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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October 2025

In October the S&P 500 increased by 2.4%.

The Fear & Greed Index indicates that we’re currently in ‘Fear’ Mode.

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? Fiserv Inc. falling by nearly 50%!

Fiserv is a fintech company that provides payments and banking tech for banks, shops, and online businesses.

It helps people move money, swipe cards, use banking apps, and manage financial accounts.

The stock dropped hard because:

• Quarterly growth slowed to just 1%

• Merchant business grew 5%, but financial services fell 3%

• Margins fell 320 bps

• New CEO said past growth and margins weren’t sustainable

• Company will spend more, meaning margins will go down

• Management expects more weak quarters as they reset and rebuild

In short: the new CEO reset expectations for lower growth and lower margins for now, to build a stronger base later.

Best Performers

MidWestOne Financial Group was this month’s best performer, rising 28%.

MidWestOne Financial Group is a regional bank that offers commercial banking, retail banking, loans and deposits across several Midwestern states.

This month the stock jumped because it’s being acquired by Nicolet Bankshares in an $864 million stock merger.

Spotlight: FactSet Research ($FDS)

FactSet was the worst performer in Our Investable Universe last month.

Let’s look deeper into the company this month.

How does the company make money?

FactSet sells financial data and tools to big money managers, like BlackRock, Fidelity, and investment banks.

These people make huge money decisions every day, and they need fast and accurate info. FactSet gives it to them.

Factset sells subscriptions, meaning clients pay every year to use FactSet’s data and software.

They have nearly 9,000 clients with over 237,000 individual users.

Their renewal rate is very high at 95%+, meaning that clients almost never leave.

This makes sense, once a firm trains all its people on FactSet and builds tools with it, switching is very hard.

FactSet serves:

• Big investment firms

• Investment banks

• Wealth advisors

• Other software partners

Why do dividend investors like it?

Dividend investors like steady, safe companies and FactSet fits that bill.

Just look at the steady growth of the Annual Subscription Value and Services they sell each year.

Here’s what makes it so steady:

• Very loyal customers

• Strong profit margins

• Good cash flow

• Capital-light business

And it returns money to shareholders through both dividends and buybacks.

The fundamentals look like this:

• Dividend Yield: 1.5%

• Payout Ratio: 27.2%

• 10-Year Dividend CAGR: 9.9%

• Revenue CAGR (10-Year): 8.7%

• Forward P/E: 15.5x

What’s the story today?

FactSet is still a strong business, but it’s hitting a rough patch.

What’s slowing down:

• Growth has cooled (around 5% expected ahead)

• Margins dipped a bit, due to rising tech spending (to keep up with AI)

• Uncertainty around the new CEO

For these reasons, the stock dropped a lot this year - more than 40%.

The good news:

• FactSet is still very profitable

• Strong ROIC (19% 5-year average)

• Recurring, sticky revenue

• Cash flow is still strong

And the valuation looks low.

Here’s the current Dividend Yield compared to the historical yield:

Investor Takeaway

FactSet is an important data provider to Wall Street, with long-term sticky customers and strong profits.

Right now, it’s selling at a lower than normal valuation because of a short-term growth slowdown, a new CEO, increasing competition, and unknowns around AI.

If you believe FactSet will adapt to AI and keep its Wall Street grip, this could be a solid long-term buy at a lower price.

November Best Buys

I usually scan the Buy-Hold-Sell List for great dividend payers at attractive prices to highlight for you.

But this month, I looked somewhere else...

On Monday we talked about Chuck Akre’s 3-legged stool, so for November I looked at Akre’s portfolio for ideas.

And guess what?
I found some great ones!

We’ll look at understanding the business, why it can keep compounding, and have a quick look at valuation by comparing the current dividend yield to the historical one.

Let’s dive into 5 of the most interesting stocks Chuck Akre owns!

5. Danaher ($DHR)

How does Danaher make money?

Danaher makes tools and equipment for science and medicine, like lab tools for research, diagnostic machines, and biotech equipment.

Scientists, hospitals, and labs need Danaher’s products for research and testing.

Why can this business keep compounding?

• Danaher has a huge role in science and healthcare, which has a steady demand

• The “Danaher Business System” to keep improving the business

• It’s a serial acquirer, buying high-quality life-science companies, then growing them

• Healthcare spending grows as the world ages and needs more treatment

Danaher grows by helping the world innovate, discover, and cure diseases.
Science and healthcare keep moving forward , and Danaher keeps growing.

How’s the valuation?

It looks reasonable based on the past few years:

4. Moody’s ($MCO)

How does Moody’s make money?

Moody’s rates the credit of companies and governments.

When a company wants to borrow money, Moody’s gives a rating and gets paid.

They also sell financial data and software through Moody’s Analytics.

Why can this business keep compounding?

• Moody’s is almost impossible to replace, the credit rating business is an Oligopoly with Standard & Poor’s and Fitch being the other participants

• Moody’s provides a necessary service - banks and investors rely on ratings

• High-margin subscription data business is growing fast

• Moody’s can raise prices over time because demand is steady

As long as borrowing exists, Moody’s gets paid, and borrowing isn’t stopping any time soon.

How’s the valuation?

Like Danaher, Moody’s valuation looks reasonable:

3. Brookfield Corporation ($BN)

How does Brookfield make money?

Brookfield invests in and manages real assets like real estate, renewable energy, and infrastructure (like bridges and fiber networks).

They also manage assets like private equity and credit.

They earn money from owning these assets AND from managing money for other investors.

Why can this business keep compounding?

• Brookfield has a massive global investment platform

• More governments and companies need private money for big projects

• Strong history of smart deals and value creation

• Lots of room to reinvest profits into long-term assets that grow and cash flow

The real projects that Brookfield builds and buys are necessary, with growing demand into the future.

How’s the valuation?

Valuing Brookfield using dividend yield wouldn’t be fair because the main company has spun-off several divisions, like the asset management business (BAM). That makes it look like BN has cut the dividend, when that’s not the case.

So here, we’ll use a Price to Operating Cash Flow:

10x cash flow for a business of Brookfield’s quality looks reasonable.

✋ Wait - Before You Go!

If you’ve made it this far, you’ve already seen 3 of the 5 companies that legendary investor Chuck Akre owns.

But here’s the thing…

The next two might be the most interesting of them all.

One of them has beaten the market for more than two decades, with a business so durable it barely flinched during 2008.

The other? It’s an under-the-radar serial acquirer hiding in plain sight, growing earnings year after year, even when the headlines scream “recession.”

These are the kinds of stocks that don’t just go up for a season… they build wealth for generations.

👉 Free readers get a sneak peek at the first three ideas.
👉 Paid members unlock the full list, including the final two Akre compounders I’m most excited about right now.

Don’t miss them.
These are the names I believe could quietly make long-term investors very happy over the next decade.

Become a Paid Partner Here

Conclusion

That’s it for this month!

Here are the five companies we covered from Chuck Akre’s portfolio, all steady compounders that can keep growing for years:

• Danaher ($DHR): A science and healthcare powerhouse. Buys great life-science companies, improves them, and keeps growing as the world spends more on health.

• Moody’s ($MCO): A key player in global credit ratings and financial data. Moody’s is hard to replace, and as long as people borrow money, Moody’s earns money.

• Brookfield Corporation ($BN): A global leader in real assets like infrastructure and renewable power. Smart investors in big global projects with lots of ways to reinvest and grow.

• ????

• ????

For this month’s theme, we didn’t just look for good dividend stocks.
Instead, we focused on Akre-style compounders, great businesses that:

✅ Are easy to understand
✅ Can reinvest for long periods
✅ Keep getting stronger over time

We checked how they make money, why they can keep compounding, and how today’s valuation compares to history (using dividend yield where it makes sense).

These 5 companies are slow, steady, powerful wealth builders.

One Dividend At A Time

-TJ

P.S…

Can you guess the final two companies?

✅ One of them owns brands you probably use every single day...
✅ The other is a digital toll road with recurring revenue and sky-high returns on capital.

Join the full membership to see both, along with why they’re still strong buys in November 2025.

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 188 stocks rated ‘buy’.
Last month there were 193.

6 of them are already in Our Portfolio.

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

Buy-Hold-Sell List

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

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

1. The PEG Ratio

2. Current Yield vs Historical

3. Reverse Dividend Discount Model

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

Update September 2025

Some Interesting Stats:

• 188 companies total receive a ‘buy’ rating

• That’s down from 193 last month

  • And 208 the month before

• 11 moved from ‘hold’ to ‘buy’

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

• No companies made the jump from ‘sell’ directly to ‘buy’

• Only Northland Power did so last month.

Recommendation Changes

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

Here’s a sample of a few:

• Amcor plc (AMCR) makes packaging for food, drinks, and other products. It focuses on recyclable and sustainable materials.

• Northrop Grumman (NOC) is a major defense and aerospace company. It builds aircraft, spacecraft, and security systems for governments and businesses.

• WEC Energy Group (WEC) provides electricity and natural gas to homes and businesses in the U.S. Midwest.

• Helia Group (HLI) is an Australian mortgage insurance company. It helps lenders manage the risk of home loans.

• Kering (KER) is a global luxury group. It owns fashion brands like Gucci and Saint Laurent.

You want to download the entire Buy-Hold-Sell List full of interesting investment ideas?

Test out Compounding Dividends risk-free for 90 days and get immediate access:

I want to test it out risk-free

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.

Subscribe now

September 2025

In September the S&P 500 increased by 4.1%.

This breaks the typical pattern - September is historically the worst month for the S&P 500.

The Fear & Greed Index indicates that we’re currently in ‘Neutral’ Mode.

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? FactSet Research.

FactSet Research Systems provides financial data and tools for investors, asset managers, and banks.

Its software helps professionals track markets, analyze companies, and manage portfolios. The business runs on sticky subscriptions, since once clients use it, switching is hard.

The stock fell in September because of:

• Earnings that missed expectations

• Weaker guidance for the year ahead

• Rising costs in technology and operating costs hurt profit margins

• Valuation coming down after a strong run

Best Performers

KLA Corp. was this month’s best performer, rising over 42%.

KLA Corporation builds high-tech equipment used in semiconductor manufacturing.

Their tools inspect wafers, measure layers, detect defects, and help chip makers get better yields.

In September, KLA’s stock jumped because of:

• Strong earnings that beat expectations

• Upward revisions to revenue guidance

• Surge in chip demand tied to AI, data centers, and next-gen nodes

• Market enthusiasm for semiconductor equipment names

Spotlight: Accenture plc ($ACN)

How does the company make money?

Accenture is one of the world’s largest IT services and consulting firms. It helps businesses with everything from strategy and digital transformation to cloud migration, cybersecurity, and outsourcing.

Its big advantage is being able to handle everything end-to-end.

Instead of juggling multiple vendors, companies can rely on Accenture as a single partner. Once Accenture is embedded, the switching costs are high, clients don’t want to rip out and replace a provider that’s running their critical systems.

Accenture works across industries, with large clients in government, finance, health care, tech, and more.

Why do dividend investors like it?

Accenture combines a global client base with steady cash flows and a long record of dividend growth.

• It has raised its dividend for 21 straight years

• Accenture’s dividend growth has been strong - more than 13% per year over the past 5 years

• The balance sheet is rock solid in a net cash position

• The company is a cash-generating machine with 15% FCF margins

The fundamentals look like this:

• Dividend Yield: 2.8%

• Payout Ratio: 49.4%

• 10-Year Dividend CAGR: 11.1%

• Revenue CAGR (10-Year): 8.4%

• Forward P/E: 17.6x

What’s the story today?

