December 31, 2024 • 34 mins
Dividend investing involves acquiring shares in companies that distribute a portion of their profits to shareholders. This strategy offers several key advantages:
* Consistent Income: Dividends provide a regular stream of income, potentially enhancing financial stability and supplementing other income sources.
* Potential for Growth: While focused on income, dividend investing can still offer capital appreciation as the underlying company's stock price increases.
* Reduced Volatility: Dividend-paying companies often exhibit greater stability compared to high-growth stocks, potentially mitigating some market fluctuations.
* Inflation Hedge: Dividends can help maintain purchasing power as they may increase over time, potentially offsetting the effects of inflation.
* Compounding Growth: Reinvesting dividends to acquire additional shares can significantly enhance long-term returns through the power of compounding.
Key Considerations:
* Dividend Yield: Represents the annual dividend payment per share relative to the stock's current price.
* Dividend Growth: A history of consistent dividend increases indicates a company's commitment to shareholder returns.
* Payout Ratio: The percentage of earnings distributed as dividends; a sustainable payout ratio is crucial for long-term dividend sustainability.
* Financial Strength: Thoroughly analyze a company's financial health, including profitability, debt levels, and cash flow, to assess the sustainability of its dividend payments.
Disclaimer: Investing in stocks involves inherent risks, and past performance is not indicative of future results.This information is for general knowledge and educational purposes only and does not constitute financial advice.
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Transcript
Episode Transcript
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(00:01):
[Intro/Extro]Welcome to a life well lift. Grow, preserve,
[Intro/Extro]and transfer your wealth with Ken Ouellette, CPM
[Intro/Extro]certified portfolio manager and founder of Orca Wealth
[Intro/Extro]Management. In this podcast, he will provide some
[Intro/Extro]clarity and setting goals needed to build, preserve,
[Intro/Extro]and transfer wealth, and overcome some of life's
[Intro/Extro]financial obstacles. Ken provides actionable steps to help
(00:25):
[Intro/Extro]you plan through your financial ups and downs
[Intro/Extro]in a way everyone can understand. Join us
[Intro/Extro]on this journey where Ken will explore many
[Intro/Extro]financial avenues, drawing from his three decades of
[Intro/Extro]experience in helping others avoid risking a lifetime's
[Intro/Extro]worth of work and savings by not having
[Intro/Extro]a plan and a strategy in place. Now,
[Intro/Extro]onto the show.
(00:57):
[ken ouellette]Yeah.
[Don Mespelt]Yeah. It's beginning to look a lot. Not
[Don Mespelt]like Christmas around here. It's, like, fifty six
[Don Mespelt]degrees outside.
[ken ouellette]Yeah. We're about the same. We're about the
[ken ouellette]same. And Yeah.
[Don Mespelt]But we're usually, like, in the thirty, forties.
[Don Mespelt]This is crazy.
[ken ouellette]Yeah. And the only thing colder and more
[ken ouellette]miserable is the stock market right now.
[Don Mespelt]Dun dun dun. Oh, well, okay. On that
(01:17):
[Don Mespelt]note, hey. Time to go. We'll wrap it
[Don Mespelt]up.
[ken ouellette]Yeah. I I don't wanna, you know, I
[ken ouellette]don't wanna, you know, knock on wood, but
[ken ouellette]our last podcast was the market the PE
[ken ouellette]and overvaluation of the market currently. And and
[ken ouellette]I think, you know, a week later from
[ken ouellette]that that podcast, I I think the market's
[ken ouellette]kind of bearing out some of that fruit
(01:39):
[ken ouellette]that we laid out in that podcast. So
[ken ouellette]you, the listener, if you didn't listen to
[ken ouellette]the last podcast, please
[Don Mespelt]Check it out.
[ken ouellette]Go back and check out that podcast. Not
[ken ouellette]that we're, you know, fortune tellers or anything,
[ken ouellette]but it's
[Don Mespelt]just prognosticator.
[ken ouellette]Yeah. Not yes. Exactly. So, yeah, I would
[ken ouellette]encourage anybody to listen to that podcast, because
[ken ouellette]it's got some good meaning of what, what
[ken ouellette]I think we're gonna see going forward for
(01:59):
[ken ouellette]the next six to eight months.
[Don Mespelt]Well, I think today's podcast is gonna be
[Don Mespelt]a good one too, Ken. And I wanna
[Don Mespelt]talk about dividends, because, you know, I put
[Don Mespelt]money in, isn't that? And I I you
[Don Mespelt]know, when you think about it, like, a
[Don Mespelt]a savings account, I put money in. I
[Don Mespelt]can watch it grow, and you get a
[Don Mespelt]little interest and stuff. But with the stock
[Don Mespelt]market, that's not really a savings account. I
[Don Mespelt]mean, how do I get my money? I
(02:19):
[Don Mespelt]mean, what what how does it grow? What's
[ken ouellette]help me. Yeah. Yeah. Everybody thinks they know
[ken ouellette]about you know, dividends are near and dear
[ken ouellette]to my heart because I've built essentially my
[ken ouellette]whole career off the back of dividend paying
[ken ouellette]stocks. And, you know, I think there's been
[ken ouellette]several podcasts we've done on on different varying
[ken ouellette]ideas centered around dividend stocks, but never one
(02:39):
[ken ouellette]that is just, you know, kind of the
[ken ouellette]one zero one on, you know, what are
[ken ouellette]dividend stocks? Why are they important? Because they've
[ken ouellette]kinda I mean, what's been all the rage
[ken ouellette]over the last three years has been really
[ken ouellette]the the big seven stocks. Right? The Alphabets,
[ken ouellette]the Microsofts, the Nvidia's. All of those are
[ken ouellette]growth stocks that aren't aren't what you would
[ken ouellette]call you know, they may some of them,
(02:59):
[ken ouellette]Microsoft and and Google, I think now, after
[ken ouellette]this year's paying on small dividend. But dividends
[ken ouellette]are very, very, very small, price of the
[ken ouellette]admission for those those stocks. So you're you're
[ken ouellette]looking for the growth. You're looking to to
[ken ouellette]make ten, fifteen, twenty percent on the capital
[ken ouellette]appreciation and not so much get an income
[ken ouellette]stream from them.
[Don Mespelt]Okay. And and I like the way you
[Don Mespelt]you change that to a capital to income
(03:21):
[Don Mespelt]stream. Yeah. We're talking, like, this is, with
[Don Mespelt]dividends. The beauty of it, you can just,
[Don Mespelt]push play and and then you just get
[Don Mespelt]money every month?
[ken ouellette]Yeah. So if I could paint a picture
[ken ouellette]for the the listener's mind, I look at
[ken ouellette]the the dividend stocks as kind of you
[ken ouellette]just you're not long off the tee. You
(03:43):
[ken ouellette]know, you're kinda just maybe people blow it
[ken ouellette]by you when they when they get up
[ken ouellette]to the tee box in golf, but you're
[ken ouellette]always straight down the middle of the fairway.
[ken ouellette]And you just you're not going way to
[ken ouellette]the right. You're not going way to the
[ken ouellette]left. You're not going way down the the
[ken ouellette]course. You're just kinda saying, hey. Here's my
[ken ouellette]deal. I'm just gonna try to hit it
(04:04):
[ken ouellette]right down the fairway. I used to play
[ken ouellette]golf with a guy. He was eighty eight,
[ken ouellette]eighty nine years old, client of mine. I
[ken ouellette]was atrocious at golf. And he lived, down
[ken ouellette]in Naples. And he was a very, very
[ken ouellette]good golfer. And he would go driver, driver,
[ken ouellette]driver, putter, and par the hole on almost
(04:24):
[ken ouellette]every hole. Because he was just dead straight
[ken ouellette]where I was just hitting it long to
[ken ouellette]the right, to the left. And and just
[ken ouellette]his whole approach to golf was essentially the
[ken ouellette]approach to dividend investing that I try to
[ken ouellette]get across to people. It's keep it in
[ken ouellette]the fairway, keep it straight, get it to
[ken ouellette]to the finish line, and you're not going
(04:47):
[ken ouellette]out of bounds or paying a big penalty
[ken ouellette]somewhere down the road. And and I I
[ken ouellette]think that that if I could paint a
[ken ouellette]picture for anybody, that's kinda it. It's the
[ken ouellette]base hits in baseball. It's not the the
[ken ouellette]glory of a home run. It's just you're
[ken ouellette]you're you're you're more of the Rod Carew,
[ken ouellette]not the, not the Barry Bonds.
[Don Mespelt]And you've you've stated that before too. I
[Don Mespelt]I'm just I can hear it in my
(05:07):
[Don Mespelt]head. A number of times she just said,
[Don Mespelt]you know, I don't go for the home
[Don Mespelt]runs all the time. I try to stay,
[Don Mespelt]you know, steady, slow and steady wins the
[Don Mespelt]race. Yep. And that's kind of that's pretty
[Don Mespelt]much how you do it. Isn't it? I
[Don Mespelt]mean, for you in general, I mean
[ken ouellette]It's the only thing I know. It's the
[ken ouellette]only thing I've seen that's worked consistently through
[ken ouellette]all market cycles. So sometimes and we'll kinda
[ken ouellette]get into the history here of dividend investing
(05:28):
[ken ouellette]and how it's performed. But, you know, it's
[ken ouellette]not there there will be periods of time
[ken ouellette]and it can can stretch out like it
[ken ouellette]has now, like a decade where growth is
[ken ouellette]far out outpaced, dividend and value. And, you
[ken ouellette]know, that's great. But, you you know, lifetimes
[ken ouellette]aren't made of just single decades. They're made
[ken ouellette]of, what we hope, nine and ten decade
(05:48):
[ken ouellette]type of scenarios. So we wanna do generally
[ken ouellette]well over those six to seven decades that
[ken ouellette]we're really, managing the serious money of a
[ken ouellette]client's portfolio.
[Don Mespelt]Are they safer?
[ken ouellette]Well, safe is a is a relative term.
[ken ouellette]So
[Don Mespelt]It kinda makes sense to me though. I
(06:09):
[Don Mespelt]mean Yeah.
[ken ouellette]No. In my in my view, historically speaking,
[ken ouellette]looking in a rear view mirror, you can
[ken ouellette]make a strong case for dividend investing being,
[ken ouellette]you know, safe is is a word that's
[ken ouellette]is is difficult to quantify in the investing
[ken ouellette]world because, volatility is the word that we
[ken ouellette]use. So, you know, you when we think
(06:29):
[ken ouellette]of safe when I think of safe, I
[ken ouellette]think of something that's number one, gotta be
[ken ouellette]your principles gotta be somewhat protected to the
[ken ouellette]downside a little bit, you know. Mhmm. And
[ken ouellette]so it's not as volatile. So if the
[ken ouellette]market's down forty, you're not down forty. You
[ken ouellette]know, maybe you're down fifteen. But then on
[ken ouellette]the same token, you would say, is it
[ken ouellette]safe like a bond? And no. But a
(06:51):
[ken ouellette]bond is not safe either because it doesn't
[ken ouellette]typically keep play pace with inflation. So when
[ken ouellette]I hear the word, I just wanna be
[ken ouellette]safe, that is such an all encompassing term
[ken ouellette]when it comes to your finances because there's
[ken ouellette]safety of purchasing power, there's safety of principle,
[ken ouellette]there's safety of liquidity. So and that's a
(07:16):
[ken ouellette]long answer to what I think that you
[ken ouellette]were trying to be assured.
