revenue every year.

They provide credit ratings, market data, indices, and analytics tools for governments, banks, and investors worldwide.

The company is a Dividend King, with 54 years of consecutive dividend raises.

Despite the important place it holds in the financial world, and its history of growth, Mr. Market is very negative on the stock right now.

Why?

• Fear that AI will disrupt its analytics business

• Confusion and uncertainty around the ongoing IHS Markit integration, restructuring, and spin-offs

Let’s take a Not So Deep Dive into the company to get a clear picture.

Company Profile

• Company name: S&P Global Inc.

• ✍️ ISIN: US78409V1044

• 🔎 Ticker: $SPGI

• 📚 Type: Dividend King / Quality Growth

• 📈 Stock Price: $425

• 💵 Market cap: $126.4 Billion

• 📊 Average daily volume: $751 Million

Onepager

Don’t know S&P Global?

Here are the basics (click on the picture to expand):

Now let’s dive into the full investment case!

1. Do I understand the business model?

Even people who don’t follow finance have likely heard of the S&P 500.

This is the most widely used benchmark for the U.S. stock market.

The index is owned and managed by S&P Global through its indices division.

The three largest ETFs in the world all track the S&P 500.

Together, they have more than $2 Trillion (!) in assets.

But indexes aren’t all S&P Global does

The company makes money from 5 different segments.

Revenue Segmentation

• Market Intelligence (32% of revenue) : Professional data software for financial analysts

• Ratings (30% of revenue) : The world’s largest credit rating agency

• Commodity Insights (15% of revenue) : Benchmark prices for energy and metals (Platts)

• S&P Dow Jones Indices (12% of revenue) : Fees from ETFs and derivatives tracking their indexes

• Mobility (11% of revenue) : Data for the automotive industry (CARFAX)

Geographic Split

• Americas: 63%

• EMEA: 25%

• APAC: 11%

What’s the moat?

S&P Global’s moat is built on Network Effects, Intangible Assets, and Regulatory Barriers.

Network Effects

Indices

The S&P 500 is rapidly becoming the standard benchmark.

That drives more assets under management (AUM) into S&P linked products (like the SPY and VOO ETFs).

The increased AUM makes these products more liquid, driving more and more institutional investors into S&P indices, which creates a self-reinforcing flywheel.

Credit Ratings

The credit ratings business also has network effects.

That’s because S&P credit ratings are a common standard in debt markets.

This creates a two-sided network:

• For Investors: They use S&P because most companies are already rated by them - it’s a common yardstick they use to compare risks.

• For Companies: They pay S&P because that’s the language investors and lenders speak. A rating from a smaller, unknown agency won’t help them borrow money.

The more investors who rely on S&P ratings, the more companies are forced to pay for them.

The more companies S&P rates, the more essential they become to investors.

The rating business is an Oligopoly, including S&P Global, Moody’s, and Fitch.

Because these companies have been in the business for over a century, their rating scales (like AAA to D) have become the legal language of finance.

Regulatory Barriers

Many laws and contracts actually require S&P ratings, creating additional regulatory barriers.

For example, a pension fund’s rules might say: “We can only buy bonds rated BBB or higher by S&P.”

This makes it almost impossible for a new competitor to enter the market.

Intangible Assets

In addition to the strong brand S&P Global has in the index and credit ratings business, they also have a lot of proprietary data.

• Historical Data: S&P has credit records and stock market data going back to the early 1900s. This would be very hard to purchase or recreate without going through them.

• Platts Commodity Data: In markets like jet fuel or North Sea oil, there is no official stock exchange. S&P reporters call traders to collect data and set the price themselves. That Platts price is their private property, and the entire world uses it as the standard.

• Private Markets: They recently bought With Intelligence, which gives them a massive database on private equity and hedge funds - data that isn’t public and is famously hard to get.