Accenture’s growth has slowed.

Revenue growth has slowed to ~4% per year over the past 3 years, and margins haven’t expanded, so earnings growth has followed the same trend.

That’s a big change from earlier years when growth was closer to 8%.

That explains why the stock de-rated from a 40x P/E in 2021 to closer to 20x today.

Dividend growth has been very strong, but with revenue and earnings growth slowing, it may not keep compounding at the same pace unless revenue and earnings re-accelerate.

AI is also a wild card - it could either drive new demand for Accenture’s services or pressure its traditional consulting model.

Investor Takeaway

If you believe that businesses will continue to rely on Accenture as an all-in-one technology partner, and that AI will create more opportunities than risks, then Accenture offers a high-quality, financially strong business at a more reasonable valuation than in years past.

But investors should expect slower growth, and potentially slower dividend hikes, compared to the past decade.

October Best Buys

There were big swings in price both up and down in August.

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!

5. Coloplast ($COLO-B.CO)

How does Coloplast make money?

Coloplast is a Danish healthcare company specializing in ostomy care, continence care, wound care, and interventional urology.

These are niche but essential medical products used by patients for long periods, which creates recurring demand.

Why is this business strong?

• Sticky customer relationships: once a patient uses Coloplast’s products, switching is difficult.

• Strong global market share in ostomy and continence care.

• Healthcare demand is stable and aging populations drive long-term growth.

Dividend profile:

Coloplast has one of the best dividend track records in Europe, raising its dividend 35 years in a row. The revenues are recurring, with the trend of growing healthcare spending driving

For dividend investors, Coloplast offers both defensiveness and growth, making it a hidden gem outside the U.S. The only concern with this business is the high payout ratio.

• Current yield: 3.8%

• Payout ratio: 97.7%

• Forward P/E: 23.1

4. Paychex ($PAYX)

How does Paychex make money?

Paychex provides payroll, HR, and benefits outsourcing to over 740,000 small and medium-sized businesses in the U.S.

It earns revenue from subscription fees and payroll processing charges.

Why is this business strong?

• Recurring revenue from sticky, long-term client relationships.

• Switching payroll providers is costly and risky, creating high retention rates.

• Paychex earns float income from holding client funds temporarily, so they benefit from higher interest rates

Dividend profile:

Paychex doesn’t raise the dividend every year, but it does have 5 and 10-year dividend CAGRs >10%.

For income investors, Paychex offers a reliable yield plus long-term exposure to the growth of small businesses.

• Current yield: 3.5%

• Payout ratio: 92%

• Forward P/E: 22.3

Now let’s look at the top 3.

Read more

Today, we’re going a bit deeper into a few of them.

Let’s start with the last rule - choose strong, simple businesses.

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Why simple?

Take Coca-Cola or AutoZone. They’re easy to understand:

• People drink Coke.

• Cars break, people buy parts.

Compare that to a start up pharmaceutical company. You’d need to know about science, trials, FDA rules, and a lot more.

The Importance of Predictability

Heraclitus, the Greek philosopher is credited with saying that “change is the only constant in life.”

But as investors, we don’t like change.

When we buy a company, we’re really buying its future cash flows. If those cash flows drop, we don't get the return we’re looking for.

That’s why simple businesses are better.

• People keep drinking Coke, even in a weak economy.

• Cars always break, and people need parts to fix them.

Complex businesses, like drug start-ups, are full of risk:

• The drug could fail

• Side effects could show up

• Rules and regulations might change

• A bigger company could buy them

Investors don’t like surprises.
We want steady, predictable cash flows.

Inversion

This way of thinking - asking what could go wrong - is called inversion, and it was Munger’s first rule we talked about on Monday.

Jeff Bezos tied the importance of inversion and predictability together with one of my favorite quotes:

Charlie Munger, Heraclitus, and Jeff Bezos all give us the same lesson:
The best investments are simple businesses built on things that won’t change.

Let’s learn from them and think about which businesses will stay the same over the next 10–20 years.

What Things Won’t Change?

People Will Always Need Water

American Water Works (AWK) is a company that provides water and wastewater services to homes and businesses.

Why is it stable?

• Water and wastewater are basic needs that people rely on constantly for drinking, cooking, and cleaning.

• No matter how trends or technology change, people will always need water.

• Prices and operations are often overseen by government regulators, which adds stability and predictability.

• Building new water and sewage systems is expensive and complex, so customers usually stick with their local provider.

American Water Works sells fundamental human needs that are steady and not easily disrupted by changing consumer preferences.

People Will Always Want Pest Control

Rollins (ROL) is a company that provides pest control services to homes and businesses. They help protect people, food, and buildings from bugs, rodents, and other pests.

Why is it stable?

• Pests never go away: people will always need protection from them.

• Demand is steady across all regions and climates.

• Pest control is a recurring service, not a one-time purchase.

• Required service: Businesses like restaurants and hotels must use pest control to meet health standards.

Rollins benefits from a never-ending need for clean and safe spaces.

People Will Always Produce Trash

Waste Management (WM) collects, recycles, and disposes of trash across North America. They also run landfills and recycling centers.

Why is it stable?

• Everyone produces waste, every day.

• Trash removal is a basic need for homes, businesses, and cities.

• Landfills and recycling facilities are expensive to build, giving Waste Management a strong moat.

• Long-term contracts with cities and businesses lock in revenue.

Garbage doesn’t stop, and neither does Waste Management.

Businesses Will Always Need Clean Workplaces

Cintas (CTAS) provides uniforms, cleaning supplies, safety gear, and other services to businesses. They also handle laundry and facility services.

Why is it stable?

• Companies always need employees in clean uniforms and safe environments.

• Recurring contracts keep revenue predictable.

• Health and safety regulations require many of the services Cintas provides.

Cintas sells ongoing essentials that businesses can’t do without.

People Will Always Need Paint

Sherwin-Williams (SHW) makes and sells paints, coatings, and related products. Their stores supply homeowners, contractors, and industrial customers.

Why is it stable?

• Buildings, bridges, and homes all need paint for protection and appearance.

• Paint demand is steady, tied to construction and repairs.

• They have a huge retail network, making them the go-to supplier.

Sherwin-Williams rides on the never-ending need to build, maintain, and improve buildings.

People Will Always Need Everyday Essentials

Kimberly-Clark (KMB) makes products like Kleenex tissues, Huggies diapers, and Cottonelle toilet paper.

Why is it stable?

• Diapers, tissues, and toilet paper are everyday needs.

• Demand doesn’t fall much in recessions, people can’t stop buying these items.

• Strong brands create loyalty and repeat purchases.

Kimberly-Clark’s products are part of daily life and always in demand.

People Will Always Need Clean Water and Safe Environments

Ecolab (ECL) provides cleaning, sanitation, and water treatment solutions for industries like hotels, hospitals, and restaurants.

Why is it stable?

• Clean water, food safety, and hygiene are essentials.

• Regulations force businesses to meet strict health standards.

• Ecolab has long-term contracts and global reach.

Ecolab’s services protect public health and will always be needed.

People Will Always Need Chemicals for Everyday Products

Stepan Company (SCL) makes specialty chemicals used in detergents, cleaners, personal care products, and many industrial goods.

Why is it stable?

• Their chemicals go into products people use daily - like soap, shampoo, and cleaning supplies.

• Demand is steady, tied to everyday routines.

• They supply large manufacturers that rely on consistent quality.

Stepan provides the building blocks for essentials we all use without realizing it.

That’s It for Today

The best businesses to own are the ones least likely to change.

The ones that sell essentials that people and companies will always need, regardless of the economy, technology shifts, or new fads.

Here’s a quick recap of the companies we covered:

• American Water Works (AWK): People will always need water for drinking, cooking, and cleaning.

• Rollins (ROL): Pests never go away, so homes and businesses will always need pest control.

• Waste Management (WM): Everyone produces trash, making waste collection and disposal unavoidable.

• Cintas (CTAS): Businesses will always need clean uniforms, supplies, and safe workplaces.

• Sherwin-Williams (SHW): Buildings and infrastructure always need paint for protection and upkeep.

• Kimberly-Clark (KMB): Products like diapers, tissues, and toilet paper are everyday essentials.

• Ecolab (ECL): Clean water and sanitation are non-negotiable in industries like healthcare and hospitality.

• Stepan (SCL): Their specialty chemicals are hidden inside daily-use products like soap, shampoo, and detergents.

If you want steady dividends and predictable growth, look for companies that meet needs people can’t live without.

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 diving into one of the most famous REITs in the world.

You know it. You’ve probably seen it nicknamed The Monthly Dividend Company.

It’s Realty Income ($O).

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The big debate around Realty Income right now? Some investors think it’s simply gotten too big to keep growing. With a $50B+ market cap and thousands of properties, how much more runway could there be?

At the BofA Global Real Estate Conference this month, management tackled that question head-on. They shared how they plan to keep compounding, even at their size.

Realty Income is known for paying one of the most reliable dividends on the market - month after month, without fail, and raising it for 31 years in a row.

Want to see how they plan to keep this machine growing?

Keep reading.

Company Overview

Realty Income ($O) is one of the largest and most trusted net lease REITs in the world.

They own more than 15,000 properties across the U.S. and Europe, leased to over 1,300 tenants in 85+ industries.

You’ll find names like Walmart, Walgreens, and 7-Eleven cutting checks to Realty Income every month. Those long-term, triple-net leases mean tenants pay the taxes, maintenance, and insurance - leaving Realty Income with steady, predictable cash flow.

As of today, the stock offers a dividend yield of roughly 5.4% - one of the highest levels we’ve seen from this REIT in over a decade.

And remember: this isn’t a quarterly payout. Realty Income pays every single month.

Financial Performance (2015–2024)

Funds From Operations per Share

FFO per share has been growing relatively steadily at around 4% per year on average:

Revenue & Earnings

• 2024 Revenue: $5.27 Billion

• 2024 AFFO per Share: $4.19

• 2025 AFFO Guidance: $4.24 to $4.28

Dividend per Share

Realty Income has increased its dividend for 31 straight years, with a 2.9% 5-year CAGR.

Payout Ratio

Management has kept the Payout Ratio below 80% over the past few years, but from 2017 to 2020, they consistently paid out more than 80% of the FFO in dividends.

Realty Income’s management tends to focus on AFFO/Share, however. That number tends to be higher than FFO, and if we use management’s preferred metric, the payout ratio does come down.

I tend to prefer to use the more conservative metric, which is why I chose FFO/Share.

Outlook for 2025–2026

• AFFO Guidance: Management projects 2025 AFFO of around $4.26 per share, indicating continued growth

• Occupancy Rates: Portfolio occupancy was at 98.6% at the end of Q2. This is above their historical median of 98.2%.

• Debt: Realty Income has mostly unsecured, fixed rate debt, with well staggered maturities.

  • Net Debt to Adjusted EBITDAre: 5.5x

  • Fixed Charge Coverage Ratio: 4.5x

  • Credit Rating: A3/A-

Capital Allocation and Growth

Cost of Capital

Cost of capital is important for a REIT - because they have to pay out the majority of earnings as dividends, REITs have to issue equity and raise debt to grow.