[Don Mespelt]But it's no. I mean, it's the truth.
[Don Mespelt]I never really thought completely that's the whole
[Don Mespelt]point of this podcast is the average per
[Don Mespelt]like me, I never really thought about that,
[Don Mespelt]and you pointed out in a good way
[Don Mespelt]that that safe is it depends on a
[Don Mespelt]lot of different factors. What your definition of
[Don Mespelt]safe is, and in the finance world, it's
[Don Mespelt]volatility as you said.
(07:37):
[ken ouellette]Yeah. So I think the people that didn't
[ken ouellette]participate in the markets at all since the
[ken ouellette]two thousands I mean, early two thousands when
[ken ouellette]interest rates were at one to two percent.
[ken ouellette]So they were safe with their money because
[ken ouellette]they put it in CDs, treasuries, and things
[ken ouellette]like but they only earned one percent. Right?
[ken ouellette]So if inflation's going at two, three, or
(07:58):
[ken ouellette]four percent, they were safe with their money,
[ken ouellette]but they were losing money every year. They
[ken ouellette]just didn't know it because their purchasing power
[ken ouellette]was was was just dwindling. So after two
[ken ouellette]decades, they had thirty percent less money that
[ken ouellette]they could purchase things with. Their principal is
[ken ouellette]safe, but were was was their investments in
(08:18):
[ken ouellette]their retirement plan safe? I would I would
[ken ouellette]argue no.
[Don Mespelt]So for now Mhmm. Dividend stocks, you put
[Don Mespelt]money in, and they give you a percent
[Don Mespelt]back each every other month or month or
[Don Mespelt]every how do how do they actually dividends?
[Don Mespelt]How does that work on that part?
[ken ouellette]Yeah. Let's let let's take it all the
[ken ouellette]way back. So, you know, really, we should
(08:40):
[ken ouellette]define what a dividend stock is.
[Don Mespelt]Right. Okay.
[ken ouellette]That's what you kinda asked. So so a
[ken ouellette]dividend stock is essentially a a company that
[ken ouellette]pays the the board of directors. They get
[ken ouellette]together and they and they will discuss what
[ken ouellette]their payout is gonna be. So a dividend
[ken ouellette]stock pays out a dividend typically every quarter.
[ken ouellette]Some do once a year. But by and
(09:03):
[ken ouellette]large, every quarter, they'll meet and they'll decide
[ken ouellette]what the payout should be for that company.
[ken ouellette]And so if that company is healthy, they
[ken ouellette]have a good amount of free cash flow.
[ken ouellette]They're able to do their operations. Whatever's left
[ken ouellette]over, a dividend stock will give that money
[ken ouellette]to you, the shareholder. Whereas in a growth
[ken ouellette]company, they retain those earnings because they they
(09:26):
[ken ouellette]think that they are gonna either make purchases
[ken ouellette]or, research and development, and they're going to
[ken ouellette]retain the money, not pay it out to
[ken ouellette]you, and they're going to grow the money.
[ken ouellette]Whereas a dividend investor in a dividend company,
[ken ouellette]you're getting a particular payout of those earnings,
[ken ouellette]and you're gonna receive it every quarter.
[Don Mespelt]Are they set guaranteed?
(09:48):
[ken ouellette]No. That's what I mean. We so the
[ken ouellette]the board of directors will get together every
[ken ouellette]quarter, and they're gonna decide. They're gonna, decide
[ken ouellette]what the debt payout will be on those
[ken ouellette]companies.
[Don Mespelt]It's more of a historical thing. They they
[Don Mespelt]when you look at it. Historically, they've given
[Don Mespelt]x amount of dividends.
[ken ouellette]Exactly. So every quarter, they're they're gonna decide,
[ken ouellette]okay. This this will be our payout for
(10:08):
[ken ouellette]the quarter. Now they are very, usually, the
[ken ouellette]more mature companies, the larger companies are the
[ken ouellette]ones that pay the largest dividends. And when
[ken ouellette]you think about that, you think of utilities,
[ken ouellette]you think of health care, you think of,
[ken ouellette]many of the industrial companies. You know? So
[ken ouellette]they pay out so a lot of their
(10:31):
[ken ouellette]their attraction, their the shareholders own them, the
[ken ouellette]institutions own them, is because they have a
[ken ouellette]a large degree of comfort that that payout
[ken ouellette]is not gonna be cut.
[Intro/Extro]Uh-huh.
[ken ouellette]Okay? So are they guaranteed? No. But you
[ken ouellette]can look, as you said, historically, and you
[ken ouellette]can look at the the balance sheets and
[ken ouellette]their earnings every quarter and say, okay. There's
(10:54):
[ken ouellette]a high degree of likelihood that they've paid
[ken ouellette]a dividend. You know, some companies have increased
[ken ouellette]their dividends for seventy years. Right? Or paid
[ken ouellette]a dividend for for golly, for for many,
[ken ouellette]many, many, many, many decades. So you can
[ken ouellette]get a feel that that is an important
[ken ouellette]part of their, their being is passing along
(11:15):
[ken ouellette]that income, and that's why they're owned. And
[ken ouellette]so we look at it and say, okay.
[ken ouellette]They're paying out this. Their earnings look like
[ken ouellette]this. The balance sheet looks like this. We
[ken ouellette]feel very comfortable that they're gonna be able
[ken ouellette]to continue to pay at least the dividend
[ken ouellette]they're paying now.
[Don Mespelt]Yeah.
[ken ouellette]Good companies will increase that dividend every year.
[Don Mespelt]So you you mentioned a couple things like
(11:36):
[Don Mespelt]health care and and and and power company,
[Don Mespelt]things like is there any any company could
[Don Mespelt]be a dividend? Or is there
[ken ouellette]any Any company can pay a dividend. It's
[ken ouellette]just the board of directors has to decide
[ken ouellette]that they wanna elect to pay a dividend.
[Don Mespelt]Interesting.
[ken ouellette]Yeah. And and, really, you you brought up
[ken ouellette]the point that, what do all the what
[ken ouellette]are those industries like, utilities and health care?
(12:01):
[ken ouellette]What what do they have kind of in
[ken ouellette]common? Energy companies. What do they have what
[ken ouellette]do they have in common?
[Don Mespelt]Well, they all support us directly.
[ken ouellette]And and they're they're very, there's not a
[ken ouellette]lot of volatility in their earnings.
[Don Mespelt]Oh, I'll give you a minute.
[ken ouellette]You know you know what I mean? So
[ken ouellette]utility company, you kinda know that, you know,
[ken ouellette]they're gonna go to their board. They're gonna
(12:23):
[ken ouellette]go to the commission, the energy commission of
[ken ouellette]that particular state. They're gonna ask for a
[ken ouellette]raise, and your utility bill is gonna go
[ken ouellette]up. And you can kinda gain that that's
[ken ouellette]what the how the much their earnings are
[ken ouellette]gonna go. There's not a lot of lot
[ken ouellette]of variability. Uh-huh. So that's why utility stocks
[ken ouellette]for many, many decades have been kind of
[ken ouellette]a mainstay of an individual's
(12:43):
[Don Mespelt]Well and I've never even really thought about
[Don Mespelt]utility stocks. I mean, when I think of,
[Don Mespelt]like, PG, you need out here and stuff
[Don Mespelt]like that
[ken ouellette]Yeah.
[Don Mespelt]I I just never really thought of them
[Don Mespelt]as a it's more of a business, you
[Don Mespelt]know, like, mom and pop business on the
[Don Mespelt]corner. They don't do dividends. So why why
[Don Mespelt]would they do it?
[ken ouellette]Yeah. Yeah. So it's it is it is
[ken ouellette]a good feeling when you get that bill
[ken ouellette]from, you know, PG and E or or
(13:05):
[ken ouellette]Duke Power or what what have you. And
[ken ouellette]and, you know, you you see that there's
[ken ouellette]a slight increase, but then you see, okay.
[ken ouellette]Hey. They've they've also I own the stock,
[ken ouellette]and they've increased the dividend. So, you know,
[ken ouellette]I maybe came out a little bit ahead
[ken ouellette]from that price increase.
[Don Mespelt]Interesting. Yeah. This this has been good so
[Don Mespelt]far. So is it it's truly a passive
[Don Mespelt]income? You know, people always talk about how
(13:27):
[Don Mespelt]they want passive incomes, where you don't have
[Don Mespelt]to do any work or things like that.
[Don Mespelt]But it's it's I say truly, but it
[Don Mespelt]it isn't actually. You have to research and
[Don Mespelt]you have to do you ever do you
[Don Mespelt]play around with them once you select one?
[Intro/Extro]Do you
[Don Mespelt]or do you just kind of stick with
[Don Mespelt]it for the ride?
[ken ouellette]Yeah. They're great, great, great question. So passive
[ken ouellette]income is is the most beautiful part of
[ken ouellette]the dividend scenario. So the when I when
(13:50):
[ken ouellette]we say passive income, it means that you're
[ken ouellette]just getting the income without any labor involved.
[ken ouellette]So what I liken it to is you
[ken ouellette]can have a dividend portfolio or you can
[ken ouellette]have a portfolio of properties. Okay? So that
[ken ouellette]are gonna provide you income from rent or
[ken ouellette]what have you or Okay. You so you
[ken ouellette]own let's say you own five or six
(14:11):
[ken ouellette]rental properties and, you know, you can kind
[ken ouellette]of you you decide what you're gonna charge
[ken ouellette]those people in rent. They're gonna pay you.
[ken ouellette]And so some people deem that as passive.
[ken ouellette]But it's not truly passive because they can
[ken ouellette]call you at three in the morning and
[ken ouellette]say, hey. I've gotta burst pipe. You gotta
[ken ouellette]get this fixed. Yeah. The one thing about,
(14:33):
[ken ouellette]you know, dividend investing is purely passive because
[ken ouellette]you never get the call that, hey, you
[ken ouellette]know, you're gonna have to pay these increased
[ken ouellette]property taxes, you're gonna have to pay these
[ken ouellette]increased you gotta need have a new roof
[ken ouellette]on this, dividend stock. You're not gonna have
[ken ouellette]to none of that. So you just have
[ken ouellette]to have essentially, somebody that's looking at these
[ken ouellette]companies to make sure that they're gonna be
(14:53):
[ken ouellette]able to pay those dividends. And so it
[ken ouellette]truly is pretty pretty passive. Right? You just
[ken ouellette]collect the dividends. You either reinvest them or
[ken ouellette]you you spend them on your retirement or
[ken ouellette]and to increase your income. Mhmm. Right.
[Don Mespelt]And enroll them or roll them over is
[Don Mespelt]what you're saying too.
[ken ouellette]Yeah. Yeah. And that's and that's a strategy
[ken ouellette]that, that I really, really like and hopefully
[ken ouellette]we'll get into that, really makes the power
(15:15):
[ken ouellette]of dividend investing so so compounding. We can
[ken ouellette]get into that later on. But, yeah. I
[ken ouellette]mean, that's it it truly is, one of
[ken ouellette]the best forms of passive income generation.
[Don Mespelt]So we talked about how you choose the
[Don Mespelt]different ones a little bit. But, I mean,
[Don Mespelt]do you try to diversify? I mean, do
[Don Mespelt]you want I want this public one. I
(15:35):
[Don Mespelt]want this over here. Do you try to
[Don Mespelt]make it well rounded or is it just
[Don Mespelt]hey. It's a dividend. Just kinda roll with
[Don Mespelt]it.
