Or the what happens when you outsource your brand. For the past several years, I’ve been forecasting a paradigm shift in business practices from extreme efficiency (globalized supply chains, asset light business models, just-in-time everything, financialization of the capital markets) to much greater efficacy (more vertical integration, more control over supply and distribution chains, resulting in greater resiliency, all at the cost of some operating margin). So far, the argument has fallen on deaf ears. In fact, the opposite is true. Most companies continue to outsource core and non-core competencies and focus on maximizing their financials, not their value chain. …

As a dividend investor in a stock market, I usually find myself having to make my case as a distinctly minority approach to the stock market. Dividend-focused investing has been out of favor for decades, with an academic tradition leaning against a cash-based relationship to stock ownership dating back to 1961. Sometimes, however, the anti-dividend narrative comes in a form that is so crisp, clear, and well-argued that it serves equally well as a platform for pointing out why investors might consider the opposite approach… Managers of a quantitative investment strategy recently published a compelling piece showing that the dividend …

What’s the end of the second quarter mean for the dividend investor in a stock market? Not much. It is an opportunity to count the checks, compare the total with last year’s, and measure the growth rate. Is the cashflow less, more, or the same as expected? Does the multi-year income forecast need to be revised? Beyond that, there is the usual opportunity to maximize a portfolio’s cash NPV by taking advantage of the daily repricing, sometimes wildly, of income streams that don’t change much year-to-year. (Dividend growth tends to be steady; share prices are all over the place.) In …

Dividend investors in a stock market normally see an increase in their yield on cost when their portfolio holdings periodically increase their distributions. This year, however, the dividend investor’s cash returns have gotten an extra boost from the AI stock frisson. By pushing down the prices of old-economy, major dividend payers without impairing their income trajectories, AI hysteria has increased the yield of these holdings for dividend reinvestment or new money. That is: income is going up, prices are going down, voila—rising cash returns! Sadly, such income “sales” cannot go on indefinitely. As dividends increase, the yield will eventually become …

Investors massively underestimate the importance of political economy. Our financial institutions rely on our political structures, and our political framework only really works because of certain underlying economic relationships. Separating the two realms is impossible. Think about how critical the rule of law, the inviolability of contracts, individual liberty, and an independent judiciary are for the functioning of capital markets. And in the other direction, private property, commerce, and entrepreneurship create the foundations for the liberal political order, meaning the representative democracies of the past two centuries. Adam Smith might be considered the first modern “political economist.” Karl Marx wrote …

Low Room Rater score, but more reasonable commentary about being a dividend investor in a stock market. RIA Channel interview

A nice write up from James Faris of Business Insider. Behind a paywall, but makes the point that being a dividend investor/business owner in a stock market has its benefits. https://www.businessinsider.com/how-to-invest-2023-dividend-stocks-strategy-top-fund-manager-2022-12  

Putting to bed another boring year of dividend investing in a stock market. FX a headwind, but otherwise a typical div yld + div growth = IRR/long-term TR context. Less common but encouraging to see it add up in any 12-month period. Reasonably expecting to be dull again in 2023.  

I’ve been highlighting the need for US corps to “reset” margins to make up for the excessively asset-light business models that have come to the fore the past three decades. Has the Great Reset begun? Perhaps. Empirical Research Partners, LLC has a report out today highlighting that Capital Expenditures are up 20% ytd for the S&P 500 vs. earnings that will barely be positive. Is this the beginning of that new spending? We shall see. If so, companies that can afford to invest during the downturn should do so. Those that can’t will continue cost-cutting/hewing to the prior model. On the capital …

A partial write-up on the Wall Street Journal here.    

The market has declined by 25% in nine months. No one is particularly happy about that, but the rapid reset of prices does provide an opportunity to remind investors about basic investing math. In this case, the issue is expected future returns after a sharp move in the market, either up or down. And that math is somewhat paradoxical.  Consider, for instance, investment in the income stream—the dividends—of a diversified portfolio of stable publicly traded companies. The cash yield at time of purchase in 2021 is 4%. Fast forward to September 30, 2022, and the price of the portfolio has …

The universally respected and admired Michael Mauboussin has chimed in on the now political issue of share repurchase programs. His opinion piece in the FT this week in defense of them tries to clear up what he considers “confusion and sloppy thinking” critical of buybacks. Cliff Asness, his equally formidable ally in support of buybacks, has made similar points in print recently. Wrestling with either of these finance heavyweights is done at one’s peril. But I can’t help but add some additional color around their assertions from the perspective of a dividend investor. I’ve spent the past two decades competing …