Realty Income’s management team lays out for us how they think about financing deals:

In the short term, management looks to finance a new deal with:

• 50% equity

• 35% debt

• 15% retained cash flow

But over the long term, the cost of a new deal tends to be:

• 65% equity

• 35% debt

That puts their long-term cost of capital at around 7.2%

International Expansion

Realty Income has bought up a lot of properties in the United States - 82.7% of their portfolio is U.S. based:

But now, Realty Income is looking at expanding heavily in Europe. The opportunity set is larger there, and there is less competition:

In addition, the initial cash flow is slightly higher in Europe compared to the U.S., but more importantly, unsecured financing is significantly cheaper in Europe - about 3.9%, compared to 5.1% in the U.S.

At the BofA Global Real Estate Conference earlier this month, Sumit Roy (CEO) said that 76% of the real estate the company acquired in Q2 was in Europe.

Data Centers

The other change in strategy that Realty Income announced at the BofA conference was their move into data centers.

I like the key parts of their strategy:

1. They’re focusing on primary locations (e.g., Northern Virginia, Chicago, Atlanta)

2. Ensuring triple-net lease structures (or as close to that as possible) to mitigate technology obsolescence risks by making clients responsible for short-shelf-life components like servers, racks, switches, etc. These have 3 to 5 year lifespans and are expensive to replace

Risks and Considerations

• Size and Growth Ceiling: Realty Income is massive. With over 15,000 properties, some worry it may be “too big to grow.” Finding enough high-quality deals to move the needle gets harder as the portfolio expands.

• Interest Rate Sensitivity: As a REIT, Realty Income depends heavily on debt markets. Rising interest rates increase borrowing costs and make its dividend less attractive compared to bonds.

• Retail Exposure: While Realty Income has diversified, a large share of tenants are still retailers. If consumer spending weakens or retail trends shift, certain tenants could face pressure.

• Currency and Global Expansion Risk: With expansion into Europe, Realty Income is now exposed to currency swings and unfamiliar regulatory environments.

Summary and Valuation

Read more

Today we’re taking a look at Agree Realty Corporation.

It’s a U.S. real estate investment trust specializing in owning and developing retail properties leased to major national and regional tenants across necessity-based and e-commerce–resistant sectors.

They focus on essential retailers like Walmart, Dollar General, and CVS.

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Agree has grown steadily over the past decade, with strong management, reliable tenants, and a solid balance sheet. On top of that, it pays its dividend monthly, which is always a nice bonus for income investors.

General information:

• 🏪 Company name: Agree Realty Corporation

• ✍️ ISIN: US0084921008

• 🔎 Ticker:

• 📚 Type: Dividend Growth Stock

• 📈 Stock Price: $72

• 💵 Market cap: $7.9 billion

• 📊 Average daily volume: $78 million

Agree Realty is a REIT, and it’s been affected by the same dynamics NNN is. Those are described here.

Over the past 3 years, the company has grown revenue by 20% per year and FFO per share by 7.7% each year.

Despite that, the share price is down close to 4%.

We’ll use the same modifications for Agree that we did with NNN. Let’s run our 10 steps and see if Agree is a good opportunity.

1. Do I understand the business model?

Agree Realty is a U.S. based Real Estate Investment Trust (REIT).

The company owns over 2,000 properties across the United States.

These are mostly free-standing retail buildings rented to big, well-known companies like Walmart, Dollar General, and CVS.

Agree doesn’t run any of the stores. Instead, it collects rent from the businesses that use its buildings.

Most of the leases are long-term (10–20 years) and “net leases.” That means the tenant pays for things like maintenance, insurance, and taxes - not Agree.

The goal is simple: buy strong retail properties, rent them to reliable tenants, and collect steady income.

Agree keeps growing by buying more properties and sometimes selling the ones that don’t fit its long-term plans.

Growth Platforms

Agree Realty describes itself has having three main growth platforms.

These are the ways the company keeps growing and adding value.

1. Development

Agree Realty builds new stores for trusted tenants.

Advantages:

• Agree has control over the property from the start

• They can build in strong locations and tailor the lease terms

• It builds long-term relationships with tenants

Example:
They might build a new Walgreens or Chick-fil-A store and then lease it out under a long-term deal.

2. Acquisition

Agree buys existing retail properties. Especially ones with strong tenants and long-term leases.

Advantages:

• This is the biggest growth driver

• They focus on essential retailers (like grocery stores, pharmacies, dollar stores)

• They use data and strict rules to find high-quality deals

Example:
Buying a Dollar General or Walmart location with 10+ years left on the lease.

2a. Ground Lease

This is a different from of acquisition. In this situation, Agree buys the land under a building but not the building itself. The tenant owns the building but pays Agree rent for the land.

Advantages:

• Very low-risk

• Tenants are locked in for very long terms

• If the lease ends, Agree still owns the land

Example:
A tenant builds a store on land owned by Agree and pays rent just to use the land.

3. Direct Funding Platform (DFP)

Agree works directly with developers by funding new retail projects before they are completed.

Advantages:

• Gives developers quick access to capital

• Secures high-quality properties early

• Builds strong, long-term relationships with tenants and developers

• Reduces risk for developers, since Agree commits to buying the property

Example:
Funding the construction of a new Walgreens or Chick-fil-A store, then owning it once it’s completed.

Competitive Advantages

You might think that having competitive advantages would be difficult in retail real estate, but Agree has several:

High-Quality Tenants

Agree works with some of the biggest and safest companies in the U.S. These businesses sell everyday items (think groceries, medicine, and fast food), so they usually do well even during recessions. This helps Agree keep getting rent, even when the economy is weak.

Simple and Safe Leases

Most of Agree’s leases are “net leases.” That means the tenant pays for almost everything, and Agree just owns the building and collects rent. It’s low risk and steady.

Conservative Management

Agree grows steadily, keeps debt low, and focuses on long-term value. They also tend to keep their rents slightly below market to keep buildings full and reduce tenant turnover.

Scale and Data

With thousands of properties, Agree has access to lots of data. This helps them make smart decisions about where to buy next and what to avoid.

2. Is management capable?

Joey Agree - CEO

Joey has been the CEO of Agree since 2013.

Back then, it was a $300 million microcap stock focusing on property development.

He’s turned Agree Realty into the $8 billion company that it is today.

Peter Coughenour - CFO

Mr. Coughenour has been the CFO of Agree since 2015.

The management team at Agree has consistently grown the company’s equity:

They’ve also grown the FFO/Share consistently:

While maintaining reasonable debt levels:

3. Has the company grown the dividend attractively?

We look for:

• At least 10 years of dividend growth

• 5-year dividend growth >5%

Agree realty has consistently grown its dividend.

They have paid dividends monthly since 2021.

The last quarterly dividend was for Q4 of 2020, and was paid in January of 2021. That makes the dividend look like it took a big jump from ‘20 to ‘21, then got lowered in ‘22.

This isn’t the case, it’s due to the change from a quarterly dividend to a monthly one and the timing of the payouts.

• 5-year dividend growth rate: 5.3% annually

• 10-year dividend growth rate: 5.4% annually

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

The retail real estate market is fairly mature.

However, vacancies have been trending down, and rent prices have been trending up.

Construction is also sluggish, which means the demand for Agree’s properties should remain strong and support continual rent increases.

5. What are the main risks for the company?

Tenant Risk

Agree relies on tenants (like Walmart, Dollar General, Walgreens) to pay rent. If a tenant goes bankrupt or leaves, Agree could lose income.

Mitigation:
Agree’s tenants are mostly essential retailers (grocery, pharmacy, dollar stores) that do well in both good and bad economies. They also spread risk by having over 2,000 properties with more than 400 tenants — no single tenant dominates.

Interest Rate Risk

Agree borrows money to buy new properties. If interest rates go up, borrowing becomes more expensive and could hurt profits.

Mitigation:
Agree keeps a conservative balance sheet (low debt compared to peers). Much of its debt is fixed-rate, which protects against rising interest costs. Management has a track record of careful financial discipline.

Retail Industry Changes

Shopping habits are changing, with more people buying online. If tenants can’t adapt, they might close stores.

Mitigation:
Agree focuses on retailers that are essential and resistant to e-commerce - like dollar stores, pharmacies, auto parts, and quick-service restaurants. These are businesses people still visit in person.

Property Concentration Risk

If too many properties are in one area or industry, local downturns could hurt results.

Mitigation:
Agree is geographically diverse, with properties across all 48 mainland U.S. states. They also keep a balanced mix across industries, so one weak sector won’t sink the portfolio.

Development / Construction Risk

Projects funded under the Direct Funding Platform or development program could face delays, cost overruns, or tenant pullouts.

Mitigation:
Agree works only with trusted, creditworthy developers and tenants. Deals are structured so that tenants often sign leases before projects are finished, lowering the risk of empty properties.

6. Does the company have a healthy balance sheet?

The real estate industry runs on debt. That means that we need to look at the balance sheet of a REIT slightly differently than we do for a typical company.

Read more

Our investable universe currently contains 193 stocks rated ‘buy’.

8 of them are already in Our Portfolio.

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

Buy-Hold-Sell List

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

You can see all of the details on how it works here:

• Upgrading the 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 August 2025

Some Interesting Stats:

• 193 companies total receive a ‘buy’ rating

  • That’s down from 208 last month

• 24 moved from 'hold’ to ‘buy’

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

• Only 1 made the jump from ‘sell’ directly to ‘buy’ - Northland Power

  • 6 companies did so last month.

Recommendation Changes

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

Here’s a sample of a few:

• Bio-Rad Laboratories (BIO) develops and sells instruments, software, and consumables used in life science research and clinical diagnostics.

• Bank of Montreal (BMO) is one of Canada’s largest banks, offering personal and commercial banking, wealth management, and capital markets services.

• American Tower (AMT) owns and operates wireless and broadcast communication towers, leasing space to mobile carriers and other tenants.

• Kroger (KR) runs one of the largest supermarket chains in the U.S., selling groceries, pharmacy products, and household goods through physical stores and online platforms.

• Wabtec (WAB) designs and manufactures equipment, systems, and services for the global freight and passenger rail industries.

You can download the entire Buy-Hold-Sell list here:

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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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August 2025

In August the S&P 500 increased by 1.9%

So far the S&P is up 11% for the year.

Source: Fiscal.ai

September is historically the worst month for the S&P 500.

The Fear & Greed Index indicates that we’re currently in ‘Neutral’ Mode.

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? Align Technologies.

Align Technology is a medical device company best known for its Invisalign clear aligners, which provide an alternative to traditional metal braces.

Its business also includes iTero scanners and digital orthodontic tools that help dentists and orthodontists design and monitor treatments.

Align is down because of:

• Slower demand in North America as consumers delay elective dental procedures

• Pricing pressure from new competitors in the clear aligner market

• Weaker growth in China due to economic uncertainty

• Higher costs tied to manufacturing and marketing investments

Best Performers

Hanesbrands Inc. was this month’s best performer, rising over 42%.

Hanesbrands is a major U.S.-based apparel company focused on everyday basics: innerwear, T-shirts, socks, activewear and so on.

• Brands include Hanes, Playtex, Maidenform, Bonds, Barely There, L’eggs, Just My Size, and Berlei

Hanesbrands stock shot up after it was announced that Gildan Activewear was buying the company for about $2.2 billion.

Spotlight: LyondellBasell Industries:

LyondellBasell makes money by producing plastics, polymers, and basic chemicals.

They’re one of the world’s largest petrochemical companies, making ethylene, propylene, polyethylene, polypropylene, and various downstream derivatives.