[ken ouellette]Absolutely. So we'll we'll try to build a
[ken ouellette]basket of dividend paying stocks within varying industries.
[ken ouellette]So sometimes those industries are out of favor
[ken ouellette]in the market, but their balance sheets are
[ken ouellette]still good and they're still gonna be able
(15:55):
[ken ouellette]to support that dividend. So maybe some of
[ken ouellette]the other sectors are in favor. So we
[ken ouellette]don't know. We don't have that crystal ball
[ken ouellette]to know which which area the money is
[ken ouellette]gonna flow to increase their shareholder prices. But
[ken ouellette]we can look at the balance sheets pretty
[ken ouellette]good and the income statement of the companies
[ken ouellette]and see which ones are gonna be able
[ken ouellette]to continue to pay the dividend. So we
(16:16):
[ken ouellette]wanna be in health care, defense, utilities, real
[ken ouellette]estate investment trusts. We wanna be in different
[ken ouellette]areas. You know, some technology is paying some
[ken ouellette]decent dividends now. Apple, pays a dividend. Microsoft
[ken ouellette]pays a dividend. Alphabet's now paying a dividend.
[ken ouellette]So we wanna be a little sprinkling in
(16:37):
[ken ouellette]there. It's And then
[Don Mespelt]So I use that safe term. It's safer
[Don Mespelt]to be diversified.
[ken ouellette]Yes. You wanna be diversified across you
[Don Mespelt]And I I gotta quit using safer. It's
[Don Mespelt]less volatile.
[ken ouellette]Less volatile. Yeah. It just evens the ride
[ken ouellette]a little bit and evens the income stream.
[ken ouellette]Okay.
[Don Mespelt]Do all of them actually grow? I mean,
[Don Mespelt]you no. Actually, you've answered that. You said
(16:57):
[Don Mespelt]that some of them kinda stay steady.
[ken ouellette]Yeah. So we'll we'll take a company like
[ken ouellette]Verizon. You know, you don't get much price
[ken ouellette]appreciation in Verizon, but it pays a very
[ken ouellette]very healthy dividend. Uh-huh. Right? So you're really
[ken ouellette]you're looking at it to go maybe grow
[ken ouellette]the principal three two to three percent a
[ken ouellette]year, and then maybe get a five to
[ken ouellette]six percent payout, on the on the the
(17:19):
[ken ouellette]dividend. But you're not really you you're not
[ken ouellette]really looking at it to to give you
[ken ouellette]a nine, ten, fifteen percent increase on an
[ken ouellette]ongoing basis on the share price value. You
[ken ouellette]know, telecom stocks have always been kind of
[ken ouellette]that that and utility is the same. Utilities
[ken ouellette]can can kinda flow a little bit with
[ken ouellette]with when when the market gets ugly, a
[ken ouellette]lot of people buy utilities. Alright? Because they're
(17:41):
[ken ouellette]they're kind of a kind of that, that
[ken ouellette]harbor in a storm, if you will, historically.
[ken ouellette]So what the biggest mistake with dividend investing
[ken ouellette]is some people just buy them, and I
[ken ouellette]see this a lot. They'll just buy the
[ken ouellette]companies that have the highest yield.
[Don Mespelt]Yeah.
[ken ouellette]And and remember, we've talked about this in
(18:01):
[ken ouellette]previous podcast that that yield is a measure
[ken ouellette]of price. Right? So if the price goes
[ken ouellette]down, the yield goes up. So sometimes, if
[ken ouellette]the price is going down and down and
[ken ouellette]down and down and the yield is going
[ken ouellette]up because the price is going down, it's
[ken ouellette]sometimes a red flag. You have to you
[ken ouellette]have to dive into the balance sheet and
(18:21):
[ken ouellette]let's say, okay. Well, why is the price
[ken ouellette]going down? And so usually, the price goes
[ken ouellette]down first, and then the dividend cut is
[ken ouellette]forthcoming. Mhmm. Okay. So you wanna you have
[ken ouellette]to be, you you gotta be prudent. And
[ken ouellette]so a lot of people just go out
[ken ouellette]there and buy these companies that are paying
[ken ouellette]five, seven, eight, nine, ten percent dividends, and
[ken ouellette]those are sometimes the worst ones to buy.
(18:43):
[ken ouellette]Because you're not gonna get any dividend growth,
[ken ouellette]and then you you're probably gonna have a
[ken ouellette]dividend cut forthcoming. And then you have a
[ken ouellette]low share price, and you've gotten a dividend
[ken ouellette]cut, and then you've just really hurt yourself
[ken ouellette]on both ends.
[Don Mespelt]Do you find a do depending on the
[Don Mespelt]individual you're working with, say, a young person
[Don Mespelt]to an older, do you, vest with them
(19:07):
[Don Mespelt]in different dividends? Like, the long long term
[Don Mespelt]long gains. What do you I think that's
[Don Mespelt]the term, isn't it, for long term gains
[Don Mespelt]or for dividends?
[ken ouellette]Well, I think the more more so the
[ken ouellette]mix is a little bit different. So if
[ken ouellette]you're if you're younger, maybe you have a
[ken ouellette]little bit more of a growth component to
[ken ouellette]the portfolio because you're not taking the income.
(19:28):
[ken ouellette]You're not gonna be needing the income for
[ken ouellette]a while. Now for me personally, I like
[ken ouellette]a large portion of dividend paying stocks because
[ken ouellette]they work in varying market cycles. They're very
[ken ouellette]productive in the downside. So I I tend
[ken ouellette]to think of them as growth orientated even
[ken ouellette]though most in the general investing public public
[ken ouellette]would would disagree. I mean, they they like
(19:49):
[ken ouellette]to see the the the statement going up,
[ken ouellette]and the market's going up. But yeah. So
[ken ouellette]but you so the younger people kinda have
[ken ouellette]to generally have a little a little more
[ken ouellette]growth in there. And it's really just to
[ken ouellette]because dividend stocks are boring. They're just not
[ken ouellette]exciting, which excites me. But some people need
(20:12):
[ken ouellette]a little bit need a little bit, excitement,
[ken ouellette]particularly younger people, and I understand that.
[Don Mespelt]Steady. Would that be another another term?
[ken ouellette]Yeah. Very, very good term. Steady and just
[ken ouellette]visibility. You can just see because the companies
[ken ouellette]have usually long arcs. So you can see
[ken ouellette]how they performed in down down cycles, up
(20:34):
[ken ouellette]cycles. You don't have to the biggest the
[ken ouellette]thing that keeps me up at night the
[ken ouellette]most is big draw downs in the market
[ken ouellette]where you're not being productive. You have to
[ken ouellette]just wait out the market Uh-huh. Which is
[ken ouellette]that's where my impatience comes because I wanna
[ken ouellette]make sure that at the bottom of the
(20:55):
[ken ouellette]market that we're we're able to do things
[ken ouellette]that are very, very productive when the market
[ken ouellette]does cycle back up. And dividend dividend stocks
[ken ouellette]really give you a lot of levers to
[ken ouellette]pull, in in that in that regard. They
[ken ouellette]they don't go down as much. You can
[ken ouellette]take off the the dividend payout and reinvest
[ken ouellette]it so you're amplifying the returns at the
(21:16):
[ken ouellette]bottom. It just, it just gives you a
[ken ouellette]lot of options. And they're just so overlooked,
[ken ouellette]I think, by even younger people. But, they
[ken ouellette]they just really have a lot of merit.
[Don Mespelt]Well, a lot of the younger generation, you
[Don Mespelt]know, passive income is a big phrase.
[ken ouellette]Yeah.
[Don Mespelt]And I I can understand that. I mean,
[Don Mespelt]no one wants to work more than they
[Don Mespelt]have to.
[ken ouellette]Well, I think their their definition of because
(21:38):
[ken ouellette]I've, you know, as you know, I have
[ken ouellette]I have three kids at home. If I
[ken ouellette]were to bring up passive income to them,
[ken ouellette]they would say, I'm doing I'm an influencer
[ken ouellette]on YouTube, and I'm doing videos, and I'm
[ken ouellette]getting monetized for those videos on YouTube. Right?
[ken ouellette]So that's their idea of passive income.
[Don Mespelt]Yeah. I'll give you that too.
[ken ouellette]That's true. Somebody sitting at home on their
(21:59):
[ken ouellette]computer doing something and getting paid by an
[ken ouellette]advertiser. That is this generation's, this younger generation's
[ken ouellette]view of passive income. Where, as we know,
[ken ouellette]when recessions happen, what is one of the
[ken ouellette]first things that gets cut by companies?
[Don Mespelt]All those fun things.
[ken ouellette]Advertising budgets. Yep. One of the first things
[ken ouellette]that goes. So that passive income becomes a
(22:21):
[ken ouellette]passive black hole.
[Don Mespelt]Well, now we're bringing up into the younger
[Don Mespelt]I mean, the older generation. Mhmm. And if
[Don Mespelt]I take out my dividends because I want
[Don Mespelt]the money to live off it
[ken ouellette]Mhmm.
[Don Mespelt]Is I mean, straightforward. It's just like anything
[Don Mespelt]else with taxes. You're gonna pay money on
[Don Mespelt]it, taxes on them?
[ken ouellette]Yeah. So dividend stocks are taxed a little
[ken ouellette]bit differently because there's qualified and nonqualified dividends.
(22:42):
[ken ouellette]Qualified
[Don Mespelt]they are, Ken. You had I knew this
[Don Mespelt]was coming. It's never straight and easy.
[ken ouellette]No. No. Nothing in the IRS code is
[ken ouellette]easy. But the so that's one of the
[ken ouellette]advantages. If if you're in a higher tax
[ken ouellette]bracket and you buy companies that pay qualified
[ken ouellette]dividends, And, typically, those are your companies that
[ken ouellette]are, that that that it's not deemed an
(23:05):
[ken ouellette]interest payment on the balance sheet, but it's
[ken ouellette]it's a pure dividend. There's no like, it's
[ken ouellette]not a REIT or something that has a
[ken ouellette]definite tax code associated with it or a
[ken ouellette]k one or something of that nature. But
[ken ouellette]a qualified dividend is your traditional old school
[ken ouellette]paying company. So that means you're taxed at
(23:25):
[ken ouellette]a maximum of fifteen percent of the current
[ken ouellette]law regardless by how much you make.
[Don Mespelt]Oh, wow.
[ken ouellette]So it that that's a favorability. Now back
[ken ouellette]in the day, utilities used to be taxed
[ken ouellette]very, very favorable. They since changed that law.
[ken ouellette]And and one thing we know with tax
[ken ouellette]law is it's always subject to change. So
[ken ouellette]but for right now, qualified dividends are at
[ken ouellette]a max fifteen percent, which is, which is
(23:48):
[ken ouellette]nice, particularly held in taxable accounts.
[Don Mespelt]Very nice. Mhmm. Alright, Ken. We talked a
[Don Mespelt]lot about all these, you know, stuff that,
[Don Mespelt]kinda so you need a little math to
[Don Mespelt]figure out and or or put some thought
[Don Mespelt]process to. I just give me a real
[Don Mespelt]life example. What's one of your favorite dividend
[Don Mespelt]stories as one of your customers over the
[Don Mespelt]years?