• CARFAX: S&P owns records on over 20 billion vehicle events (accidents, repairs, titles). This data comes from thousands of unique sources (police, shops, DMVs) which took decades to connect

2. Is management capable?

Martina L. Cheung - CEO

Ms. Cheung took over as CEO in late 2024.

She previously led the Ratings and Market Intelligence division, one of the most important divisions.

Eric Aboaf - CFO

Mr. Aboaf joined in 2025 from State Street.

He is known for disciplined capital allocation and is currently overseeing the $2.5 billion share repurchase program and the separation of the Mobility business.

We often assess management through their capital allocation skill.

S&P Global’s ROIC decreased over the years.

This is almost entirely due to a single acquisition.

• S&P Global bought IHS Markit for $44 billion which sharply increased the money invested in the business

• This also added a lot of Goodwill that has to be amortized, which lowers earnings

• The combination of lower profits and a much bigger base of invested capital makes ROIC look much lower

Most analysts now prefer to look at S&P Global’s ROIC by removing the Goodwill and amortization costs for the IHS Markit merger.

When we do that, we see that S&P Global continues to generate attractive returns on their investments.

3. Has the company grown the dividend attractively?

You want to invest in companies with a history of growing their dividends.

The higher the dividend growth, the better.

We look for 2 things in the company’s dividend history:

1. At least 10 years of dividend growth

2. A 5-year record of growing dividends by 5% or more

S&P Global meets both of these criteria:

• Years of Growth: 54 consecutive years (Dividend King).

• 5-Year CAGR: 8.0%.

4. Is the company active in an attractive end market?

You want to invest in companies that are in stable or growing market.

Here are a few characteristics we look for:

• The company sells a necessary product

• Recurring sales

• A secular tailwind

S&P Global has all 3 of these qualities:

They earn recurring revenue from their subscription data services.

Their credit ratings, and the licenses to their indexes are necessary purchases for many companies.

They also have secular tailwinds from the growth of global debt:

And the ongoing shift towards passive investing:

5. What are the main risks for the company?

Here are the key risks for S&P Global:

Regulatory Scrutiny

Regulators in the US and EU occasionally target the Big Three rating agencies, threatening to open up competition or cap fees.
Mitigation: S&P Global’s brand and historical data are so deeply embedded in global regulations that replacing them would almost impossible

Issuance Volatility

If interest rates spike or a recession hits, companies stop issuing new debt. This can cause the Ratings revenue to drop temporarily.
Mitigation: 51% of S&P Global’s total revenue is now subscription-based (Market Intelligence, Indices, Mobility), which provides a stable base for the more volatile debt issuance

Execution Risk (IHS Markit)

Merging two giants is hard. If they fail investors might punish the stock.
Mitigation: Management has a history of successful integration (SNL Financial, Kensho) and has already achieved most of the cost-cutting targets ahead of schedule

AI Disruption

The market is worried that AI will replace financial analysts and reduce the need for S&P’s services.
Mitigation: S&P is building its own AI (Kensho) to make its data more valuable. In addition, they own the proprietary data that AI needs to be accurate, making them very hard to replace.

Now let’s dive into the most important part: the Fundamentals.

Want the rest of the investment case?

Curious to find out if S&P Global earns a spot in the Compounding Dividends Portfolio?

You can join us here:

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.

She outperformed the S&P 500 for nearly 4 decades.

Let’s break down the secrets behind her success.

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Who is Geraldine Weiss?

Geraldine Weiss was also known as the Grande Dame of Dividends and the Dividend Detective.

She’s famous for a simple idea…

…dividends show us what a company is really worth.

Geraldine was born in 1926 in San Francisco.

She discovered investing through Benjamin Graham’s books Security Analysis and The Intelligent Investor.

In 1945 She graduated from University of California with a degree in business and finance.

When she started looking for a job she found that Wall Street did not welcome her.

It was 1962 and firms were rejecting her simply because she was a woman.

So in 1966, at age 40, she launched her own newsletter, Investment Quality Trends.