These products end up in everyday applications:

• Food packaging

• Automotive parts and lightweight transportation

• Clean water, healthcare disposables, and hygiene products

• Infrastructure, building materials, and advanced insulation

This is a capital-intensive, cyclical chemical business

Much of LyondellBasell’s advantage comes from low-cost North American feedstock (natural gas–derived ethane/propane) for cracking into ethylene and propylene.

It also operates globally, with plants in Europe and Asia - but those regions face tougher feedstock economics and regulatory headwinds. That’s why the company has sold some of these plants - a move I like.

They have kept their plants focused on sustainability and plastic circularity, aiming to pair its polymer production with recycling technologies and lower-carbon materials, which may help insulate it from future regulatory and raw-material risks.

All of that means that their earnings and cash flow are highly cyclical. They’re tied to raw material spreads, global demand, and macroeconomic swings.

Why’s it interesting to dividend investors?

• At current prices, LYB yields over 10%.

• The company has increased its dividend for 14 years

However, there’s a big red flag: payout ratios are extremely high relative to earnings and cash flow.

• Payout ratio (EPS): 130.5%

• Payout ratio (FCF): 86.9%

That makes the dividend potentially vulnerable if commodity spreads stay weak or if the currently low demand doesn’t recover.

The fundamentals look like this:

• Dividend Yield: 10.1%

• Payout Ratio: 130.5%

• 10-Year Dividend CAGR: 6.5%

• Net Profit Margin: 0.7%

• ROIC: 12.8%

• Forward PE: 15.0x

If you believe global plastic demand (especially packaging, transportation, and medical/high hygiene applications) recovers and feedstock spreads remain favorable, the high dividend yield might look very attractive.

On the other hand, if chemical margins stay depressed or deteriorate further, LyondellBasell could struggle to support the dividend without raising debt.

September Best Buys

There were big swings in price both up and down in August.

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!

5. Edison International (EIX)

Edison powers California with regulated electric utilities, focusing on infrastructure, clean energy, and grid modernization.

Its steady cash flows come from essential services, and the long-term tailwind is the state’s growing electricity demand combined with an aggressive renewable energy push.

The utility structure provides stability, while management balances reinvestment in the grid with paying dividends.

Edison has raised its dividend for 21 years in a row with an attractive 10-year DPS CAGR of 7.3%.

• Current yield: 6.2%

• Payout ratio: 47.8%

• Forward P/E: 9.2

4. Argan SA (ARG)

Argan is France’s only listed real estate company dedicated entirely to logistics warehouses.

It benefits from the rise of e-commerce and demand for efficient supply chains, with long-term tenants like major retailers and distributors.

Its “develop and hold” model creates steady rental income, and the company pairs growth with disciplined financial management.

Argan has raised its dividend for 12 years in a row, with a 10-year DPS CAGR of 14.5%.

• Current yield: 4.8%

• Payout ratio: 28.9%

• Forward P/FFO: 10.5

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On Monday we talked about boring businesses.

Today we’re talking about one of the most boring businesses there is - trash.

Waste Management ($WM) is the largest garbage collection and recycling company in North America.

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Boring businesses like WM often make investors rich, because they’re built on steady, simple, necessary demand.

But even though it operates in a steady, slow industry this “boring” company had a wild flash of drama. Before we get to that, let’s take a quick look at the business:

Company Overview

Waste Management is the backbone of America’s waste system. Their business is built on four core pieces:

• Collection – residential, commercial, and industrial trash pickup

• Landfills – the largest network of landfill sites in North America

• Recycling – processing paper, plastics, and metals

• Renewable Energy – turning landfill gas into electricity and fuel

It’s a simple, predictable model. As long as people produce trash (which they always will), WM has customers.

Financial Performance

Revenue & EPS Growth

WM has steadily grown revenue at about 7% per year.

EPS has grown a bit faster thanks to expanding net margins and buybacks.

Dividends

WM is approaching Dividend Aristocrat status with 22 years of consecutive dividend hikes.

Dividend growth has been very steady, averaging around 7.5% to 8.5% per year over the past 5 and 10 years.

Payout Ratio

The dividend payments are typically well-covered by earnings, and WM’s steady cash flow makes them highly dependable.

Stock Performance

Today, WM trades like the defensive giant it is.

We can look at beta to see that WM’s volatility is lower than the S&P 500. Beta measures how much a stock’s price moves compared to the overall market.

• A beta greater than 1 means the stock is more volatile than the market

• A beta less than 1 means it is less volatile

The stock is a reliable compounder.

But it wasn’t always that way.

In the late 1990s, WM became one of the least boring stocks on Wall Street.

The company’s chart shows it: a massive drawdown rattled investors.

Since 1995, WM’s price return alone has actually lagged the S&P 500.

But once you include dividends and buybacks, WM’s total return has far outpaced the market.

That difference - price vs. total return - is exactly why we focus on dividends and returns to shareholders.

Despite what Wall Street wants you to believe, rising stock prices aren’t the only way to get rich.

The Flash of Excitement: 1998 Scandal

So what happened in 1998 to cause that big drawdown?

Even back in the 1990s, Waste Management was the king of garbage. They had trucks everywhere, landfills across the country, and billions rolling in.

But behind the mountains of trash, the bosses were cooking the books.

It started all the way back in 1971 when Waste Management went public.

They used a very aggressive acquisition strategy and grew too fast. In their first year as a public company alone they bought 133 companies.

Buying up companies left and right made their numbers messy.

But Wall Street loved the growth, and Waste Management played the ‘beat the estimates game’ - management gave revenue and earnings targets, then consistently beat them.

In 1993, revenue fell for the first time ever, and profits were down.

Instead of admitting profits were slipping, the top execs - led by founder Dean Buntrock - decided to cheat.

Executives manipulated depreciation schedules on garbage trucks and landfills, artificially increasing earnings by $1.7 billion.

For a while, the numbers looked great. Wall Street cheered. Then the truth came out - and the stock collapsed.

Billions in shareholder value were destroyed.

It was a rare, dramatic moment in the history of a company that otherwise runs on trash routes and landfill gas.

And it offers a lesson for investors:

• Earnings are estimates. They can be manipulated.

• Cash is a fact.

Let’s look at the 1997 10-K to see if we could have spotted anything fishy:
Note - these are reported as USA Waste Services which became the Waste Management we know today through a merger.

Income Statement

The reported net income was $267 million.

Cash Flow Statement

But let’s calculate the Free Cash Flow - we’ll subtract CapEx from Operating Cash flows:

I get $16.5 million of FCF, a big difference from $267 million of net income.

And check out the line above CapEx on the Cash Flow statement - $1.8 BILLION was spent on acquisitions.

This is why we focus on cash flows.

How WM Still Won

Even after the fraud, bad management decisions, and a huge stock drawdown, WM survived.

Because the business itself never changed. People still needed their garbage collected. Trash still went to landfills. Recycling and renewable energy became bigger over time.

The company cleaned up its books, replaced leadership, and kept doing what it does best: turning trash into steady, reliable cash.

That’s why, despite the scandal, if you’d have invested $10,000 in WM in 1995, today you’d have:

• 937 shares worth $212,000

• Each paying $3.30 in dividends

• Giving you $3,092 each year in dividends

• And a 17.3% yield on cost

The big lesson here: boring businesses can make you rich if they’re steady and needed.

Don’t get fooled by “perfect” earnings, cash flow tells the real story.

And even when companies stumble, strong business models can survive and come back stronger.

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.

On Wednesday, we looked at inflation, producer prices, and wages.

Here’s the quick version:

• Price growth for consumers has slowed, but costs for businesses are still climbing

• Wages are rising causing inflation in services

• The Fed may allow inflation to run closer to 3% instead of pushing back to 2%

That means we may be in a world where inflation keeps moving higher for years.

Real estate tends to do well in that environment.

And today, REITs are cheap relative to equities.

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What Are REITs?

A REIT (Real Estate Investment Trust) is a company that owns real estate and makes money from rent.

• They could own: apartments, offices, warehouses, land, shopping centers

• You buy shares in the REIT just like a stock

• The REIT collects rent, pays expenses, and sends the rest to investors as dividends

By law, REITs must pay out most of their profits as dividends.

That makes them a natural fit for dividend growth investors.

Why Own REITs Instead of Buying Real Estate?

• Income: REITs often pay higher dividends than most stocks

• Inflation protection: When prices rise, rents usually rise too

• Diversification: You get exposure to real estate without needing to buy and manage property yourself

• Liquidity: Unlike physical property, you can sell REIT shares anytime in the stock market

What to Watch With REITs

Instead of earnings per share (EPS), REITs are usually judged by Funds From Operations (FFO).

FFO (Funds From Operations) is a better measure of cash flow for REITs because it focuses on the cash that comes from owning and managing real estate.

Why not Net Income or FCF (Free Cash Flow)?

Net Income includes things like depreciation, which is a big non-cash expense for real estate.

• Buildings lose value on paper every year, but that doesn’t mean the REIT actually lost cash

• This usually makes net income can look lower than the actual cash the REIT is generating

Free Cash Flow (FCF) can be affected by big one-time purchases or sales of properties, which can make cash flow look very jumpy and less consistent.

What makes FFO better?

• FFO adds back depreciation and amortization to net income because those are non-cash costs

• It excludes gains or losses from selling properties, focusing on the cash flow from regular operations

So, FFO shows a clearer picture of the cash a REIT generates from its real estate business, which is what we care about most.

Other key metrics:

• P/FFO ratio: Similar to P/E, but for REITs

• Dividend yield: Calculated the same as for a stock: DPS/Share price

• Payout ratio: Use FFO in place of EPS: Dividend Per Share/ FFO Per Share

• Balance sheet strength: Debt levels matter a lot, especially when rates rise

• Property quality and growth: Location and type of real estate drive long-term returns

Interesting REITs Right Now

Now that you know what REITs are and why they might be interesting right now, here are some that I’m looking deeper into.

Each one is a little bit different. Let’s give you a look at my REIT shortlist right now.

Federal Realty Investment Trust (FRT)

• Focuses on high-quality retail in top U.S. cities

• Long track record of steady growth in revenue and earnings

• A “blue-chip” style REIT

Important metrics

• Forward Dividend Yield: 4.53%

• FFO Payout Ratio: 64.99%

Agree Realty (ADC)

• Owns net leased retail properties in strong locations

• Consistent growth and solid balance sheet

• Management continues to invest heavily for future growth

Important metrics

• Forward Dividend Yield: 4.23%

• FFO Payout Ratio: 81.87%

Cubesmart (CUBE)

• Self-storage REIT

• Healthy balance sheet and steady growth

• Growing demand as people move and downsize

Important metrics

• Forward Dividend Yield: 5.10%

• FFO Payout Ratio: 79.09%

SBA Communications (SBAC)

• Owns wireless towers and antenna sites

• Strong dividend growth record (18.8% 5-YR CAGR)

• Healthy balance sheet, benefits from rising data usage

Important metrics

• Forward Dividend Yield: 2.15%

• FFO Payout Ratio: 42.86%

The next 8 REITs have unique holdings or are in unique positions that make them more interesting than the average REIT.

Ready to dive in?

I’ve highlighted what makes them more interesting than average in bold.

Read more

But sometimes, there are big trends that are worth paying attention to.

The biggest one over the past few years has been inflation.

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Inflation

Here’s the yearly change in the U.S. Consumer Price Index over the past 20 years.

The COVID spike is obvious - and inflation still hasn’t returned to pre-2020 levels.