[ken ouellette]Well, we don't have customers. We have clients
(24:08):
[ken ouellette]number one. And and secondly yeah. I'll give
[ken ouellette]you two. I'll give you two that really,
[ken ouellette]for me, crystallized my whole methodology on how
[ken ouellette]I manage money for clients. The first one
[ken ouellette]was we had two individuals that retired. They
[ken ouellette]had started in the late forties, fifties, managing
(24:32):
[ken ouellette]money old school way. They were just great
[ken ouellette]influences on my career, taught me a lot
[ken ouellette]of stuff, were mentors of mine. They retired,
[ken ouellette]and they, they distributed their their clients, not
[ken ouellette]customers, clients, to to individual financial advisers that
[ken ouellette]that this time, I was with Morgan Stanley.
(24:52):
[ken ouellette]And what I noticed in their book was
[ken ouellette]a a lot of dividend paying companies, and
[ken ouellette]they had done super, super, super well over
[ken ouellette]these periods of time with these clients. And
[ken ouellette]one in particular was a lady who was
[ken ouellette]was a secretary for Philip Morris. And Philip
[ken ouellette]Morris used to be very large. Right? They
[ken ouellette]used to have Kraft, Mondelez, you know, their
(25:15):
[ken ouellette]international operations. It was, like, a big conglomerate.
[ken ouellette]Very simple, boring company. And she just did
[ken ouellette]her payroll deduction and just bought Philip Morris.
[ken ouellette]Now I don't I don't would never recommend
[ken ouellette]anybody buy just one stock, but this is
[ken ouellette]the power of just one dividend stock of
[ken ouellette]what this individual did. So I wanna preface
[ken ouellette]that by saying I don't tell you, hey.
(25:36):
[ken ouellette]Go buy one dividend stock and reinvest the
[ken ouellette]dividends for life. But this individual who was
[ken ouellette]a secretary at Philip Morris had ended up
[ken ouellette]retiring with fifteen million in Philip Morris. Yeah.
[ken ouellette]And and it just well, that that doesn't
[ken ouellette]kind of, you know, raise your antenna a
[ken ouellette]little bit that, woah. One stock, very boring
[ken ouellette]stocks, just reinvested the dividends. You know, they
(25:56):
[ken ouellette]ended up breaking up, and she got great
[ken ouellette]companies from the breakup. And then the second
[ken ouellette]one was two thousand when the dot com
[ken ouellette]era broke from two thousand to two thousand
[ken ouellette]and ten when the market did zero return,
[ken ouellette]and it was called the lost decade. Dividend
[ken ouellette]paying stocks as a whole returned between five
[ken ouellette]and a half to six percent annually during
(26:19):
[ken ouellette]that decade when everybody else really was was
[ken ouellette]treading water, and at the end of the
[ken ouellette]day, had less because of inflation. Yeah. And
[ken ouellette]those were the two crystallizing case studies that
[ken ouellette]really said to me that this is a
[ken ouellette]is a strategy that really everybody should consider
[ken ouellette]or look at. You know, don't take our
(26:40):
[ken ouellette]word for it, but look historically at it.
[ken ouellette]Look at what dividend a basket of dividend
[ken ouellette]paying stock can do, what they can provide.
[ken ouellette]And and it it it made such a
[ken ouellette]a big difference in my investment philosophy. That's
[ken ouellette]where I put my own money, my family's
[ken ouellette]money. And and so if it's good enough
[ken ouellette]for me, I think it's good enough for
[ken ouellette]for anybody else out there. And so that's
[ken ouellette]that's what I do. And those were the
(27:01):
[ken ouellette]two case studies that really kinda crystallized my
[ken ouellette]my thought process on dividends and as a
[ken ouellette]whole.
[Don Mespelt]Very nice. How do you go about choosing?
[ken ouellette]Yeah. Yeah. Well, I would say number one,
[ken ouellette]financial health of the company. First and foremost,
[ken ouellette]that's when I had mentioned earlier, you just
[ken ouellette]don't buy a company that has a high
[ken ouellette]dividend. You first and foremost have to look
(27:23):
[ken ouellette]at the financial health of the company. Are
[ken ouellette]they gonna be able to sustain the dividend
[ken ouellette]when things get bad? Or or will they
[ken ouellette]have ample opportunity to increase those dividends over
[ken ouellette]time? The ideal company for me is a
[ken ouellette]five to seven percent grower on the capital,
[ken ouellette]so the company grows. And then they also
[ken ouellette]distribute the dividend, and they grow that dividend
(27:46):
[ken ouellette]anywhere between three and seven percent a year.
[ken ouellette]That to me is the gold standard of
[ken ouellette]a dividend company. And that's what I'm looking
[ken ouellette]for every single minute of every single day
[ken ouellette]I'm working is I'm scrolling through, data and
[ken ouellette]spreadsheets looking for companies that are not too
(28:06):
[ken ouellette]expensive, that have great financial health, have a
[ken ouellette]good dividend yield that's gonna that's going to
[ken ouellette]appease my client's income needs, and the payout
[ken ouellette]ratio is not too high. The payout ratio
[ken ouellette]is is basically how much of that dividend
[ken ouellette]is constitutes their earnings? So if you have
(28:27):
[ken ouellette]a company that's earning a dollar a share
[ken ouellette]and they're paying out a dollar ten, that
[ken ouellette]sounds like the American consumer. Right? They're bringing
[ken ouellette]in a dollar and they're spending a dollar
[ken ouellette]ten.
[Don Mespelt]Right now. Yeah.
[ken ouellette]Right. Well, it's always been that way kind
[ken ouellette]of. So we don't we wanna avoid those
[ken ouellette]type of companies. Right? Because it's only a
[ken ouellette]matter of time. You can't pay out a
(28:47):
[ken ouellette]a hundred and ten percent of earnings.
[Don Mespelt]Yeah.
[ken ouellette]You can for a short period of time.
[ken ouellette]Many do, but then all of a sudden,
[ken ouellette]they start assuming more debt because they wanna
[ken ouellette]continue the payout, or they'll have to be
[ken ouellette]so constrained and that they can't grow at
[ken ouellette]all because they're it's all in the dividend.
[ken ouellette]So those are those companies that are paying
[ken ouellette]out high dividends, and you're not looking to
(29:09):
[ken ouellette]financial help the company. So the payout ratio
[ken ouellette]is very important. What's the what's the pay
[ken ouellette]you know, ideally, fifty to sixty percent is
[ken ouellette]kind of the what I would what I
[ken ouellette]look at the kind of the most payout
[ken ouellette]for, the ability to also, you know, increase
[ken ouellette]their earnings.
[Don Mespelt]Uh-huh. So that company's gotta grow too. That's
(29:30):
[Don Mespelt]the whole point.
[ken ouellette]Yeah. Yeah. Yeah. They gotta be able to
[ken ouellette]grow that dividend because, you know, we want
[ken ouellette]we want a dividend that's a dollar a
[ken ouellette]share now, and then ten years from now
[ken ouellette]is, you know, a dollar twenty a share.
[ken ouellette]Uh-huh. So So it's kept you ahead of
[ken ouellette]inflation, and you haven't even even had to
[ken ouellette]touch the principal. So that's that payout ratio
[ken ouellette]is a factor. Dividend growth history, you know,
(29:53):
[ken ouellette]we went into that, but we wanna I
[ken ouellette]like to see a nice nice pattern of
[ken ouellette]rewarding the shareholder for their patience. Alright? That
[ken ouellette]means the company is not retaining the earnings.
[ken ouellette]They're paying it out, to to the shareholder,
[ken ouellette]in a healthy manner. Right? And then and
[ken ouellette]then, you know, as I said, and we've
(30:13):
[ken ouellette]already went over it kind of, but the
[ken ouellette]industry and sector analysis, some sectors were gonna
[ken ouellette]be overweight because they have favorable metrics, for
[ken ouellette]the next three to five years, and some
[ken ouellette]we're gonna underweight because maybe they don't have
[ken ouellette]as favorable a metric over the next. So
[ken ouellette]typically, you know, in the current market right
[ken ouellette]now, we've had with the Trump administration coming
(30:37):
[ken ouellette]in, there's been a lot of talk about
[ken ouellette]going after the health care companies, right, or
[ken ouellette]the insurers. So maybe that was an overweight
[ken ouellette]sector before because the past administrations were very
[ken ouellette]favorable towards those companies, and drug prices and
[ken ouellette]things of that nature. So now that pendulum
[ken ouellette]might be swinging the other way. So maybe
[ken ouellette]we wanna not get rid of that sector,
(30:59):
[ken ouellette]but maybe not emphasize it as much because
[ken ouellette]the next three to five years might be
[ken ouellette]a little bit more headwinds, if you will.
[ken ouellette]So maybe they're not gonna be able to
[ken ouellette]increase the dividends, or their earnings are gonna
[ken ouellette]are gonna be, moderated somewhat. That make sense?
[Don Mespelt]Yes. Yeah. So as you say, though, if
[Don Mespelt]I have a good well rounded portfolio, like
[Don Mespelt]Mhmm. Everyone says you need to have, I
(31:21):
[Don Mespelt]could just take these dividends forever.
[ken ouellette]Oh, yeah. You should.
[Don Mespelt]Assuming that
[ken ouellette]You take them and then you pass them
[ken ouellette]on to your kids, and then hopefully, they'll
[ken ouellette]pass them on to their kids. Yeah. Yeah.
[ken ouellette]It's it's the good dividend paying stocks to
[ken ouellette]me are one of the eighth wonders of
[ken ouellette]the world. Wow. That There's seven wonders. Right?
(31:43):
[Don Mespelt]That's the eighth. Ken? Yep. How do people
[Don Mespelt]get a hold of you? We go through
[Don Mespelt]this every time because it's good, because I
[Don Mespelt]want people to talk to you and and
[Don Mespelt]use your knowledge.
[ken ouellette]Yeah. Well, as always, you know, it's it's
[ken ouellette]the same. Or Orca Wealth, o r c
[ken ouellette]a w e a l t h, dot
[ken ouellette]com, is the is kind of the landing
(32:05):
[ken ouellette]board for, you know, our not only our
[ken ouellette]podcast, but information on the team that we've
[ken ouellette]put in place, our investment philosophy. I've got
[ken ouellette]a great piece on there, farming for dividends.
[ken ouellette]We've done a summit or a workshop on
[ken ouellette]that, which kind of reduces down to the
[ken ouellette]ridiculous my investment philosophy and dividends and compounding
[ken ouellette]and how it how it works, particularly in
(32:26):
[ken ouellette]bad markets. I will send that farming for
[ken ouellette]dividends to clients and in every market drawdown
[ken ouellette]just to get them to reset their mindset.
[ken ouellette]Okay. Now I understand. Now you know what?
[ken ouellette]So I would encourage people to go on
[ken ouellette]the website and download that. You know, it's
[ken ouellette]a little trite. It's very simple. You know,
[ken ouellette]even my my kids understand it, but, it
(32:47):
[ken ouellette]just if a picture is worth a thousand
[ken ouellette]words, it's it's a picture over two slides,
[ken ouellette]and I think it's worth worth anybody looking
[ken ouellette]at.
[Don Mespelt]Sweet. I also have, joined Twix, so I
[Don Mespelt]can follow you.
[ken ouellette]Yeah. Yeah. So, you know, lately, I've been
[ken ouellette]downloading a lot of stuff, uploading it on
[ken ouellette]there just with some macro views of the
[ken ouellette]economy and, and where things are right now
(33:10):
[ken ouellette]and the cycle. So, yeah, it's worth worth
[ken ouellette]you you know, if you can get on
[ken ouellette]Twitter and, follow us, and you'll be able
[ken ouellette]to see some good data that I look
[ken ouellette]at that it kind of informs my investment
[ken ouellette]decisions.
