The Dividend Mailbox Greg Denewiler

By now, almost everyone has heard of the turmoil in the banking sector. The current scenario is much different from that of 2008 yet investors are nonetheless on edge. That has presented the long-term investor with an opportunity to scoop up well-managed banks at an attractive price. But buyer beware, there is a big difference between the haves and the have-nots. Although there may very well be more turbulence in the short term, there are a few candidates worth analyzing. 
 
Considering the sell-off in the banking sector, Greg presents a new investment idea to add to our model portfolio. He makes the case that M&T Bank ($MTB) is conservatively managed and poised for continued dividend growth, even in rough seas. Later he explains why we sold a third of our Clorox ($CLX) position and addresses a listener’s question about cash investments. 

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In this month’s episode, Greg sits down with Jeff Weniger, Head of Equity Strategy at WisdomTree. For the unfamiliar, WisdomTree is a fund and ETF manager with roughly $90 billion in assets under management. What makes WisdomTree’s funds special is that most of them focus on dividend and dividend growth strategies. One of their largest funds is the US Quality Dividend Growth Fund ($DGRW), which incidentally is our largest core position and is one we have mentioned over past episodes. Among their other funds, $DGRW is exceptional for gaining exposure to quality dividend growth.  


Jeff has spent decades in the finance world and specializes in the management and creation of strategy-focused ETFs. Prior to joining WisdomTree, he was Director & Senior Strategist at BMO, working directly with the CIO of the firm from 2006 to 2017. He is a CFA charterholder, and earned his MBA from Notre Dame.  As head WisdomTree’s equity strategy, Jeff has invaluable experience in equity markets and provides unique perspectives for long-term investors and the macro environment. 



During Greg and Jeff’s discussion, they cover the history of dividends, the difference between US and overseas dividend culture, why “boring” actually performs well, and why having a lottery ticket mindset can lead to mistakes. The interview is full of topics that the dividend investor should keep in mind and ultimately serves as a powerful reminder of why dividend growth investing is a long-term strategy that works.

EDIT: This episode was originally uploaded with an hour of silence that followed the episode. The current audio file has been edited and corrected. 




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Most of the time, using the screening criteria that are characteristic of good dividend growth companies weeds out the bad apples. When you buy companies that have low debt, attractive yield, high return on invested capital, etc., it can feel like you’ll be cashing those dividends forever. However, companies inevitably run into challenges, and you might get a surprise. If you invest long enough, you’ll eventually find yourself with a dividend that’s been cut and a once attractive investment that has soured. The good news is if your portfolio is structured properly, not even dividend cuts get in the way of growing your income every year.
On another note, one factor that greatly influences the security of a dividend is debt. Given everything that has happened in the market recently, and with a liquidity crisis in the banking sector, debt has become a hot topic. It is extremely important to understand how debt functions for a company, especially in an environment with rising interest rates.


In this month’s episode, Greg takes you on a deep dive into Intel ($INTC). He looks at why we originally bought it, the problems they ran into, and why they recently cut their dividend. He even lays out why it may do better in a couple of years. Later, He uses a couple of different examples to show how debt can be good, bad, or indifferent.




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When the goal is to compound wealth for decades, there is a significant difference between dividend growth and sustainable dividend growth. While the difference is obvious enough, they are two distinctly different investments and should be treated as such. Although we believe that sustainable dividend growth is ultimately what builds wealth over time, that doesn't mean that other investment ideas should be ignored altogether. When a stock gets cheap enough, even if its dividend is questionable, sometimes you have to jump on it.

In this episode, Greg builds on the premise of Episode 18 and examines Oaktree Specialty Lending Corporation ($OCSL), a business development company with a 10%+ yield. At the risk of contradicting himself and the case he made against high yield, he argues that there comes a time when value beats dividend sustainability. While the risks of high-yield investments remain, he uses OCSL to compare dividend growth vs. sustainable dividend growth. Later on, Greg provides updates on companies we have covered in past episodes, and where we view them post-Q4 earnings. If you are interested in the original episodes where we went in-depth into each story, they are linked below:

The Clorox Company ($CLX): Ep. 8 - Dirty vs. Clean Opportunities & Ep. 9 - Greater Volatility and More Uncertainty...

Emerson Electric ($EMR): Ep. 17 - The Dilemma With Slow Growth

3M Co ($MMM): Ep. 15 - You Don't Need A "Winner" to 10x Your Income

United Parcel Service ($UPS): Ep. 19 - Do Dividends Care About Recessions?




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Heading into 2023, it seems as though the word recession is on the tip of everyone's tongue. At first thought, a recession might make you grimace, but what do they actually mean in real terms for an investor? Truth be told, you never know you're in a recession until after the fact, but it is essential to understand how they affect the economy. If you're a long-time investor, 2008 and 2001 were painful examples of just how fast your portfolio's value can change. So we know recessions are bad for the stock market... are they that bad for dividends?

Good news for the dividend growth investor — dividends are resilient through even the worst of downturns.

In this month's episode, Greg takes a page out of the market history book to dive into just how recessions affect GDP, earnings, the stock market, and especially dividends. He makes the case that dividends are a much more stable, if not the most predictable, factor to focus on when things get rough. Later he examines UPS as a potential dividend growth candidate. 



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If you spend much time managing your own money or researching companies, odds are you have been exposed to high-yielding opportunities. From stocks to bonds to real estate, there are plenty of investments out there that present themselves as quality investments while simultaneously generating large income streams.

7%+ yields seem hard to beat, but there is usually a reason why the yield is so high. In a way, the market is essentially showing the investor a blinking warning light, one that indicates that there is risk built into the price of the company. This is not to say that these opportunities don't work, just that dividend growth investors need to be wary of what they entail.

In the year's final episode, Greg answers a listener's question about prioritizing dividend growth or yield when nearing retirement age. That opens the door to examining the pitfalls of investing in high-yielding companies, where he provides a framework for analyzing the risk embedded within such investments. Later he compares Williams-Sonoma and Restoration Hardware in response to Berkshire Hathaway's recent addition of the company to its portfolio. Finally, Greg wraps up the episode with some food for thought.

Happy Holidays!




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