Europe’s chart looks almost identical.

You can think of these charts as showing how fast the prices you pay as a consumer are rising.

But there’s another angle we can look at.

Producer Price Index

The Producer Price Index (PPI) tracks how much businesses pay for goods and services.

If CPI is what you pay at the checkout counter, PPI is what the store is paying the distributors.

Here’s the PPI year over year change for the past 20 years:

Notice the difference: consumer prices have flattened, but producer prices are still rising.

• From July 2024 to July 2025, PPI rose 3.3% (vs. 2.5% expected).

• From June 2025 to July 2025 alone, PPI rose 0.9%.

Breaking it down further: cost of services (which dominate the U.S. economy) are rising faster than goods.

The biggest driver of increasing services cost is increasing wages.

Wages

The Atlanta Fed’s wage tracker shows the same pattern: a big spike in 2022, then slowing, but still above the pre-COVID baseline.

Wages have outpaced inflation since early 2023.

In theory, there a relationship between rising wages and rising prices:

• When wages go up, businesses might raise prices to cover higher costs, which can cause inflation

• People have more money to spend, which can push demand and prices up

But this isn’t guaranteed - if workers become more productive this doesn’t necessarily lead to inflation.

If the economy is slowing, central banks tighten policy (raise rates, decrease money supply), or if companies and consumer expect prices to be stable, higher wages don’t always lead to inflation either.

It depends on the overall economic situation.

Fed Shifts

At Jackson Hole, Fed Chair Jerome Powell hinted at a shift: the Fed may focus more on supporting employment and less on forcing inflation back to 2%.

Given the fact that consumer inflation is still running higher than it did before 2020, producer prices are continuing to rise, and so are wages, we could be entering a new era where inflation runs closer to 3% or higher.

What’s Done Well in Inflationary Environments?

If inflation might run higher than it has in the past, do we need to make changes to our portfolios?

The good news is that when you focus on buying strong, cash flowing companies at reasonable prices like we do, the answer is no.

But it’s probably worth asking what kinds of assets do well in inflationary environments.

• Stocks generally keep pace with inflation over time.

• Inflation-protected bonds: Such as TIPS (Treasury Inflation-Protected Securities) in the U.S., which adjust their principal with inflation.

• Physical assets like gold, commodities, and real estate often shine when inflation is sticky.

REITs

Real estate is a great inflation hedge.

First, the supply of real estate is naturally limited, so the value of properties tend to go up with inflation.

And so do the cash flows generated by real estate - as prices rise, landlords can raise rents.

One of the easiest ways to own real estate is through REITs.

A REIT is a company that owns and manages a group of real estate properties that make money, like apartment buildings, offices, or shopping centers.

We wrote an entire guide to them here.

REITs are especially interesting right now - they’ve been beaten down by rising interest rates and are trading at steep discounts relative to the broader market.

With valuations depressed, REITs are offering unusually high yields today, giving investors the chance to lock in elevated income streams before the market wakes up.

Here are the yields of a few well-known ones:

Prologis (PLD)

American Tower (AMT)

Warehouses De Pauw (WDP)

If Powell is signaling that inflation isn’t going back to the old 2% world, this may be a great opportunity to pick up some assets that not only survive inflation, but pay you more because of it.

On Saturday, we’ll take a look at some of the REITs I think are the most interesting right now!

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 taking a look at some of the less well-known parts of a very well-known company.

Walmart reported Q2 earnings earlier this week. They missed earnings estimates, causing the stock to fall.

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To be fair, we’re not talking about a massive crash - we’re talking about a few percentage points.

But the small change in stock price isn’t the most interesting part of Walmart’s most recent reporting.

What’s interesting about Walmart is the parts of the business that are seeing growth rates that you wouldn’t expect. I’m talking about growth rates like 17%, 25%, and even 46%.

How can a company the size of Walmart have segments growing that quickly?

And more important, can they drive real growth in the overall company?

That’s what we’re going to talk today

Company Overview

You’re likely familiar with Walmart Inc. ($WMT) - it’s a global retail giant operating a huge network of discount stores, supercenters, and e-commerce platforms.

Walmart’s promise is to deliver everyday low prices and a wide product assortment. They serve millions of customers across the United States, Mexico, and other international markets.

There are several businesses housed within Walmart Inc.:

• Walmart U.S.

  • Physical stores: Supercenters, discount stores, and Neighborhood Markets

  • Grocery, apparel, electronics, household goods, and more

• Walmart International

  • Stores and e-commerce in countries like Mexico, Canada, and others

  • Similar retail offerings tailored to local markets

• Sam’s Club

  • Membership-based warehouse clubs

  • Bulk products, groceries, electronics, and business supplies

• E-commerce

  • Online shopping platforms for Walmart and Sam’s Club

  • Grocery delivery, pickup services, and third-party marketplace

• Other Services

  • Financial services, health and wellness clinics, and advertising solutions

Financial Performance

Before we get into the really interesting pieces within Walmart, let’s take a look at the business as a whole.

Revenue and EPS

Walmart has consistently grown revenue, although not at a fast rate - about 3.5% per year over the past 15 years.

EPS tends to grow a bit faster at about 5%.

This is mainly due to buybacks - Walmart tends to operate on low net margins - 2.5% to 3%, and the low price model doesn’t encourage margin expansion.

Instead, Walmart has traditionally focused on selling more volume at low prices.

Dividend per Share

Walmart is a Dividend King with 53 years of dividend increases.

The dividend has tended to grow at about the same rate as EPS - 5.9% per year since 2010.

Payout Ratio

Payments to shareholders tend to be well-covered by earnings.

So overall, the business looks like a slow, steady grower, with a great dividend history.

The Parts of Walmart You Might Not Know

Let’s dive into the really interesting parts of Walmart - what’s growing at double digit rates?

E-Commerce

E-Commerce has been a strong growth segment for Walmart.

Beginning in 2022 they started to grow their e-commerce sales faster than the U.S. in general. You can even see quarters where they outpaced Amazon:

In Q2, global e-commerce grew by 25%:

Walmart has some big advantages when it comes to e-commerce.

They’ve already built out a world-class supply chain, including warehouses, inventory tracking, trucking, etc.

But the biggest e-commerce advantage Walmart has is their store network.

Walmart has more than 4,600 stores in the US, and close to 11,000 worldwide.

Each one of those stores can function as a distribution hub for online orders.

This allows Walmart to deliver orders fast.

Just look at the number of Walmart locations in the U.S.

Compare Walmart with Target:

It’s not even close. That’s why Walmart thinks they can deliver to 95% of U.S. households within 3 hours by the end of this year.

And it’s not just in the U.S. that Walmart can deliver quickly:

Under an hour in China and under 15 minutes in India - not many companies can match that.

Another advantage Walmart has over a lot of retailers when it comes to e-commerce and delivery - the other things they can deliver.

When a customer has one thing delivered, they often add other things to the order - so what does Walmart deliver that a lot of the competition doesn’t?

Medications:

How about Sam’s Club pizzas and rotisserie chicken:

The ability to sell online, and deliver quickly is a big advantage for Walmart.

It also drives 2 other growing areas of their business:

1. Walmart marketplace - lets other sellers list and sell their products on Walmart’s website. Walmart handles the website and checkout, while the sellers manage inventory and shipping. This expands Walmart’s product selection without needing to stock everything themselves.

2. Walmart+ - a membership program that offers customers benefits like unlimited free delivery on groceries and other items, discounts on fuel, and exclusive deals

In Q2, Marketplace grew 17% and membership grew 15%.

Advertising

Walmart’s fastest-growing business isn’t selling groceries, or online, it’s selling ads.

• Total advertising revenue grew 46%.

• Walmart Connect, the company’s advertising arm, grew revenue 31% last quarter in the U.S. excluding Vizio (the TV maker Walmart bought).

• Sam’s Club U.S. grew advertising revenue grew 24%

• Flipkart - an e-commerce platform mainly in India grew ad revenue 15%

Last year, Walmart generated $4.4 billion in advertising revenue.

Brands are willing to pay up because Walmart controls both the shelf space in-store and the data on how people actually shop.

With 4,600 stores and 285 million weekly customers in the U.S., Walmart has unmatched insight into what people actually buy, both in-store and online.

Compared to Amazon’s $56 billion ad business, Walmart’s is still small, but it’s scaling fast and carries much higher margins than retail.

Walmart Is Now 2 Businesses

Walmart is now the traditional retail business that you typically think of - the Sam’s Clubs and Supercenters.

But it’s now also a business selling advertising, memberships, and online.

And that second business has much better margins than the first.

I think this is a really interesting example of how the management team managed to take a very strong existing business, and used it to build into new areas, making the whole company stronger.

And the new businesses are starting to drive serious profit:

Summary and Valuation

Walmart’s Q2 earnings showed more than just a slight miss on estimates.

Beneath the headline numbers, parts of the business are growing at rates you wouldn’t expect from a company this size.

• E-commerce sales: 25%

• Marketplace sales: 17%

• Membership: 15%

• Advertising revenue: 46%

Together, these segments are transforming Walmart from a low-margin retailer into a two-part business: the traditional store network and a high-growth, high-margin digital ecosystem.

That shift raises an important question for investors: is the market still valuing Walmart like a slow-moving grocery store, or is it starting to price in the faster-growing, higher-margin engine under the hood?

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Back in May I shared a simple strategy that beat the pants off the S&P 500.

Here’s the idea:

• Take the Russell 1000, rank all the stocks by dividend yield, and split them into five groups.

• Instead of chasing the very highest yielders, buy the second tier.

The Magic of the Second Quintile

Why do we avoid the top dividend payers?

Because the top group is usually filled with companies in trouble.

Their yields are high because their stock prices are falling, and they tend to have high payout ratios.

The second tier, on the other hand, tends to hold solid businesses with healthy payout ratios.

Backtests Show it Works

The strategy was tested going back nearly a century. The results were stunning.

• A $1,000 investment in the S&P 500 in 1930 grew to $8.6 million by 2023.

• That same $1,000 invested in the second-quintile dividend stocks? $31 million.

That’s almost 4x more wealth.

And it wasn’t just about bigger returns. The second tier also had the fewest down years of any group.

That matters.

The key to compounding isn’t finding the next moonshot - it’s avoiding the blowups, keeping losses small, and letting dividends pile up.

It’s an elegant, no-nonsense strategy - and now it’s time to run the numbers again.

Today’s Second Quintile: 201 Stocks. 2.62% Yield.

I ranked the Russell 1000 by dividend yield.
There are 201 companies in the second quintile.

The average yield of the group is 2.62%.

Equal weighting the companies with $100,000 would get you $2,620 each year in dividends.

And here’s what you get in return:

• A diversified basket of businesses

• No “high-yield” landmines

• Reliable, growing income streams

• A strategy that’s quietly beaten the market for 90+ years

We’ve put the full list of 201 companies into a spreadsheet.
Click the button below to access it:

2nd Quintile Screen Spreadsheet

Out of those 201 names, I’ve picked six companies that stand out.

Each one is a dividend compounding machine that passes the Chowder Rule.

Ready to find out what they are?

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The company’s new guidance disappointed analysts.

The DOJ is investigating their billing.

They’re getting a new CFO.

The chart looked ugly.

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But Warren Buffett bought it.
And so did we - at a lower price than what Buffett reported.

Today I’m going to take some ideas from Charlie Munger’s book and show you why we both bought the stock, even though there was so much negativity around it.