[Don Mespelt]Alright, Ken. Once again, this is the podcast
[Don Mespelt]that helps you learn and grow and pass
[Don Mespelt]the wealth on as your name states. Yeah.
[Don Mespelt]Oracle Wealth Management. Kennolette
(33:31):
[ken ouellette]This is a fun one. This has been
[ken ouellette]a fun one.
[Don Mespelt]Yeah. Thank you very much for the talk.
[Don Mespelt]Alright, John. Till next time. You betcha.
[Intro/Extro]Thank you for listening to a life well
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[Intro/Extro]Welcome to a life well lift. Grow, preserve,
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(00:25):
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[Intro/Extro]a plan and a strategy in place. Now,
[Intro/Extro]onto the show.
(00:57):
[ken ouellette]Yeah.
[Don Mespelt]Yeah. It's beginning to look a lot. Not
[Don Mespelt]like Christmas around here. It's, like, fifty six
[Don Mespelt]degrees outside.
[ken ouellette]Yeah. We're about the same. We're about the
[ken ouellette]same. And Yeah.
[Don Mespelt]But we're usually, like, in the thirty, forties.
[Don Mespelt]This is crazy.
[ken ouellette]Yeah. And the only thing colder and more
[ken ouellette]miserable is the stock market right now.
[Don Mespelt]Dun dun dun. Oh, well, okay. On that
(01:17):
[Don Mespelt]note, hey. Time to go. We'll wrap it
[Don Mespelt]up.
[ken ouellette]Yeah. I I don't wanna, you know, I
[ken ouellette]don't wanna, you know, knock on wood, but
[ken ouellette]our last podcast was the market the PE
[ken ouellette]and overvaluation of the market currently. And and
[ken ouellette]I think, you know, a week later from
[ken ouellette]that that podcast, I I think the market's
[ken ouellette]kind of bearing out some of that fruit
(01:39):
[ken ouellette]that we laid out in that podcast. So
[ken ouellette]you, the listener, if you didn't listen to
[ken ouellette]the last podcast, please
[Don Mespelt]Check it out.
[ken ouellette]Go back and check out that podcast. Not
[ken ouellette]that we're, you know, fortune tellers or anything,
[ken ouellette]but it's
[Don Mespelt]just prognosticator.
[ken ouellette]Yeah. Not yes. Exactly. So, yeah, I would
[ken ouellette]encourage anybody to listen to that podcast, because
[ken ouellette]it's got some good meaning of what, what
[ken ouellette]I think we're gonna see going forward for
(01:59):
[ken ouellette]the next six to eight months.
[Don Mespelt]Well, I think today's podcast is gonna be
[Don Mespelt]a good one too, Ken. And I wanna
[Don Mespelt]talk about dividends, because, you know, I put
[Don Mespelt]money in, isn't that? And I I you
[Don Mespelt]know, when you think about it, like, a
[Don Mespelt]a savings account, I put money in. I
[Don Mespelt]can watch it grow, and you get a
[Don Mespelt]little interest and stuff. But with the stock
[Don Mespelt]market, that's not really a savings account. I
[Don Mespelt]mean, how do I get my money? I
(02:19):
[Don Mespelt]mean, what what how does it grow? What's
[ken ouellette]help me. Yeah. Yeah. Everybody thinks they know
[ken ouellette]about you know, dividends are near and dear
[ken ouellette]to my heart because I've built essentially my
[ken ouellette]whole career off the back of dividend paying
[ken ouellette]stocks. And, you know, I think there's been
[ken ouellette]several podcasts we've done on on different varying
[ken ouellette]ideas centered around dividend stocks, but never one
(02:39):
[ken ouellette]that is just, you know, kind of the
[ken ouellette]one zero one on, you know, what are
[ken ouellette]dividend stocks? Why are they important? Because they've
[ken ouellette]kinda I mean, what's been all the rage
[ken ouellette]over the last three years has been really
[ken ouellette]the the big seven stocks. Right? The Alphabets,
[ken ouellette]the Microsofts, the Nvidia's. All of those are
[ken ouellette]growth stocks that aren't aren't what you would
[ken ouellette]call you know, they may some of them,
(02:59):
[ken ouellette]Microsoft and and Google, I think now, after
[ken ouellette]this year's paying on small dividend. But dividends
[ken ouellette]are very, very, very small, price of the
[ken ouellette]admission for those those stocks. So you're you're
[ken ouellette]looking for the growth. You're looking to to
[ken ouellette]make ten, fifteen, twenty percent on the capital
[ken ouellette]appreciation and not so much get an income
[ken ouellette]stream from them.
[Don Mespelt]Okay. And and I like the way you
[Don Mespelt]you change that to a capital to income
(03:21):
[Don Mespelt]stream. Yeah. We're talking, like, this is, with
[Don Mespelt]dividends. The beauty of it, you can just,
[Don Mespelt]push play and and then you just get
[Don Mespelt]money every month?
[ken ouellette]Yeah. So if I could paint a picture
[ken ouellette]for the the listener's mind, I look at
[ken ouellette]the the dividend stocks as kind of you
[ken ouellette]just you're not long off the tee. You
(03:43):
[ken ouellette]know, you're kinda just maybe people blow it
[ken ouellette]by you when they when they get up
[ken ouellette]to the tee box in golf, but you're
[ken ouellette]always straight down the middle of the fairway.
[ken ouellette]And you just you're not going way to
[ken ouellette]the right. You're not going way to the
[ken ouellette]left. You're not going way down the the
[ken ouellette]course. You're just kinda saying, hey. Here's my
[ken ouellette]deal. I'm just gonna try to hit it
(04:04):
[ken ouellette]right down the fairway. I used to play
[ken ouellette]golf with a guy. He was eighty eight,
[ken ouellette]eighty nine years old, client of mine. I
[ken ouellette]was atrocious at golf. And he lived, down
[ken ouellette]in Naples. And he was a very, very
[ken ouellette]good golfer. And he would go driver, driver,
[ken ouellette]driver, putter, and par the hole on almost
(04:24):
[ken ouellette]every hole. Because he was just dead straight
[ken ouellette]where I was just hitting it long to
[ken ouellette]the right, to the left. And and just
[ken ouellette]his whole approach to golf was essentially the
[ken ouellette]approach to dividend investing that I try to
[ken ouellette]get across to people. It's keep it in
[ken ouellette]the fairway, keep it straight, get it to
[ken ouellette]to the finish line, and you're not going
(04:47):
[ken ouellette]out of bounds or paying a big penalty
[ken ouellette]somewhere down the road. And and I I
[ken ouellette]think that that if I could paint a
[ken ouellette]picture for anybody, that's kinda it. It's the
[ken ouellette]base hits in baseball. It's not the the
[ken ouellette]glory of a home run. It's just you're
[ken ouellette]you're you're you're more of the Rod Carew,
[ken ouellette]not the, not the Barry Bonds.
[Don Mespelt]And you've you've stated that before too. I
[Don Mespelt]I'm just I can hear it in my
(05:07):
[Don Mespelt]head. A number of times she just said,
[Don Mespelt]you know, I don't go for the home
[Don Mespelt]runs all the time. I try to stay,
[Don Mespelt]you know, steady, slow and steady wins the
[Don Mespelt]race. Yep. And that's kind of that's pretty
[Don Mespelt]much how you do it. Isn't it? I
[Don Mespelt]mean, for you in general, I mean
[ken ouellette]It's the only thing I know. It's the
[ken ouellette]only thing I've seen that's worked consistently through
[ken ouellette]all market cycles. So sometimes and we'll kinda
[ken ouellette]get into the history here of dividend investing
(05:28):
[ken ouellette]and how it's performed. But, you know, it's
[ken ouellette]not there there will be periods of time
[ken ouellette]and it can can stretch out like it
[ken ouellette]has now, like a decade where growth is
[ken ouellette]far out outpaced, dividend and value. And, you
[ken ouellette]know, that's great. But, you you know, lifetimes
[ken ouellette]aren't made of just single decades. They're made
[ken ouellette]of, what we hope, nine and ten decade
(05:48):
[ken ouellette]type of scenarios. So we wanna do generally
[ken ouellette]well over those six to seven decades that
[ken ouellette]we're really, managing the serious money of a
[ken ouellette]client's portfolio.
[Don Mespelt]Are they safer?
[ken ouellette]Well, safe is a is a relative term.
[ken ouellette]So
[Don Mespelt]It kinda makes sense to me though. I
(06:09):
[Don Mespelt]mean Yeah.
[ken ouellette]No. In my in my view, historically speaking,
[ken ouellette]looking in a rear view mirror, you can
[ken ouellette]make a strong case for dividend investing being,
[ken ouellette]you know, safe is is a word that's
[ken ouellette]is is difficult to quantify in the investing
[ken ouellette]world because, volatility is the word that we
[ken ouellette]use. So, you know, you when we think
(06:29):
[ken ouellette]of safe when I think of safe, I
[ken ouellette]think of something that's number one, gotta be
[ken ouellette]your principles gotta be somewhat protected to the
[ken ouellette]downside a little bit, you know. Mhmm. And
[ken ouellette]so it's not as volatile. So if the
[ken ouellette]market's down forty, you're not down forty. You
[ken ouellette]know, maybe you're down fifteen. But then on
[ken ouellette]the same token, you would say, is it
[ken ouellette]safe like a bond? And no. But a
(06:51):
[ken ouellette]bond is not safe either because it doesn't
[ken ouellette]typically keep play pace with inflation. So when
[ken ouellette]I hear the word, I just wanna be
[ken ouellette]safe, that is such an all encompassing term
[ken ouellette]when it comes to your finances because there's
[ken ouellette]safety of purchasing power, there's safety of principle,
[ken ouellette]there's safety of liquidity. So and that's a
(07:16):
[ken ouellette]long answer to what I think that you
[ken ouellette]were trying to be assured.
[Don Mespelt]But it's no. I mean, it's the truth.
[Don Mespelt]I never really thought completely that's the whole
[Don Mespelt]point of this podcast is the average per
[Don Mespelt]like me, I never really thought about that,
[Don Mespelt]and you pointed out in a good way
[Don Mespelt]that that safe is it depends on a
[Don Mespelt]lot of different factors. What your definition of
[Don Mespelt]safe is, and in the finance world, it's
[Don Mespelt]volatility as you said.
(07:37):
[ken ouellette]Yeah. So I think the people that didn't
[ken ouellette]participate in the markets at all since the
[ken ouellette]two thousands I mean, early two thousands when
[ken ouellette]interest rates were at one to two percent.
[ken ouellette]So they were safe with their money because
[ken ouellette]they put it in CDs, treasuries, and things
[ken ouellette]like but they only earned one percent. Right?
[ken ouellette]So if inflation's going at two, three, or
(07:58):
[ken ouellette]four percent, they were safe with their money,
[ken ouellette]but they were losing money every year. They
[ken ouellette]just didn't know it because their purchasing power
[ken ouellette]was was was just dwindling. So after two
[ken ouellette]decades, they had thirty percent less money that
[ken ouellette]they could purchase things with. Their principal is
[ken ouellette]safe, but were was was their investments in
(08:18):
[ken ouellette]their retirement plan safe? I would I would
[ken ouellette]argue no.