She signed it G. Weiss, letting readers assume she was a man.

And it worked. Investment Quality Trends (IQT) got noticed.

Even in bear markets, IQT was making double-digit returns.

In 1977, she revealed her identity on Wall Street Week.

This time nobody cared.

Subscribers were making too much money.

She later wrote Dividends Don’t Lie, a classic in dividend investing, and co authored The Dividend Connection.

In this book she explains how she identified undervalued stocks using Dividend yield.

Geraldine passed away in 2022 at the age of 96.

Her legacy continues to lives on through disciplined dividend investing.

Investment Philosophy

The Geraldine Weiss approach can be summarized as follows:

To achieve this, she always used three core principles:

• Always demand a bird in the hand

• Do your homework

• Be patient

1. Always Demand a Bird in the Hand

The best investments happen when you can receive cash income (dividend payments) from undervalued companies.

Ask yourself:

• Does the company pay dividends consistently through recessions?

• Is the current yield near the high end of its 10-year historical range?

• Can you get paid to wait while the market recognizes the value?

This allows you to spot value way earlier than Wall Street, and receive a high dividend yield while you wait for them to catch up.

2. Do Your Homework

Weiss emphasizes the importance of doing your own research.

She advises investors to study the company’s

• Dividend history

• Financial strength

• Quality metrics

The Seven Weiss Criteria:

At Compounding Dividends, we do the same.

We focus on strong businesses with dividends that are safer than the market.

And we don’t overpay for them.

That’s why we think we can generate steady income in the years ahead.

3. Be Patient

“Dividends are real money. That’s the hallmark of a blue chip stock. If a company doesn’t pay a dividend, it’s a speculation.” — Geraldine Weiss

Geraldine Weiss was a long-term investor.

She believed your returns improve when you hold quality dividend stocks for years and don’t panic over short-term price swings.

Most of the time, she held her winning positions for 3 years on average.

And that patience paid off in both income and capital appreciation.

Here is the strategy’s performance statistics since tracking began:

Performance

Geraldine Weiss’s performance at Investment Quality Trends is legendary:

• From 1966 to 2002, the newsletter returned an average of 11% per year, outperforming the S&P 500’s 10% with less volatility

• A 2002 report ranked it the #1 performing investment newsletter in the U.S. on a risk-adjusted basis

• In an early-1980s survey of 280+ newsletters, hers achieved 51% annual gains

Growth of $1 (1966-2002)

What Would Weiss Be Looking At Today?

Since we can't look at Geraldine Weiss’ current portfolio, I thought it would be interesting to look through the Buy-Hold-Sell list for some companies she might be interested in today.

I looked for:

• Large companies

• Trading at discounts to their historical dividend yields

• With a history of 10%+ dividend growth

Here’s 5 companies that Geraldine Weiss might be looking at if she were investing today.

1. Amdocs (DOX)

How it makes money:

Amdocs provides specialized software and services to global communication and media companies, managing their billing, customer relationships, and network operations

.

Why Weiss would like it:

Amdocs is currently offering a yield above 3%, well above its 10-year average of 1.8%.

Amdocs has raised its dividend for 15 years in a row, and the payout ratio of 40% means it has room to keep it growing into the future.

It’s currently caught up in fears about AI disrupting its business, but the company is building its own agentic AI platform specifically for telecommunications companies.

If it’s successful, this is likely a business you can buy at a discount and get paid to wait for the market to catch up.

2. Constellation Brands (STZ)

How it makes money:

The company produces and markets a massive portfolio of beer, wine, and spirits brands, including names like Corona and Modelo.

Why Weiss would like it:

Its current yield of 2.7% is much higher than the 10-year average yield of 1.5%.

Weiss favored businesses with strong brand moats.

She would likely view this elevated yield as a clear signal that the underlying value of the brand isn’t being reflected in the stock price.

She might be right.

A lot of alcohol brands are seeing volume declines, but Constellation sells more beer every single year.