Charlie loved the idea of inversion - that avoiding bad ideas and being stupid would take you a lot further than trying to be smart.

Today, I’m going to present the bear case for UnitedHealth and see if we can’t kill this idea.

The UnitedHealth Bear Case

The stock has dropped for a number of reasons, we’ll dive into each one, but here’s the list upfront:

• Missed earnings, and reduced guidance

• Regulatory investigations

• Risks due to their integrated business model

• Management instability

1. Missed Earnings, Reduced Guidance

• In May, UnitedHealth withdrew its April-issued 2025 EPS guidance of $26.00-$26.50 (down from $29.50-$30.00 previously)

• On July 29, the company provided guidance of ‘at least $14.65 Per Share’

  • The consensus estimate was at $20.75, but there was a wide range of estimates from $18 to $26.

This is significantly lower than recent EPS numbers.

Earnings under $15 per share would take the company back to pre-COVID levels.

At the current share price, EPS of $14.65 puts the company at a forward P/E of 20.7x.

The consensus estimates don’t have the company’s earnings making a sharp recovery either:

From this view, the company may not be as cheap as the trailing P/E of 11.7 makes it appear.

2. Regulatory Investigations

UnitedHealth is facing increasing investigations and regulatory pressure.

They are being investigated for billing practices in Medicare Advantage programs:

As well as for alleged payments to nursing homes to reduce hospital admissions:

This could be a big deal for United.

Medicare Advantage represents about 15% of their insurance business.

There is data to show that patients of UnitedHealth doctors enrolled in UnitedHealthcare Medicare Advantage plans receive more diagnoses, which result in higher payments for UnitedHealthcare.

The potential damage is high - according to the Wall Street Journal’s estimates, UnitedHeath was paid $8.7 billion in 2021 for extra diagnoses.

3. Risks Due to Their Integrated Business Model

The main reason the company pulled their guidance in May, then lowered it in July is increasing medical costs.

These rising costs hit UnitedHealth harder than many other companies because of their integrated model.

UnitedHelathcare is the insurance arm of the company. When costs to provide care rise, UnitedHealthcare’s profits shrink.

Optum Health is the provider arm of the company. It includes healthcare providers like doctors, nurses, and therapists in primary care offices, outpatient clinics, and home health settings. This is the business that actually delivers care to patients. When costs to provide care rise, UnitedHealth gets hit with lower profits here as well.

4. Management Instability

UnitedHealth has seen multiple changes in key leadership positions.

• Stephen Hemsley was CEO of UnitedHealth Group from 2006 to 2017

• David Wichmann led UnitedHealth Group from September 2017 to February 2021

• Andrew Witty became CEO of UnitedHealth Group in February 2021 during an unexpected leadership change

• Stephen Hemsley returned as CEO on May 13, 2025, after Andrew Witty resigned abruptly for personal reasons

John Rex has been CFO since 2016, and will be replaced by Wayne DeVeydt in September.

And of course, there was Brian Thompson’s murder in December of 2024.
That of course, piled on the narrative that ‘everyone hates insurance companies’.

Thompson was the CEO of UnitedHealthcare - the insurance arm of UnitedHealth.

UnitedHealth’s Bear Case in a Nutshell

UnitedHealth’s stock has been rattled by a perfect storm:

• Earnings miss & slashed guidance – EPS could fall back to pre-COVID levels, making the stock less of a bargain than it looks.

• Regulatory heat – DOJ probes into Medicare Advantage billing could threaten billions in revenue.

• Business model risks – Rising medical costs hit both their insurance and care delivery arms at the same time.

• Leadership shakeups – Multiple CEO changes, a new CFO incoming, and a tragic high-profile murder have fueled uncertainty.

• Negative sentiment - Brian Thompson’s murder fueled the idea that ‘everyone hates insurance companies’.

It’s a mix of slowing growth, legal overhangs, negative sentiment, and management instability that has investors heading for the exits.

So the question is - does this kill the idea?

Let’s try to come up with evidence-supported rebuttals to the bear case and see if UnitedHealth can survive as an investment idea…

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There’s been lots of excitement in the markets lately because of earnings season.

Some earnings reports cause big swings in price.

CRH plc is up nearly 10% over 5 days for example.

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While Novo Nordisk A/S is down 30% over the past month.

Academics would tell you that price volatility is risk.

But we know better - we know that short-term volatility is just a popularity contest.

Sometimes Mr. Market gets too excited and sometimes he gets too depressed - which is what creates opportunities for long-term investors like us.

Let’s look at this month’s Buy-Hold-Sell list update and see what interesting opportunities he’s willing to serve up!

Buy-Hold-Sell List

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

You can see all of the details on how it works here:

• Upgrading the 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 July 2025

Some Interesting Stats:

• 209 companies total receive a ‘buy’ rating

  • That’s up from 148 last month

• 96 moved from 'hold’ to ‘buy’

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

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

  • Only 1 company did that last month.

Recommendation Changes

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

Here’s a sample of a few:

• ASSA ABLOY (ASSA.B) designs and sells locks and security solutions for homes and businesses.

• Healthcare Realty Trust (HR) invests in and manages properties leased to healthcare providers.

• Norfolk Southern (NSC) provides freight transportation services across the eastern United States by rail.

You can download the entire Buy-Hold-Sell list here:

Read more

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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July 2025

In July the S&P 500 increased by 2.3%

Source: Fiscal.ai

The Fear & Greed Index indicates that we ended July in ‘Greed’ Mode.

This is remains unchanged from the end of May.

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? Centene Corporation.

Centene Corporation is one of the largest U.S. healthcare insurers, primarily focused on government-sponsored programs.

The company serves tens of millions across Medicaid, Medicare, and Affordable Care Act (ACA) marketplace plans.

Centene declined this month for several reasons

• Withdrawal of 2025 earnings guidance

• Surprise loss in Q2 earnings

• Rising medical costs

• Poor sector performance and analyst downgrades

The entire healthcare sector is performing poorly as of late, and many other insurers like Elevance Health, UnitedHealth, and Molina Healthcare are seeing many of the same issues.

Best Performers

Materion Corporation was this month’s best performer, rising nearly 33%.

Materion Corporation is a global materials technology company headquartered in Ohio, specializing in advanced engineered materials.

Its products serve industries such as aerospace & defense, semiconductors, energy, industrial, automotive, and telecommunications.

Its core businesses include:

• Performance Materials: specialty alloys and engineered metals

• Electronic Materials: semiconductor and microelectronics materials

• Precision Optics: coatings and components for optics

Materion’s stock rallied in July, driven by a strong Q2 earnings beat and improved financial outlook

The company also completed an acquisition of tantalum manufacturing assets in Asia, growing its footprint and support for tier‑1 semiconductor customers.

Spotlight: Healthcare Sector

Health care has had a rough start in 2025.

It’s the only sector with a negative performance year-to-date.

Political and regulatory uncertainty - especially around drug pricing and tariffs under the Trump administration - has weighed heavily on pharmaceutical companies.

Managed care companies have struggled too as I pointed out above with Centene, Elveance, UnitedHealth, and Molina.

Life sciences tools and services have also lagged, hurt by ongoing weakness in Chinese demand impacting leaders like Thermo Fisher and Danaher.

The entire sector is currently trading at a discount to both its average 10-year P/E and 30-year P/E.

It’s also looks very cheap relative to the S&P 500.

Despite the current headwinds, the long-term story remains interesting. The sector benefits from powerful tailwinds:

• Aging demographics driving demand for medicine, procedures, and hospital services

• Breakthrough innovation, from GLP-1 weight-loss drugs to AI-driven drug discovery and robotic surgery

Since 1989, the S&P 500 Health Care Index has delivered 11.3% annualized returns, outpacing the broader market.

For dividend investors, temporary weakness can present opportunity. Health care remains a defensive sector with secular growth drivers, making it worth watching for long-term portfolio additions.

August Best Buys

Because the healthcare sector is so out of favor at the moment, I scanned the Buy-Hold-Sell List for healthcare stocks.

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

5. Baxter International (BAX)

Hospitals and care settings depend on Baxter’s kidney care, infusion, and critical care products. Baxter is interesting because its offerings sit at the intersection of life-saving and repeat use.

Recent strategic pruning (e.g., the kidney-care deal) and a focus on operational effectiveness have been about simplifying the business and strengthening the balance sheet while keeping cash flowing.

Baxter currently offers a high dividend yield relative to history:

• Current yield: 3.1%

• Payout ratio: -95.3%

• Forward P/E: 11.2

It’s a legacy medtech that supplies the backbones of healthcare and funnels cash back to investors.

4. Danaher (DHR)

Danaher is the engine behind diagnostics, life sciences tools, and environmental solutions.

It has a famous business system based on continuous improvement that has expanded margins and free cash flow over years.

The portfolio is diversified across end markets that matter for health and industry, and the culture keeps reinvesting while still sharing profits with shareholders.

• Current yield: 0.6%

• Payout ratio: 24.9%

• Forward P/E: 25.1

3. Bio-Rad Laboratories (BIO)

Researchers and clinical labs depend on Bio-Rad’s tools to understand biology and diagnose disease. It benefits from recurring demand from institutions that don’t cut corners on quality.

Despite some cyclicality in revenue, the business generates real free cash flow and it’s been spending that cash flow on buying back shares recently:

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Sometimes a whole sector or industry presents interesting opportunities.

Alcohol stocks have been struggling as a group recently. Why?

• People are becoming more conscious of the health effects of alcohol

• Young people are drinking less

• Non‑alcoholic drinks are trendy and popular

• Appetite‑suppressing medications like GLP-1

• Added macro pressures like tariffs, logistics, and rising costs

Together, these are causing lower sales, smaller volumes, tighter margins - and dropping stock prices.

Are any of these companies worth considering for Our Portfolio?

Let's figure it out together.

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Step 1: Find a Starting Point

There are lots of ways to find interesting stocks - our Buy-Hold-Sell list is a good one.

But today we’re looking at alcohol stocks because the entire industry has seen declines in their stock prices.

And some superinvestors are buying or holding alcohol stocks

• Berkshire has been buying Constellation Brands

• Prem Watsa owns Molson Coors

• Tom Gayner owns Brown-Forman

When I see the same kinds of stocks popping up over and over, I know it’s time to dig deeper.

Let’s do that today.

Step 2: Pick The Most Interesting

To find the best ideas, you should try to find reasons to say ‘no’ as fast as possible.

For each company, ask yourself:

• Do I understand how the company makes money?

• Does this company interest me?

• Can I make an educated guess about where this company will be in 10 years?

If you say 'no' to any of those questions, move on to another company.

Our Companies

Alcohol stocks are pretty easy to understand, and there aren’t that many of them.

Here’s the list I came up with:

• Brown-Forman

• Constellation Brands

• Diageo

• AB InBev

• Molson Coors

• Pernod Ricard SA

Step 3: Compare What’s Left

Let’s compare them.

We’ll assign points in each category.

The best-scoring stock is the most attractive company - simple.

Capital Allocation

We’ll start by looking at how management allocates capital.

Using the average ROIC for the past 5 years, we’ll give one point to any company with an ROIC > 8% (the average return of the stock market).

Brown-Forman, and Diageo both get a point here.

1 Point = Brown-Forman (+1), Diageo (+1)

0 Points = Constellation,AB InBev, Molson Coors, Pernod Ricard SA

Dividend Growth

We want companies that will grow the dividend over time.