[Don Mespelt]So for now Mhmm. Dividend stocks, you put
[Don Mespelt]money in, and they give you a percent
[Don Mespelt]back each every other month or month or
[Don Mespelt]every how do how do they actually dividends?
[Don Mespelt]How does that work on that part?
[ken ouellette]Yeah. Let's let let's take it all the
[ken ouellette]way back. So, you know, really, we should
(08:40):
[ken ouellette]define what a dividend stock is.
[Don Mespelt]Right. Okay.
[ken ouellette]That's what you kinda asked. So so a
[ken ouellette]dividend stock is essentially a a company that
[ken ouellette]pays the the board of directors. They get
[ken ouellette]together and they and they will discuss what
[ken ouellette]their payout is gonna be. So a dividend
[ken ouellette]stock pays out a dividend typically every quarter.
[ken ouellette]Some do once a year. But by and
(09:03):
[ken ouellette]large, every quarter, they'll meet and they'll decide
[ken ouellette]what the payout should be for that company.
[ken ouellette]And so if that company is healthy, they
[ken ouellette]have a good amount of free cash flow.
[ken ouellette]They're able to do their operations. Whatever's left
[ken ouellette]over, a dividend stock will give that money
[ken ouellette]to you, the shareholder. Whereas in a growth
[ken ouellette]company, they retain those earnings because they they
(09:26):
[ken ouellette]think that they are gonna either make purchases
[ken ouellette]or, research and development, and they're going to
[ken ouellette]retain the money, not pay it out to
[ken ouellette]you, and they're going to grow the money.
[ken ouellette]Whereas a dividend investor in a dividend company,
[ken ouellette]you're getting a particular payout of those earnings,
[ken ouellette]and you're gonna receive it every quarter.
[Don Mespelt]Are they set guaranteed?
(09:48):
[ken ouellette]No. That's what I mean. We so the
[ken ouellette]the board of directors will get together every
[ken ouellette]quarter, and they're gonna decide. They're gonna, decide
[ken ouellette]what the debt payout will be on those
[ken ouellette]companies.
[Don Mespelt]It's more of a historical thing. They they
[Don Mespelt]when you look at it. Historically, they've given
[Don Mespelt]x amount of dividends.
[ken ouellette]Exactly. So every quarter, they're they're gonna decide,
[ken ouellette]okay. This this will be our payout for
(10:08):
[ken ouellette]the quarter. Now they are very, usually, the
[ken ouellette]more mature companies, the larger companies are the
[ken ouellette]ones that pay the largest dividends. And when
[ken ouellette]you think about that, you think of utilities,
[ken ouellette]you think of health care, you think of,
[ken ouellette]many of the industrial companies. You know? So
[ken ouellette]they pay out so a lot of their
(10:31):
[ken ouellette]their attraction, their the shareholders own them, the
[ken ouellette]institutions own them, is because they have a
[ken ouellette]a large degree of comfort that that payout
[ken ouellette]is not gonna be cut.
[Intro/Extro]Uh-huh.
[ken ouellette]Okay? So are they guaranteed? No. But you
[ken ouellette]can look, as you said, historically, and you
[ken ouellette]can look at the the balance sheets and
[ken ouellette]their earnings every quarter and say, okay. There's
(10:54):
[ken ouellette]a high degree of likelihood that they've paid
[ken ouellette]a dividend. You know, some companies have increased
[ken ouellette]their dividends for seventy years. Right? Or paid
[ken ouellette]a dividend for for golly, for for many,
[ken ouellette]many, many, many, many decades. So you can
[ken ouellette]get a feel that that is an important
[ken ouellette]part of their, their being is passing along
(11:15):
[ken ouellette]that income, and that's why they're owned. And
[ken ouellette]so we look at it and say, okay.
[ken ouellette]They're paying out this. Their earnings look like
[ken ouellette]this. The balance sheet looks like this. We
[ken ouellette]feel very comfortable that they're gonna be able
[ken ouellette]to continue to pay at least the dividend
[ken ouellette]they're paying now.
[Don Mespelt]Yeah.
[ken ouellette]Good companies will increase that dividend every year.
[Don Mespelt]So you you mentioned a couple things like
(11:36):
[Don Mespelt]health care and and and and power company,
[Don Mespelt]things like is there any any company could
[Don Mespelt]be a dividend? Or is there
[ken ouellette]any Any company can pay a dividend. It's
[ken ouellette]just the board of directors has to decide
[ken ouellette]that they wanna elect to pay a dividend.
[Don Mespelt]Interesting.
[ken ouellette]Yeah. And and, really, you you brought up
[ken ouellette]the point that, what do all the what
[ken ouellette]are those industries like, utilities and health care?
(12:01):
[ken ouellette]What what do they have kind of in
[ken ouellette]common? Energy companies. What do they have what
[ken ouellette]do they have in common?
[Don Mespelt]Well, they all support us directly.
[ken ouellette]And and they're they're very, there's not a
[ken ouellette]lot of volatility in their earnings.
[Don Mespelt]Oh, I'll give you a minute.
[ken ouellette]You know you know what I mean? So
[ken ouellette]utility company, you kinda know that, you know,
[ken ouellette]they're gonna go to their board. They're gonna
(12:23):
[ken ouellette]go to the commission, the energy commission of
[ken ouellette]that particular state. They're gonna ask for a
[ken ouellette]raise, and your utility bill is gonna go
[ken ouellette]up. And you can kinda gain that that's
[ken ouellette]what the how the much their earnings are
[ken ouellette]gonna go. There's not a lot of lot
[ken ouellette]of variability. Uh-huh. So that's why utility stocks
[ken ouellette]for many, many decades have been kind of
[ken ouellette]a mainstay of an individual's
(12:43):
[Don Mespelt]Well and I've never even really thought about
[Don Mespelt]utility stocks. I mean, when I think of,
[Don Mespelt]like, PG, you need out here and stuff
[Don Mespelt]like that
[ken ouellette]Yeah.
[Don Mespelt]I I just never really thought of them
[Don Mespelt]as a it's more of a business, you
[Don Mespelt]know, like, mom and pop business on the
[Don Mespelt]corner. They don't do dividends. So why why
[Don Mespelt]would they do it?
[ken ouellette]Yeah. Yeah. So it's it is it is
[ken ouellette]a good feeling when you get that bill
[ken ouellette]from, you know, PG and E or or
(13:05):
[ken ouellette]Duke Power or what what have you. And
[ken ouellette]and, you know, you you see that there's
[ken ouellette]a slight increase, but then you see, okay.
[ken ouellette]Hey. They've they've also I own the stock,
[ken ouellette]and they've increased the dividend. So, you know,
[ken ouellette]I maybe came out a little bit ahead
[ken ouellette]from that price increase.
[Don Mespelt]Interesting. Yeah. This this has been good so
[Don Mespelt]far. So is it it's truly a passive
[Don Mespelt]income? You know, people always talk about how
(13:27):
[Don Mespelt]they want passive incomes, where you don't have
[Don Mespelt]to do any work or things like that.
[Don Mespelt]But it's it's I say truly, but it
[Don Mespelt]it isn't actually. You have to research and
[Don Mespelt]you have to do you ever do you
[Don Mespelt]play around with them once you select one?
[Intro/Extro]Do you
[Don Mespelt]or do you just kind of stick with
[Don Mespelt]it for the ride?
[ken ouellette]Yeah. They're great, great, great question. So passive
[ken ouellette]income is is the most beautiful part of
[ken ouellette]the dividend scenario. So the when I when
(13:50):
[ken ouellette]we say passive income, it means that you're
[ken ouellette]just getting the income without any labor involved.
[ken ouellette]So what I liken it to is you
[ken ouellette]can have a dividend portfolio or you can
[ken ouellette]have a portfolio of properties. Okay? So that
[ken ouellette]are gonna provide you income from rent or
[ken ouellette]what have you or Okay. You so you
[ken ouellette]own let's say you own five or six
(14:11):
[ken ouellette]rental properties and, you know, you can kind
[ken ouellette]of you you decide what you're gonna charge
[ken ouellette]those people in rent. They're gonna pay you.
[ken ouellette]And so some people deem that as passive.
[ken ouellette]But it's not truly passive because they can
[ken ouellette]call you at three in the morning and
[ken ouellette]say, hey. I've gotta burst pipe. You gotta
[ken ouellette]get this fixed. Yeah. The one thing about,
(14:33):
[ken ouellette]you know, dividend investing is purely passive because
[ken ouellette]you never get the call that, hey, you
[ken ouellette]know, you're gonna have to pay these increased
[ken ouellette]property taxes, you're gonna have to pay these
[ken ouellette]increased you gotta need have a new roof
[ken ouellette]on this, dividend stock. You're not gonna have
[ken ouellette]to none of that. So you just have
[ken ouellette]to have essentially, somebody that's looking at these
[ken ouellette]companies to make sure that they're gonna be
(14:53):
[ken ouellette]able to pay those dividends. And so it
[ken ouellette]truly is pretty pretty passive. Right? You just
[ken ouellette]collect the dividends. You either reinvest them or
[ken ouellette]you you spend them on your retirement or
[ken ouellette]and to increase your income. Mhmm. Right.
[Don Mespelt]And enroll them or roll them over is
[Don Mespelt]what you're saying too.
[ken ouellette]Yeah. Yeah. And that's and that's a strategy
[ken ouellette]that, that I really, really like and hopefully
[ken ouellette]we'll get into that, really makes the power
(15:15):
[ken ouellette]of dividend investing so so compounding. We can
[ken ouellette]get into that later on. But, yeah. I
[ken ouellette]mean, that's it it truly is, one of
[ken ouellette]the best forms of passive income generation.
[Don Mespelt]So we talked about how you choose the
[Don Mespelt]different ones a little bit. But, I mean,
[Don Mespelt]do you try to diversify? I mean, do
[Don Mespelt]you want I want this public one. I
(15:35):
[Don Mespelt]want this over here. Do you try to
[Don Mespelt]make it well rounded or is it just
[Don Mespelt]hey. It's a dividend. Just kinda roll with
[Don Mespelt]it.
[ken ouellette]Absolutely. So we'll we'll try to build a
[ken ouellette]basket of dividend paying stocks within varying industries.
[ken ouellette]So sometimes those industries are out of favor
[ken ouellette]in the market, but their balance sheets are
[ken ouellette]still good and they're still gonna be able
(15:55):
[ken ouellette]to support that dividend. So maybe some of
[ken ouellette]the other sectors are in favor. So we
[ken ouellette]don't know. We don't have that crystal ball
[ken ouellette]to know which which area the money is
[ken ouellette]gonna flow to increase their shareholder prices. But
[ken ouellette]we can look at the balance sheets pretty
[ken ouellette]good and the income statement of the companies
[ken ouellette]and see which ones are gonna be able
[ken ouellette]to continue to pay the dividend. So we
(16:16):
[ken ouellette]wanna be in health care, defense, utilities, real
[ken ouellette]estate investment trusts. We wanna be in different
[ken ouellette]areas. You know, some technology is paying some
[ken ouellette]decent dividends now. Apple, pays a dividend. Microsoft
[ken ouellette]pays a dividend. Alphabet's now paying a dividend.
[ken ouellette]So we wanna be a little sprinkling in
(16:37):
[ken ouellette]there. It's And then
[Don Mespelt]So I use that safe term. It's safer
[Don Mespelt]to be diversified.
[ken ouellette]Yes. You wanna be diversified across you
[Don Mespelt]And I I gotta quit using safer. It's
[Don Mespelt]less volatile.
