Today is Dividend Day.
The series where I teach you 5 things about dividend investing in less than 5 minutes.
1️⃣ Dividend Growers Outperform
Last week, we talked about the Dow Jones U.S. Dividend 100 Index, the engine behind the SCHD ETF.
It’s only been around since 2011, but S&P did a backtest on the methodology from June 2001 through June 2023.
They found that it outperformed the U.S. Broad Market Index by 1.52% per year.
Here’s how that difference actually stacks up over 20 years for a $50,000 initial investment in each:
Dow Jones U.S. Dividend 100 Index: $455,489.23
Dow Jones U.S. Broad Market Index: $346,296.86
Notice in the green circles that the International version also outperforms.
2️⃣ Growth Doesn’t Help If You Pay Too Much
The chart below shows the average 5-year return depending on two things:
The initial P/E multiple paid
The Forward 5-Year Annual Sales Growth Rate
Growth doesn’t bail you out if you pay too much.
We just saw this in the recent breakdown of Nike’s P/E multiple contraction.
3️⃣ An Investing Quote
Howard Marks is the founder of Oaktree Capital.
He’s known for his memos on investing.
Warren Buffett has said that when a memo from Howard Marks arrives in his mail, it is the first thing he opens and reads.
One of my favorite Marks quotes ties right in to the chart I just showed you:
"Investment success doesn't come from 'buying good things,' but rather from 'buying things well.'" — Howard Marks
4️⃣ The Calculus of Value
Since we just talked about Howard Marks, it only makes sense to share one of his memos next.
This one is “The Calculus of Value.”
Here is a quick look at what he covers:
Why high stock valuations almost always lead to low future returns.
How true value pulls on a stock price like gravity.
Why overpaying for a great business is a trap.
You can read the memo here.
Or if you prefer listening, the audio version is here.
5️⃣ Example of a Dividend Stock
Let’s look at a business that passes Joel Greenblatt’s famous Magic Formula screener.
It hunts for companies that are both ‘good’ (high return on capital) and ‘cheap’ (high earnings yield).
Enghouse Systems is a Canadian company that builds enterprise software for contact centers, video communications, and network infrastructure.
Key numbers from Fiscal.ai:
Profit Margin: 14.9%
Forward PE: 14.3x
Dividend Yield: 6.9%
Payout Ratio: 91.3%
Used sources
Interactive Brokers: Portfolio data and executing all transactions
Fiscal.ai: Financial data
Disclaimer
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