We’ll aware one point for companies with dividend growth rates >5% over both the 5 and 10 year time horizons.

The companies with the best dividend growth? Brown-Forman, Constellation, and Pernod Ricard SA

AB InBev and Molson Coors have both seen dividend cuts.

3 Points = Brown-Forman (+2)

2 Points = Constellation (+2), Pernod Ricard SA (+2)

1 Point = Diageo

0 Points = AB InBev, Molson Coors

Balance Sheet

We also like strong balance sheets.

We’ll give one point for a Debt/Equity of 0.5 or less, and another point for Interest Coverage >10x.

Molson Coors is the only company to pick up a point here.

3 Points = Brown-Forman

2 Points = Constellation, Pernod Ricard SA

1 Point = Diageo, Molson Coors (+1)

0 Points = AB InBev

Next we’ll dive into how these companies return capital to shareholders, how they’ve grown in the past, and how they’re expected to grow into the future.

Ready to see which company comes out on top?

Capital Returns

We want companies that return capital to us, but in a smart way.

We’ll award one point for a Payout Ratio of less than 60%, and another point for a Shareholder Yield of 8% or more.

The best capital allocator? Molson Coors

The worst? Pernod Richard SA with a payout ratio over 100% and a very low shareholder yield.

4 Points = Brown-Forman (+1)

3 Points = Molson Coors (+2)

2 Points = Constellation, Pernod Ricard SA

1 Point = Diageo, AB InBev (+1)

Past Growth

To grow the dividend, the company needs to grow its profits.

We’ll give one point for:

• 5-year EPS growth >5%

• 10-year EPS growth >5%

We’ll also give one point for:

• 5-year Revenue growth >5%

• 10-year Revenue growth >5%

The companies that score the most points here? Brown-Forman, Constellation, and Molson Coors.

6 Points = Molson Coors (+3)

4 Points = Brown-Forman, Constellation (+2)

2 Points = Pernod Ricard SA, Diageo (+1), AB InBev (+1)

Future Growth

We also want companies that will continue growing.

We’ll give a point to any company expected to grow its EPS by 5% or more.

In addition, we’ll give a bonus point to companies expected to grow by at least 8%.

Totals:

6 Points = Molson Coors

4 Points = Brown-Forman, Constellation, Diageo (+2), AB InBev (+2)

2 Points = Pernod Ricard SA

Conclusion

To determine which stock to buy, you can follow these steps:

• Step 1: Find a starting point

• Step 2: Pick your interesting companies

• Step 3: Compare them

Molson Coors came out on top in our comparison - but that doesn't mean it's a buy.

The alcohol industry is facing long-term challenges: changing drinking habits, health concerns, and rising demand for non-alcoholic options.

None of these companies show steady growth in sales, earnings, or dividends. Even the "best" one lacks the consistency we look for.

Sometimes the smartest move is to wait. This sector might recover, but right now, there are likely better places to invest.

Great investments come from strong businesses in strong industries - not weak ones on sale.

PS…

Our YouTube Channel is still young - subscribing and interacting with some likes, comments, or shares helps a lot. Find it here.

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

Disclaimer

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

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Last week, I went fishing for walleye on Lake Erie.

It’s a giant body of water - in fact, it’s the 11th largest lake in the world.
Erie is bigger than El Salvador, Israel, or Slovenia.

From the deck of a boat, looking out over that endless stretch of gray-blue horizon, it feels like you’re on the ocean. Wide open. Impressive.

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Even though it’s massive, seasoned anglers already know…

Lake Erie is full of fish. This year, the estimate is over 70 million walleye.

Of course, you can fish from the shore. A cheap rod, a bobber, a worm. You might get lucky.

But the serious guys - the ones who come home with full coolers and bragging rights - they fish different. They have sonar. Planer boards. Down riggers.

And most important… they have a boat.

That’s how you cover more water. That’s how you go where the fish are. Not a guarantee you’ll catch something - but your odds go way up.

When we were on the lake, we had twelve lines in the water most of the time.

That’s how investing works, too.

Buy-Hold-Sell List

Our Buy-Hold-Sell List?

It’s our fishing boat.

You could cast blindly into the market from the shoreline. You might even catch something.

But when you have a tool that covers wide territory - and when you know how to read the sonar - you find the real action. The opportunities others miss. The fat, slow-swimming dividend monsters no one else is reaching.

But that’s not where the comparison ends.

There’s a joke among boat owners…

The two happiest days of your life? The day you buy your boat - and the day you sell it.

Boats are a headache. They’re expensive. They break. You spend more time maintaining than fishing.

Know what’s better than owning a boat? Having a friend who owns one.

That’s what this newsletter is.

I’m your friend with the boat. You don’t need to manage it, maintain it, or even know how to read the sonar.

Just hop in.

Let’s go fishing. Let’s update the Buy-Hold-Sell List.

Buy-Hold-Sell List

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

You can see all of the details on how it works here:

• Upgrading the 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 June 2025

Some Interesting Stats:

• 148 companies total receive a ‘buy’ rating

• 48 moved from 'hold’ to ‘buy’

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

• Only 1 made the jump from ‘sell’ directly to ‘buy’

Recommendation Changes

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

Here’s a sample of a few:

• Nike ($NKE): Designs, develops, and markets athletic footwear, apparel, and equipment

• Wolters Kluwer ($WKL): Provides information, software solutions, and services for professionals in legal, tax, finance, and healthcare sectors

• Danaher Corporation ($DHR): Engages in the development and manufacture of innovative products and services across life sciences, diagnostics, and environmental sectors

• TJX Companies ($TJX): Operates a leading off-price retailer of apparel and home goods, offering a diverse selection of brand-name merchandise at discounted prices

You can download the entire Buy-Hold-Sell list here:

Read more

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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June 2025

In June the S&P 500 increased by 4.2%

Source: Fiscal.ai

The Fear & Greed Index indicates that we ended June in ‘Greed’ Mode.

This is unchanged from the end of May.

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? Brown-Forman.

Brown-Forman is one of the largest American spirits companies, known for making whiskey, tequila, and other premium alcohol brands.

Its best-known product is Jack Daniel’s, but it also owns Woodford Reserve, Old Forester, and Herradura tequila.

Recently, Brown-Forman has faced some headwinds:

• Slowing demand in key international markets

• Rising costs for glass, shipping, and agave

• Increased competition from craft and global spirits

• Weaker-than-expected sales of flavored whiskey products

Best Performers

Aneka Tambang was this month’s best performer, rising over 42%.

PT Aneka Tambang Tbk is a large Indonesian state‑linked metals and mining company founded in 1968. It operates in three key areas:

1. Nickel (ferronickel and nickel ore),

2. Precious metals & refinery (gold, silver, alumina), and

3. Bauxite & alumina

The stock price has been moving up strongly since the company reported strong Q1 earnings in March.

They’re part a major EV battery supply chain project with CATL and others planned to be operational by the end of 2026.

In mid-June, the company appointed new board members and management, aligning with national resource strategies, and coinciding with the stock price rise.

Spotlight: Brown-Forman Corporation ($BF.B)

How does the company make money?

Brown-Forman makes money by selling whiskey, tequila, vodka, and other alcoholic drinks.

Its portfolio includes some of the most iconic brands in the spirits industry:

• Jack Daniel’s Tennessee Whiskey

• Woodford Reserve bourbon

• Herradura tequila

• Finlandia vodka

• Chambord liqueur

Alcohol is a global business with high margins. Brown-Forman sells to over 170 countries, and its brands are especially strong in the premium category.

This is a business built on heritage, pricing power, and global distribution.

Why do dividend investors like it?

Because Brown-Forman combines brand strength with long-term dividend growth.

• It has raised its dividend for 41 straight years

• It’s a Dividend Aristocrat

• The payout is well-covered by earnings and free cash flow

• The company has a strong balance sheet and is still family-controlled

The fundamentals look like this:

• Dividend Yield: 3.5%

• Payout Ratio: 48.3%

• 10-Year Dividend CAGR: 6.3%

• Net Profit Margin: 21.9%

• ROIC: 16.0%

• Forward PE: 16.8x

Brown-Forman is currently trading at a much higher starting yield than we’ve seen in over a decade.

If you believe that the slowing demand is temporary and that the company can manage rising costs, it might be an interesting stock to look at.

July Best Buys

Walter Schloss liked dividends, and so do I.
Especially when I can get a high starting yield on a good company.

Brown-Forman isn’t the only stock trading at a high starting yield this month.

I looked through the Buy-Hold-Sell list for ‘Buy’ rated stocks with 4%+ starting yields to find some interesting companies to highlight.

I also used our Magic Formula screen of the European markets to find interesting candidates.

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

5. 📺 Nexstar Media Group (NXST)

While Wall Street obsesses over streaming wars, savvy investors are quietly collecting 4%+ yields from America's dominant local TV empire.

With nearly 200 local TV stations and a pile of digital media assets, Nexstar is the biggest broadcaster in the country.

That's a virtual monopoly on local news and advertising that Netflix can't touch.

Nexstar throws off tons of free cash flow, barely touches it (payout ratio under 30%), and still manages to yield 4%.

And when election season hits, this cash machine goes into overdrive, pumping out political ad revenue like a broken ATM.

• Current yield: 4.2%

• 5-year average: 2.8%

• Payout ratio: 34.7%

• Forward P/E: 13.2

This is the kind of boring business that quietly makes people rich.

4. 🚛 Paccar Inc. (PCAR)

If you’ve ever seen a Peterbilt or Kenworth on the highway, you’ve seen Paccar.

These trucks move the economy.

But here’s what most people miss: Paccar runs a conservative, cash-gushing operation. It rarely makes headlines… but regularly sends big dividend checks—especially those juicy “specials.”

And it’s been doing it for decades.

• Current yield: 4.8% (with specials)

• 5-year average: 3.7%

• Payout ratio: 18.6%

• Forward P/E: 17.5

Think of this one like an income factory with chrome trim.

3. 💊 Sanofi (SNY)

While biotech gamblers chase the next miracle drug, Sanofi shareholders have been collecting fat dividend checks for 30 years straight.

This French pharmaceutical giant sits on a treasure trove of blockbuster drugs and vaccines that generate billions in recurring revenue.

Healthcare isn't going anywhere - and neither is Sanofi's dividend growth streak.

• Current yield: 4.2%

• 5-year average: 3.8%

• Payout ratio: 89.3%

• Forward P/E: 10.1

In a world chasing miracle cures, Sanofi sells what already works.

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Should you invest in this dividend grower right now?

Let’s find out!

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1. Do I understand the business model?

Texas Instruments is the world's largest analog chipmaker.

Their chips are used in lots of things, like cars, industrial machines, and personal electronics.

Business Structure

Texas Instruments’ business is dividend into 2 segments:

Analog chips handle real-world signals, like sound or light. They help devices measure things like temperature or pressure by turning the real-world signal into a digital one that can be processed by a computer.

Embedded chips are small processors that control specific tasks within devices. Here’s some of what they can do:

1. Control Functions: They manage operations like turning lights on and off, or adjusting temperature

2. Automation: Embedded chips help automate processes in devices, making them more efficient. For example, in washing machines, they control wash cycles

3. Communication: They enable devices to communicate with each other, such as smart home devices that work together

4. Real-Time Processing: These chips can quickly process data from sensors, allowing devices to respond instantly, like in cars for braking systems

5. Energy Efficiency: Many embedded chips are designed to use less power, helping devices run longer on batteries

The analog chip segment generates the majority of the revenue.