[ken ouellette]Less volatile. Yeah. It just evens the ride
[ken ouellette]a little bit and evens the income stream.
[ken ouellette]Okay.
[Don Mespelt]Do all of them actually grow? I mean,
[Don Mespelt]you no. Actually, you've answered that. You said
(16:57):
[Don Mespelt]that some of them kinda stay steady.
[ken ouellette]Yeah. So we'll we'll take a company like
[ken ouellette]Verizon. You know, you don't get much price
[ken ouellette]appreciation in Verizon, but it pays a very
[ken ouellette]very healthy dividend. Uh-huh. Right? So you're really
[ken ouellette]you're looking at it to go maybe grow
[ken ouellette]the principal three two to three percent a
[ken ouellette]year, and then maybe get a five to
[ken ouellette]six percent payout, on the on the the
(17:19):
[ken ouellette]dividend. But you're not really you you're not
[ken ouellette]really looking at it to to give you
[ken ouellette]a nine, ten, fifteen percent increase on an
[ken ouellette]ongoing basis on the share price value. You
[ken ouellette]know, telecom stocks have always been kind of
[ken ouellette]that that and utility is the same. Utilities
[ken ouellette]can can kinda flow a little bit with
[ken ouellette]with when when the market gets ugly, a
[ken ouellette]lot of people buy utilities. Alright? Because they're
(17:41):
[ken ouellette]they're kind of a kind of that, that
[ken ouellette]harbor in a storm, if you will, historically.
[ken ouellette]So what the biggest mistake with dividend investing
[ken ouellette]is some people just buy them, and I
[ken ouellette]see this a lot. They'll just buy the
[ken ouellette]companies that have the highest yield.
[Don Mespelt]Yeah.
[ken ouellette]And and remember, we've talked about this in
(18:01):
[ken ouellette]previous podcast that that yield is a measure
[ken ouellette]of price. Right? So if the price goes
[ken ouellette]down, the yield goes up. So sometimes, if
[ken ouellette]the price is going down and down and
[ken ouellette]down and down and the yield is going
[ken ouellette]up because the price is going down, it's
[ken ouellette]sometimes a red flag. You have to you
[ken ouellette]have to dive into the balance sheet and
(18:21):
[ken ouellette]let's say, okay. Well, why is the price
[ken ouellette]going down? And so usually, the price goes
[ken ouellette]down first, and then the dividend cut is
[ken ouellette]forthcoming. Mhmm. Okay. So you wanna you have
[ken ouellette]to be, you you gotta be prudent. And
[ken ouellette]so a lot of people just go out
[ken ouellette]there and buy these companies that are paying
[ken ouellette]five, seven, eight, nine, ten percent dividends, and
[ken ouellette]those are sometimes the worst ones to buy.
(18:43):
[ken ouellette]Because you're not gonna get any dividend growth,
[ken ouellette]and then you you're probably gonna have a
[ken ouellette]dividend cut forthcoming. And then you have a
[ken ouellette]low share price, and you've gotten a dividend
[ken ouellette]cut, and then you've just really hurt yourself
[ken ouellette]on both ends.
[Don Mespelt]Do you find a do depending on the
[Don Mespelt]individual you're working with, say, a young person
[Don Mespelt]to an older, do you, vest with them
(19:07):
[Don Mespelt]in different dividends? Like, the long long term
[Don Mespelt]long gains. What do you I think that's
[Don Mespelt]the term, isn't it, for long term gains
[Don Mespelt]or for dividends?
[ken ouellette]Well, I think the more more so the
[ken ouellette]mix is a little bit different. So if
[ken ouellette]you're if you're younger, maybe you have a
[ken ouellette]little bit more of a growth component to
[ken ouellette]the portfolio because you're not taking the income.
(19:28):
[ken ouellette]You're not gonna be needing the income for
[ken ouellette]a while. Now for me personally, I like
[ken ouellette]a large portion of dividend paying stocks because
[ken ouellette]they work in varying market cycles. They're very
[ken ouellette]productive in the downside. So I I tend
[ken ouellette]to think of them as growth orientated even
[ken ouellette]though most in the general investing public public
[ken ouellette]would would disagree. I mean, they they like
(19:49):
[ken ouellette]to see the the the statement going up,
[ken ouellette]and the market's going up. But yeah. So
[ken ouellette]but you so the younger people kinda have
[ken ouellette]to generally have a little a little more
[ken ouellette]growth in there. And it's really just to
[ken ouellette]because dividend stocks are boring. They're just not
[ken ouellette]exciting, which excites me. But some people need
(20:12):
[ken ouellette]a little bit need a little bit, excitement,
[ken ouellette]particularly younger people, and I understand that.
[Don Mespelt]Steady. Would that be another another term?
[ken ouellette]Yeah. Very, very good term. Steady and just
[ken ouellette]visibility. You can just see because the companies
[ken ouellette]have usually long arcs. So you can see
[ken ouellette]how they performed in down down cycles, up
(20:34):
[ken ouellette]cycles. You don't have to the biggest the
[ken ouellette]thing that keeps me up at night the
[ken ouellette]most is big draw downs in the market
[ken ouellette]where you're not being productive. You have to
[ken ouellette]just wait out the market Uh-huh. Which is
[ken ouellette]that's where my impatience comes because I wanna
[ken ouellette]make sure that at the bottom of the
(20:55):
[ken ouellette]market that we're we're able to do things
[ken ouellette]that are very, very productive when the market
[ken ouellette]does cycle back up. And dividend dividend stocks
[ken ouellette]really give you a lot of levers to
[ken ouellette]pull, in in that in that regard. They
[ken ouellette]they don't go down as much. You can
[ken ouellette]take off the the dividend payout and reinvest
[ken ouellette]it so you're amplifying the returns at the
(21:16):
[ken ouellette]bottom. It just, it just gives you a
[ken ouellette]lot of options. And they're just so overlooked,
[ken ouellette]I think, by even younger people. But, they
[ken ouellette]they just really have a lot of merit.
[Don Mespelt]Well, a lot of the younger generation, you
[Don Mespelt]know, passive income is a big phrase.
[ken ouellette]Yeah.
[Don Mespelt]And I I can understand that. I mean,
[Don Mespelt]no one wants to work more than they
[Don Mespelt]have to.
[ken ouellette]Well, I think their their definition of because
(21:38):
[ken ouellette]I've, you know, as you know, I have
[ken ouellette]I have three kids at home. If I
[ken ouellette]were to bring up passive income to them,
[ken ouellette]they would say, I'm doing I'm an influencer
[ken ouellette]on YouTube, and I'm doing videos, and I'm
[ken ouellette]getting monetized for those videos on YouTube. Right?
[ken ouellette]So that's their idea of passive income.
[Don Mespelt]Yeah. I'll give you that too.
[ken ouellette]That's true. Somebody sitting at home on their
(21:59):
[ken ouellette]computer doing something and getting paid by an
[ken ouellette]advertiser. That is this generation's, this younger generation's
[ken ouellette]view of passive income. Where, as we know,
[ken ouellette]when recessions happen, what is one of the
[ken ouellette]first things that gets cut by companies?
[Don Mespelt]All those fun things.
[ken ouellette]Advertising budgets. Yep. One of the first things
[ken ouellette]that goes. So that passive income becomes a
(22:21):
[ken ouellette]passive black hole.
[Don Mespelt]Well, now we're bringing up into the younger
[Don Mespelt]I mean, the older generation. Mhmm. And if
[Don Mespelt]I take out my dividends because I want
[Don Mespelt]the money to live off it
[ken ouellette]Mhmm.
[Don Mespelt]Is I mean, straightforward. It's just like anything
[Don Mespelt]else with taxes. You're gonna pay money on
[Don Mespelt]it, taxes on them?
[ken ouellette]Yeah. So dividend stocks are taxed a little
[ken ouellette]bit differently because there's qualified and nonqualified dividends.
(22:42):
[ken ouellette]Qualified
[Don Mespelt]they are, Ken. You had I knew this
[Don Mespelt]was coming. It's never straight and easy.
[ken ouellette]No. No. Nothing in the IRS code is
[ken ouellette]easy. But the so that's one of the
[ken ouellette]advantages. If if you're in a higher tax
[ken ouellette]bracket and you buy companies that pay qualified
[ken ouellette]dividends, And, typically, those are your companies that
[ken ouellette]are, that that that it's not deemed an
(23:05):
[ken ouellette]interest payment on the balance sheet, but it's
[ken ouellette]it's a pure dividend. There's no like, it's
[ken ouellette]not a REIT or something that has a
[ken ouellette]definite tax code associated with it or a
[ken ouellette]k one or something of that nature. But
[ken ouellette]a qualified dividend is your traditional old school
[ken ouellette]paying company. So that means you're taxed at
(23:25):
[ken ouellette]a maximum of fifteen percent of the current
[ken ouellette]law regardless by how much you make.
[Don Mespelt]Oh, wow.
[ken ouellette]So it that that's a favorability. Now back
[ken ouellette]in the day, utilities used to be taxed
[ken ouellette]very, very favorable. They since changed that law.
[ken ouellette]And and one thing we know with tax
[ken ouellette]law is it's always subject to change. So
[ken ouellette]but for right now, qualified dividends are at
[ken ouellette]a max fifteen percent, which is, which is
(23:48):
[ken ouellette]nice, particularly held in taxable accounts.
[Don Mespelt]Very nice. Mhmm. Alright, Ken. We talked a
[Don Mespelt]lot about all these, you know, stuff that,
[Don Mespelt]kinda so you need a little math to
[Don Mespelt]figure out and or or put some thought
[Don Mespelt]process to. I just give me a real
[Don Mespelt]life example. What's one of your favorite dividend
[Don Mespelt]stories as one of your customers over the
[Don Mespelt]years?
[ken ouellette]Well, we don't have customers. We have clients
(24:08):
[ken ouellette]number one. And and secondly yeah. I'll give
[ken ouellette]you two. I'll give you two that really,
[ken ouellette]for me, crystallized my whole methodology on how
[ken ouellette]I manage money for clients. The first one
[ken ouellette]was we had two individuals that retired. They
[ken ouellette]had started in the late forties, fifties, managing
(24:32):
[ken ouellette]money old school way. They were just great
[ken ouellette]influences on my career, taught me a lot
[ken ouellette]of stuff, were mentors of mine. They retired,
[ken ouellette]and they, they distributed their their clients, not
[ken ouellette]customers, clients, to to individual financial advisers that
[ken ouellette]that this time, I was with Morgan Stanley.
(24:52):
[ken ouellette]And what I noticed in their book was
[ken ouellette]a a lot of dividend paying companies, and
[ken ouellette]they had done super, super, super well over
[ken ouellette]these periods of time with these clients. And
[ken ouellette]one in particular was a lady who was
[ken ouellette]was a secretary for Philip Morris. And Philip
[ken ouellette]Morris used to be very large. Right? They
[ken ouellette]used to have Kraft, Mondelez, you know, their
(25:15):
[ken ouellette]international operations. It was, like, a big conglomerate.
[ken ouellette]Very simple, boring company. And she just did
[ken ouellette]her payroll deduction and just bought Philip Morris.
[ken ouellette]Now I don't I don't would never recommend
[ken ouellette]anybody buy just one stock, but this is
[ken ouellette]the power of just one dividend stock of
[ken ouellette]what this individual did. So I wanna preface
[ken ouellette]that by saying I don't tell you, hey.