3. Elevance Health (ELV)

How it makes money:

Elevance Health operates as one of the largest health insurers in the U.S., earning revenue through premiums and healthcare services provided to millions of members.

Why Weiss would like it:

Its current yield of 2.3% is much higher than the 10-year average of 1.3%.

Elevance is a blue chip in the healthcare sector with a history of growing its dividend by 10.6% every year for the past decade.

This looks like a company that fits her definition of a high-quality business on sale.

4. Pool Corp (POOL)

How it makes money:

Pool Corp is the world’s largest wholesale distributor of swimming pool supplies and equipment, serving professional contractors and specialty retailers.

Why Weiss would like it:

Historically, Pool Corp is a low yield, high growth stock that often yields around 1%.

With the yield now crossing 2.4%, Weiss would see this as a rare window to buy a dominant market leader at a valuation the market hasn’t offered in a decade.

Only 14% of Pool Corp’s revenue comes from new construction.

The revenue from pool maintenance, repair, and renovation tends to come in no matter what the economy is doing.

5. Steadfast Group (SDF)

How it makes money:

Steadfast is the largest general insurance broker network in Australasia, earning fees and commissions by connecting businesses with insurance underwriters.

Why Weiss would like it:

With a yield over 4.5%, Steadfast offers the high “bird in the hand” income Weiss was looking for.

The brokerage business tends to be capital light, so Steadfast Group can continue to both acquire new brokers to grow its network and continue returning cash to shareholders

Conclusion

Geraldine Weiss proved that to beat the market, you just need discipline and a focus on cold, hard cash.

She understood that earnings are an opinion, but dividends are a fact.

By focusing on high-quality companies when their dividend yields are at the high end of their historical range, you protect your downside and set yourself up for massive outperformance when the market finally recognizes the company’s true value.

Here’s the Geraldine Weiss playbook:

• Quality First: Only buy businesses with strong balance sheets and proven track records.

• Focus on Yield: Use historical dividend yield as your valuation measure.

• Get Paid to Wait: Collect your “bird in the hand” while you wait for the market to realize the company’s value.

• Think in Years: Success in investing is a marathon, not a sprint.

At Compounding Dividends, we follow a very similar blueprint.

We' look for great businesses, trading at fair prices, that pay us to own them.

If you want to join us, go here.

.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.

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

Subscribe now

1️⃣ 50-Year Club

Do you know about Dividend Kings?

Dividend Kings are companies that have increased their dividends for 50+ consecutive years.

To put that in perspective:

• These companies raised dividends through the 2008 Financial Crisis

• Through the dot-com crash

• Through COVID-19

This requirement is brutal: one missed increase and you’re out.

There are 57 Dividend Kings today.

Want to know all of them? Find it here.

2️⃣ Dividend Kings vs Aristocrats

Being a Dividend King is quite an achievement, but it doesn’t guarantee you a place on the Dividend Aristocrat list.

Aristocrats must meet extra rules, like being in the S&P 500.

This chart tell us the difference between them:

3️⃣ An Investing Quote

Building wealth is about ownership.

When you own strong businesses, you don’t chase money.

Money comes to you.

John D. Rockefeller understood this better than anyone:

4️⃣ Seven Dividend Forecasts for 2026

S&P Global predicts that global dividends will reach $2.47 trillion.

While global growth is slowing, the S&P 500 is expected to grow payouts by 6.4%.

Key Takeaways:

• U.S. Strength: S&P 500 dividends are outpacing global growth.

• Mining Boom: The materials sector is set for an 11.3% increase in payouts.

• Shipping Cut: Marine transport faces a sharp 40% dividend drop.

• Payment Speed: More firms are paying dividends more frequently.

• Global Split: Europe and India show growth, while Australia faces a 10% dip.

Access the report here.

5️⃣ Example of a Dividend King

Let’s look at Procter & Gamble (PG).

They’ve increased dividends for 68 consecutive years.