It also generates most of the operating income:

Competitive Advantages:

• Scale: Texas Instruments is the world’s largest analog chipmaker, giving them cost advantages

• Intangible assets: The company has years of built up knowledge and expertise around chip design and manufacturing

• Switching costs: Once an analog chip or control chip is designed into a product, the manufacturer doesn’t want to change it - remember the car shortage during the COVID pandemic - automakers halted production before they switched chips!

2. Is management capable?

Haviv Ilan, President, Chief Executive Officer, and Director:

Ilan became CEO in April 2023, succeeding Rich Templeton.

He joined the company in 1999 when they acquired Butterfly, a wireless start-up in Israel. He’s been the Executive Vice President and Chief Operating Officer (2020–2023), and Senior Vice President of Analog Signal Chain.

Ilan only holds around $9 million of stock.

Rich Templeton, Chairman of the Board:

Templeton (former CEO from May 2004 to March 2023) has been chairman since April 2008.

He joined TI in 1980, and also held roles such as Chief Operating Officer (2000–2004) and Executive Vice President of the Semiconductor business (1996–2004). He reshaped TI’s focus on analog and embedded processing, overseeing major acquisitions like National Semiconductor. He also holds $92 million in stock.

Rafael Lizardi, Senior Vice President and Chief Financial Officer:

Lizardi oversees finance and operations. He previously served as Corporate Controller and has been with TI for over two decades. He owns around $23 million in stock.

The management team at Texas Instruments has generated attractive Returns on Invested Capital for a long time:

3. Has the company grown the dividend attractively?

We look for:

• At least 10 years of dividend growth

• 5-year dividend growth >5%

Texas Instruments has a great history of dividend growth

• 5-year dividend growth rate: 9.8% annually

• 10-year dividend growth rate: 15.3% annually

  

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

The analog semiconductor market is projected to grow at 7.4% over the next 10 years.

Texas Instruments is increasingly concentrating on the automotive and industrial markets.

• Automotive Applications:

  • The automotive sector is a significant growth driver. The rise in electric vehicles, advanced driver-assistance systems, and infotainment systems is increasing semiconductor content per vehicle.

• Industrial Applications:

• The industrial sector is another key driver of growth. Demand for analog and embedded chips in automation, robotics, and smart infrastructure is growing due to trends like Industry 4.0 and IoT (Internet of Things).

5. What are the main risks for the company?

Cyclical Nature of the Semiconductor Industry

The semiconductor industry tends to be cyclical, with periods of strong demand followed by downturns. From 2022 to 2023, TI saw revenues drop 12%. Between 2023 and 2024, they fell another 10%.

Mitigation: Texas Instruments products have a long shelf life, so any build up of inventory will likely be sold eventually. The cyclicality of the industry isn’t new, so management does plan for it. The company’s strong balance sheet also mitigates the risk here.

Geopolitical Tensions and Global Trade Disruptions

TI is a global company - geopolitical tensions and trade issues can affect the company’s ability to deliver products, support customers, or access manufacturing.

Mitigation: TI is investing heavily in U.S. manufacturing. They also have manufacturing outside of the U.S. there are two factories in Japan, one in China, and one in Germany.

Rapid Technological Change and Innovation Needs

Rapid technological change could lead to shortened product life cycles and increased R&D spending. TI's long-term success depends on its ability to meet the industry needs and develop new products in a timely and cost-effective manner.

Mitigation: The analog and embedded chip technologies are not on the leading edge of innovation. In general, they don’t change as often or as rapidly as the most advanced semi-conductors.

Supply Chain and Manufacturing Risks

TI relies on third-party suppliers, which poses risks of disruptions, quality issues, and limited access to key materials, services, and utilities. These supply chain challenges could impact TI's manufacturing operations in the long run.

Mitigation: Texas Instruments is currently in a large CapEx cycle, where some of the these issues are being addressed. The manufacturing in Japan, China, and Germany also help to mitigate these risks.

Talent Retention and Recruitment

TI's continued success depends on its ability to retain, train, and recruit skilled personnel in a competitive environment. Failure to do so could disrupt the business in the long term.

Mitigation: There are less people with expertise in analog chips than the more ‘exciting’ leading-edge tech. Texas Instruments’ size and leadership position in the industry likely give it an edge in hiring over other competitors.

Regulatory and Legal Compliance Risks

Like any large, global comapny, TI is subject to complex laws, rules, and regulations. Changes or non-compliance with these could have long-term adverse effects on TI's results and reputation.

Mitigation: TI is well aware of the risks here. They have lots of experience and expertise dealing with regulation and compliance.

6. Does the company have a healthy balance sheet?

We like a Debt/Equity ratio < 50%.

Texas Instruments has a Debt/Equity ratio of 80%.

You can see that the general trend is up, but it’s also a bit cyclical.

Texas Instruments is spending a lot of money on CapEx right now - management says they’re midway through a 6 or 7 year CapEx cycle. They’ve taken on some debt to build new manufacturing and build up their inventory. The new plants aren’t producing yet, and the inventory hasn’t sold.

Essentially the comapny is investing and hasn’t seen the returns yet. When they do, debt should come down and equity should go up, improving this ration.

But let’s see how the balance sheet looks right now.

• Interest coverage ratio: 10.6x

• Current ratio: 5.3x

• FCF to Debt ratio: 0.5x

Conclusion: These numbers are VERY healthy. Texas Instruments has an excellent balance sheet.

7. Is the company a great capital allocator?

Key signs:

• Payout Ratio <60%

• Effective investments or buybacks

Texas Instruments has a Payout Ratio of more than 100%!

Do we need to worry about this?

The short answer is ‘no’.

Remember the CapEx cycle I talked about where Texas Instruments is spending a lot on growth? That’s happening at the same time the industry has slowed down post-COVID, making the earnings look much lower than they actually are.

Management has chosen to use the strong balance sheet to continue to pay out dividends during the investment cycle, indicating confidence that the company will earn much more after the investments are completed.

The company has a history of attractive returns on investments made in the business:

The declines in 2023, and 2024 are likely mainly due to the recent increase in growth CapEx that haven’t paid back a return (yet).

8. How does the past and future growth of the company look?

Texas Instruments has struggled with growth:

• 5-year revenue growth: 2.6% per year

• 5-year EPS growth: 0.2% per year

• Long-term EPS growth rate: 13%

The management team focuses on FCF / Share - a great metric in my opinion. Let’s look at that.

We’ve talked about the CapEx cycle the company is in, so using the FCF as reported won’t be accurate because of all the spending on future growth.

Adjusted FCF / Share

To account for this, I took the average FCF margin from 2015 to 2022 (about 34%) and applied it to the revenue.

Here’s how that looks:

• From 2015 to 2022 the CAGR is about 8% per year

• From 2015 to the last 12 months, it’s about 3.5%

Management’s Projections

The management has been very open about the investments for growth.

They’ve also been very open about the fact that they don’t know what revenue will look like over the next few years.

I have to say, I like this kind of communication.

Remember that the semiconductor industry tends to be cyclical - the timing of these cycles will affect TI’s revenue in the next few years.

The number of semiconductors sold over the past few years is way below the growing trend line.

Here’s the management team’s projections for FCF / Share under 4 different revenue scenarios:

I have to say that I find it somewhat troubling that even though the semiconductor market that Texas Instruments is involved in has shown steady growth, the company doesn’t seem to be growing at the same rate.

• The trend line in the number of units shipped chart grows at about 6% per year

• The high end of management’s FCF / Share projection is 7% per year

Neither one of those numbers gets us to the 13% projection that fiscal.ai is showing.

And Texas Instruments hasn’t historically bought shares back quick enough to get us there:

9. Can the company grow dividends into the future?

Let's check:

• Current yield: 2.6%

• Payout ratio: 100.1%

Adjusted Payout Ratio

We’re going to again adjust for the growth CapEx spending. We’ll use my adjusted FCF / Share number for the last 12 months to calculate a new Payout Ratio:

• Current DPS: $5.44

• Adjusted FCF / Share: $5.94

• Payout Ratio: 91.5% - still quite high

Forward Payout Ratio

We know the balance sheet is very strong, and that the elevated CapEx is expected to last until 2026. Let’s use management’s projections to calculate a forward Payout Ratio.

• If we grow the dividend by 4% the next 2 years, the 2026 DPS is about $5.90

• Management’s low end FCF / Share is $8

• Forward Payout Ratio: 73% - better, especially if FCF / Share is expected to grow faster than the DPS.

10. Does the company trade at a fair valuation level?

We value every company 3 different ways:

1. Dividend Yield vs History

• Historical average dividend yield: ~2.76%

• Current yield: 2.6%

Suggests Texas Instruments might be around fair value.

2. Earnings Growth Model

This shows us the yearly return we can expect from a company.

It takes into account Earnings Per Share growth, the dividend yield, and multiple contraction or expansion.

The formula looks like this:

Here are the numbers for TXN:

• EPS Growth: 6% - I’m using the industry growth rate

• Dividend Yield: 2.6%

• Change in Price to Adjusted FCF: Flat

  • I’m using my adjusted FCF number here to get a current P/FCF of about 36

  • TXN has historically traded between 20x and 30x FCF

  • Remember that we’re around a trough in the cycle, so sales are low, making the P/E or P/FCF number look higher than the normalized one

    • To be conservative, I’m not going to assume multiple compression, but I’m not assuming expansion either

Expected return = 6% + 2.6% + 0% = 8.6% return per year

3. Reverse Dividend Discount Model

As Charlie Munger says, “Invert, always invert!”

Solving complex problems is often easier backward. That’s exactly what we do with the Reverse DDM.

Solving the DDM for growth tells us how much dividend growth is priced in by the market.

Here’s the formula:

Let’s put some numbers in for UnitedHealth Group:

• Required return: 10%

• DPS next year: $5.66 (4% growth from current)

• Current share price: $206

Expected growth = 10% - (5.66 / 206) = 7.3%

This tells us that the market is pricing in a 7.3% growth in Texas Instruments’ dividend

• 5-year DPS CAGR: 9.8%

Dividend Score

Texas Instruments receives a Dividend Score of 7.1/10.

The main categories that hurt the score?

• Growth - the financial results of the company haven’t kept up with broader industry

• Dividend Future - the payout ratio is very high right now, which the balance sheet can support, but the dividend relies on continued strong growth into the future

• Valuation - Texas Instruments looks fairly valued to me at the moment

Conclusion

Texas Instruments checks many of the right boxes for dividend growth investors - it looks like the kind of company we should want to own.

• Strong position in analog and embedded semiconductors, two essential and growing markets

• Management is transparent and focused on long-term value creation through FCF/share

• 15+ years of impressive dividend growth and a healthy balance sheet

• Currently in a heavy investment cycle, which is masking near-term profitability

• Historical growth in revenue, EPS, and FCF/share has lagged the broader industry

• Market seems to be pricing in either faster than historical growth, or further multiple expansion

  • That’s higher than recent performance and not clearly supported by fundamentals

But here's what most dividend investors get wrong about Texas Instruments: Good companies don't always make good investments, and TI's stock price is pricing in growth rates the company hasn't achieved in years.

That doesn’t mean Texas Instruments is a bad business. Far from it. It just means it’s not cheap enough today to offer the kind of low-risk, high-reward setup we want in our portfolio.

We’ll keep an eye on it. But for now, it stays on the “watch list.”

One Dividend At A Time,

-TJ

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Fiscal.ai: Financial data

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