(25:36):
[ken ouellette]Go buy one dividend stock and reinvest the
[ken ouellette]dividends for life. But this individual who was
[ken ouellette]a secretary at Philip Morris had ended up
[ken ouellette]retiring with fifteen million in Philip Morris. Yeah.
[ken ouellette]And and it just well, that that doesn't
[ken ouellette]kind of, you know, raise your antenna a
[ken ouellette]little bit that, woah. One stock, very boring
[ken ouellette]stocks, just reinvested the dividends. You know, they
(25:56):
[ken ouellette]ended up breaking up, and she got great
[ken ouellette]companies from the breakup. And then the second
[ken ouellette]one was two thousand when the dot com
[ken ouellette]era broke from two thousand to two thousand
[ken ouellette]and ten when the market did zero return,
[ken ouellette]and it was called the lost decade. Dividend
[ken ouellette]paying stocks as a whole returned between five
[ken ouellette]and a half to six percent annually during
(26:19):
[ken ouellette]that decade when everybody else really was was
[ken ouellette]treading water, and at the end of the
[ken ouellette]day, had less because of inflation. Yeah. And
[ken ouellette]those were the two crystallizing case studies that
[ken ouellette]really said to me that this is a
[ken ouellette]is a strategy that really everybody should consider
[ken ouellette]or look at. You know, don't take our
(26:40):
[ken ouellette]word for it, but look historically at it.
[ken ouellette]Look at what dividend a basket of dividend
[ken ouellette]paying stock can do, what they can provide.
[ken ouellette]And and it it it made such a
[ken ouellette]a big difference in my investment philosophy. That's
[ken ouellette]where I put my own money, my family's
[ken ouellette]money. And and so if it's good enough
[ken ouellette]for me, I think it's good enough for
[ken ouellette]for anybody else out there. And so that's
[ken ouellette]that's what I do. And those were the
(27:01):
[ken ouellette]two case studies that really kinda crystallized my
[ken ouellette]my thought process on dividends and as a
[ken ouellette]whole.
[Don Mespelt]Very nice. How do you go about choosing?
[ken ouellette]Yeah. Yeah. Well, I would say number one,
[ken ouellette]financial health of the company. First and foremost,
[ken ouellette]that's when I had mentioned earlier, you just
[ken ouellette]don't buy a company that has a high
[ken ouellette]dividend. You first and foremost have to look
(27:23):
[ken ouellette]at the financial health of the company. Are
[ken ouellette]they gonna be able to sustain the dividend
[ken ouellette]when things get bad? Or or will they
[ken ouellette]have ample opportunity to increase those dividends over
[ken ouellette]time? The ideal company for me is a
[ken ouellette]five to seven percent grower on the capital,
[ken ouellette]so the company grows. And then they also
[ken ouellette]distribute the dividend, and they grow that dividend
(27:46):
[ken ouellette]anywhere between three and seven percent a year.
[ken ouellette]That to me is the gold standard of
[ken ouellette]a dividend company. And that's what I'm looking
[ken ouellette]for every single minute of every single day
[ken ouellette]I'm working is I'm scrolling through, data and
[ken ouellette]spreadsheets looking for companies that are not too
(28:06):
[ken ouellette]expensive, that have great financial health, have a
[ken ouellette]good dividend yield that's gonna that's going to
[ken ouellette]appease my client's income needs, and the payout
[ken ouellette]ratio is not too high. The payout ratio
[ken ouellette]is is basically how much of that dividend
[ken ouellette]is constitutes their earnings? So if you have
(28:27):
[ken ouellette]a company that's earning a dollar a share
[ken ouellette]and they're paying out a dollar ten, that
[ken ouellette]sounds like the American consumer. Right? They're bringing
[ken ouellette]in a dollar and they're spending a dollar
[ken ouellette]ten.
[Don Mespelt]Right now. Yeah.
[ken ouellette]Right. Well, it's always been that way kind
[ken ouellette]of. So we don't we wanna avoid those
[ken ouellette]type of companies. Right? Because it's only a
[ken ouellette]matter of time. You can't pay out a
(28:47):
[ken ouellette]a hundred and ten percent of earnings.
[Don Mespelt]Yeah.
[ken ouellette]You can for a short period of time.
[ken ouellette]Many do, but then all of a sudden,
[ken ouellette]they start assuming more debt because they wanna
[ken ouellette]continue the payout, or they'll have to be
[ken ouellette]so constrained and that they can't grow at
[ken ouellette]all because they're it's all in the dividend.
[ken ouellette]So those are those companies that are paying
[ken ouellette]out high dividends, and you're not looking to
(29:09):
[ken ouellette]financial help the company. So the payout ratio
[ken ouellette]is very important. What's the what's the pay
[ken ouellette]you know, ideally, fifty to sixty percent is
[ken ouellette]kind of the what I would what I
[ken ouellette]look at the kind of the most payout
[ken ouellette]for, the ability to also, you know, increase
[ken ouellette]their earnings.
[Don Mespelt]Uh-huh. So that company's gotta grow too. That's
(29:30):
[Don Mespelt]the whole point.
[ken ouellette]Yeah. Yeah. Yeah. They gotta be able to
[ken ouellette]grow that dividend because, you know, we want
[ken ouellette]we want a dividend that's a dollar a
[ken ouellette]share now, and then ten years from now
[ken ouellette]is, you know, a dollar twenty a share.
[ken ouellette]Uh-huh. So So it's kept you ahead of
[ken ouellette]inflation, and you haven't even even had to
[ken ouellette]touch the principal. So that's that payout ratio
[ken ouellette]is a factor. Dividend growth history, you know,
(29:53):
[ken ouellette]we went into that, but we wanna I
[ken ouellette]like to see a nice nice pattern of
[ken ouellette]rewarding the shareholder for their patience. Alright? That
[ken ouellette]means the company is not retaining the earnings.
[ken ouellette]They're paying it out, to to the shareholder,
[ken ouellette]in a healthy manner. Right? And then and
[ken ouellette]then, you know, as I said, and we've
(30:13):
[ken ouellette]already went over it kind of, but the
[ken ouellette]industry and sector analysis, some sectors were gonna
[ken ouellette]be overweight because they have favorable metrics, for
[ken ouellette]the next three to five years, and some
[ken ouellette]we're gonna underweight because maybe they don't have
[ken ouellette]as favorable a metric over the next. So
[ken ouellette]typically, you know, in the current market right
[ken ouellette]now, we've had with the Trump administration coming
(30:37):
[ken ouellette]in, there's been a lot of talk about
[ken ouellette]going after the health care companies, right, or
[ken ouellette]the insurers. So maybe that was an overweight
[ken ouellette]sector before because the past administrations were very
[ken ouellette]favorable towards those companies, and drug prices and
[ken ouellette]things of that nature. So now that pendulum
[ken ouellette]might be swinging the other way. So maybe
[ken ouellette]we wanna not get rid of that sector,
(30:59):
[ken ouellette]but maybe not emphasize it as much because
[ken ouellette]the next three to five years might be
[ken ouellette]a little bit more headwinds, if you will.
[ken ouellette]So maybe they're not gonna be able to
[ken ouellette]increase the dividends, or their earnings are gonna
[ken ouellette]are gonna be, moderated somewhat. That make sense?
[Don Mespelt]Yes. Yeah. So as you say, though, if
[Don Mespelt]I have a good well rounded portfolio, like
[Don Mespelt]Mhmm. Everyone says you need to have, I
(31:21):
[Don Mespelt]could just take these dividends forever.
[ken ouellette]Oh, yeah. You should.
[Don Mespelt]Assuming that
[ken ouellette]You take them and then you pass them
[ken ouellette]on to your kids, and then hopefully, they'll
[ken ouellette]pass them on to their kids. Yeah. Yeah.
[ken ouellette]It's it's the good dividend paying stocks to
[ken ouellette]me are one of the eighth wonders of
[ken ouellette]the world. Wow. That There's seven wonders. Right?
(31:43):
[Don Mespelt]That's the eighth. Ken? Yep. How do people
[Don Mespelt]get a hold of you? We go through
[Don Mespelt]this every time because it's good, because I
[Don Mespelt]want people to talk to you and and
[Don Mespelt]use your knowledge.
[ken ouellette]Yeah. Well, as always, you know, it's it's
[ken ouellette]the same. Or Orca Wealth, o r c
[ken ouellette]a w e a l t h, dot
[ken ouellette]com, is the is kind of the landing
(32:05):
[ken ouellette]board for, you know, our not only our
[ken ouellette]podcast, but information on the team that we've
[ken ouellette]put in place, our investment philosophy. I've got
[ken ouellette]a great piece on there, farming for dividends.
[ken ouellette]We've done a summit or a workshop on
[ken ouellette]that, which kind of reduces down to the
[ken ouellette]ridiculous my investment philosophy and dividends and compounding
[ken ouellette]and how it how it works, particularly in
(32:26):
[ken ouellette]bad markets. I will send that farming for
[ken ouellette]dividends to clients and in every market drawdown
[ken ouellette]just to get them to reset their mindset.
[ken ouellette]Okay. Now I understand. Now you know what?
[ken ouellette]So I would encourage people to go on
[ken ouellette]the website and download that. You know, it's
[ken ouellette]a little trite. It's very simple. You know,
[ken ouellette]even my my kids understand it, but, it
(32:47):
[ken ouellette]just if a picture is worth a thousand
[ken ouellette]words, it's it's a picture over two slides,
[ken ouellette]and I think it's worth worth anybody looking
[ken ouellette]at.
[Don Mespelt]Sweet. I also have, joined Twix, so I
[Don Mespelt]can follow you.
[ken ouellette]Yeah. Yeah. So, you know, lately, I've been
[ken ouellette]downloading a lot of stuff, uploading it on
[ken ouellette]there just with some macro views of the
[ken ouellette]economy and, and where things are right now
(33:10):
[ken ouellette]and the cycle. So, yeah, it's worth worth
[ken ouellette]you you know, if you can get on
[ken ouellette]Twitter and, follow us, and you'll be able
[ken ouellette]to see some good data that I look
[ken ouellette]at that it kind of informs my investment
[ken ouellette]decisions.
[Don Mespelt]Alright, Ken. Once again, this is the podcast
[Don Mespelt]that helps you learn and grow and pass
[Don Mespelt]the wealth on as your name states. Yeah.
[Don Mespelt]Oracle Wealth Management. Kennolette
(33:31):
[ken ouellette]This is a fun one. This has been
[ken ouellette]a fun one.
[Don Mespelt]Yeah. Thank you very much for the talk.
[Don Mespelt]Alright, John. Till next time. You betcha.
[Intro/Extro]Thank you for listening to a life well
[Intro/Extro]lived. Grow, preserve, and transfer your wealth with
[Intro/Extro]Kennolette CPM. Click the subscribe button below to
[Intro/Extro]be notified when new episodes become available. The
(33:53):
[Intro/Extro]information covered and posted represents the views and
[Intro/Extro]opinions of the guest and does not necessarily
[Intro/Extro]represent the views or opinions of Orca Wealth
[Intro/Extro]Management LLC. The content has been made available
[Intro/Extro]for informational and educational purposes only. The content
[Intro/Extro]is not intended to be a substitute for
[Intro/Extro]professional investing advice. Always seek the advice of
[Intro/Extro]your financial adviser or other qualified financial service
(34:15):
[Intro/Extro]provider with any questions you may have regarding
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