Key numbers:

• Dividend Yield: 2.7%

• 5-Year Dividend CAGR: 6.0%

• Payout Ratio: 60.5%

• Brands: Tide, Pampers, Gillette, Crest

The math that matters:

If you bought PG in 1990 and reinvested dividends, a $10,000 investment would be worth over $450,000 today, with growing passive income.

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 might be one of the most essential companies you could ever own, providing something no one can live without.

Today we’re looking at American Water Works.

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It has massive scale, serving 14 million people across 24 states with 55,000 miles of pipes.

It operates as a legal monopoly in its service areas, meaning customers have no other choice.

American Water Works also buys up small, struggling municipal water systems and folds them into its giant network to continue growing.

But it’s facing some headwinds:

• New PFAS environmental regulations are forcing them to spend billions on new filters.

• High interest rates make it more expensive to borrow money for all those pipes.

• Getting permission from the government to raise prices (rate cases) can take a long time.

With a decade of growth and a 10-year investment plan worth $48 billion, is this boring utility a buy?

Let’s find out!

American Water Works

• Company name: American Water Works Company, Inc.

• ✍️ ISIN: US0304201033

• 🔎 Ticker: AWK

• 📚 Type: Dividend Growth Stock

• 📈 Stock Price: $139

• 💵 Market cap: $26.9 billion

• 📊 Average daily volume: $230 million

Don’t know American Water Works?

Here are the basics (click on the picture to expand):

Dividend Score

American Water Works receives a Dividend Score of 4/5.

Now let’s dive into the full investment case!

1. Do I understand the business model?

American Water Works is the largest private water and wastewater utility in the United States.

Its business is simple: it owns the treatment plants and the pipes that bring water to your house and take wastewater away.

Because it’s a utility, the government gives it exclusive rights to serve certain areas, and in exchange, the government decides how much the company is allowed to charge.

Revenue Split

The vast majority of money comes from regulated water services.

Here is the split for fiscal year 2025:

• Regulated Water Services: $4.23B (82.3% of revenue)

• Regulated Wastewater Services: $422M (8.2% of revenue)

• Other Regulated Revenue: $68M (1.3% of revenue)

• Non-Regulated (Military Services): $417M (8.2% of revenue)

Geographic Split

All revenue is generated within the United States, but it is concentrated in 5 key states:

• Pennsylvania: 24.1% of revenue

• New Jersey: 23.4% of revenue

• Missouri: 12.2% of revenue

• Illinois: 11.6% of revenue

• California: 7.8%

• Other (9 States): 20.9% of revenue

Who are the customers?

The company has 3.6 million active customer accounts.

• Residential: Families and individuals (54% of revenue).

• Commercial: Small and large businesses (21% of revenue).

• Industrial & Public Authorities: Factories, government buildings, and universities (15% of revenue).

• U.S. Military: They have 50-year contracts to run water systems on 18 different military bases.

What’s the moat?

American Water Works is a regulated utility.

That means if you want water in one of their service areas, you have to buy it from American Water Works. There is no competitor.

Their moat comes down to three things:

1. Exclusive Territories. The government legally prevents anyone else from laying pipes in AWK’s service areas.

2. Scale. American Water is the only player with the size to buy 23 systems in a single year (as they did in 2025) and manage them efficiently across 14 states.

3. Investment Flywheel. The government actually encourages the company to spend money. The more AWK spends on fixing old, leaky pipes, the more profit they are legally allowed to earn. This makes their growth very predictable compared to a normal company.

2. Is management capable?

John C. Griffith - CEO

Mr. Griffith became the President and CEO May of 2025.

Before that, he was the CFO, starting in 2022.

David M. Bowler - CFO

Mr. Bowler took over as CFO when John Griffith moved to the CEO role.

He served as Mr. Griffith’s Deputy CFO and Treasurer since 2022.

During their time, American Water Works has earned attractive returns on shareholder’s money:

3. Has the company grown the dividend attractively?

We look for: