March 20, 2024 • 26 mins
In this episode, I cover two competitors head-to-head, and show you how $20K turned into over $212K. A dividend stock versus a non-dividend stock, which one was the better investment?
I also cover the following topics in this episode:
- What are dividend stocks?
- What are non-dividend stocks?
- Introducing the competitors (TXN vs AMD)
- And the winner is?
- 961% return vs 736%
- 36% dividend yield based on the purchase price
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
In this episode I'll show you how a $20,000
investment turned into over$212,000.
We're going to cover twocompetitors a dividend stock and
a non-dividend stock.
Stick around to see which onewas the better investment.
Hi, my name is Kanwal Sarai andwelcome to the Simply Investing
(00:25):
Dividend Podcast.
In today's episode we're goingto cover the following four
topics We'll start with what aredividend stocks, then we'll
look at what are non-dividendstocks, and then I'm going to
introduce to you the twocompetitors, the two stocks that
we are going to compare head tohead.
(00:46):
Remember, one of them is adividend stock and the other one
is a non-dividend stock.
And then, finally, the lasttopic in today's episode is to
see which company is the winner,which company comes out ahead.
So let's get started with ourfirst topic what are dividend
stocks.
(01:07):
So, to understand that, youneed to figure out and
understand what is a dividend.
A dividend is basically thecompany sharing its profits with
you, the shareholder.
So let's say, a company isoffering a dividend of $1 per
share and you own a thousandshares, you will receive $1,000
(01:28):
every year for as long as youown those shares and as long as
the company continues to pay thedividend in this case of $1 per
share.
You can spend that money if youwish.
You can spend the dividendsbecause they're deposited
directly into your tradingaccount.
So, like I said, you can spendthe dividends if you wish, or
(01:49):
you can reinvest them back intoother stocks that are paying
dividends.
Now I've done episodes in thepast where we take a look at
what happens to the dividendwhen the stock price goes down
or it goes up.
So, in general, stock pricesfluctuate all the time.
They go up and down, but aslong as the company is paying a
(02:09):
dividend in this case of $1 pershare you will receive that
dividend as long as you hold onto those shares.
So, basically, the dividendsare the return on your
investment while you hold on tothe shares.
And, like I said, stock pricescan go up and down, the share
price can go up and down, but aslong as you're still owning
(02:30):
those shares, the company willpay you that dividend.
So then, what are dividendstocks?
They're basically stocks thatare paying you dividends.
So let's take a look at anexample of four stocks.
So, as of this recording, apple, for example the makers of the
iPhone are paying an annualdividend of $0.96 per share.
(02:54):
Coca-cola, as of this recordingis paying an annual dividend of
$1.94 per share, nike is payinga dividend of $1.48 and Visa
currently has an annual dividendof $2.08 per share.
So, for example, if you own 100shares in Visa, you would
(03:16):
receive $208 every year in cashin the form of dividends for
owning shares in Visa.
Okay, so now let's move on toour second topic in this episode
.
So what are non-dividend stocks?
So you can probably guess as towhat they are just from the
title alone, and they arebasically stocks or companies
(03:39):
that do not pay any dividends atall.
So I just showed you fourexamples of companies that are
paying dividends.
Now let's take a look at fourexamples of companies that don't
pay any dividends.
So on the screen you can seehere we have Amazon, google,
netflix, tesla.
(04:00):
This is an example of fourcompanies, as of this recording,
that are not paying anydividends at all.
There's a lot more companiesout there that don't pay
dividends and there's a lot ofcompanies out there that do pay
dividends.
Now, keep in mind without thedividend, you have to hope for
the share price to keep going up, and hope is not going to cover
(04:24):
your living expenses, butdividends can.
Without the dividend, you haveto keep hoping and praying that
your stock price is going tocontinue to go up, because if it
doesn't, you're not going tomake any money on that
investment if you own shares incompanies that don't pay any
dividends.
(04:45):
So now let's move on to ourthird topic, and it is to
introduce our two competitors.
We're going to compare twostocks head to head and then
we're going to find out whichcompany would have been the
better investment.
So to begin, I first had toselect an industry.
There's a lot of differentindustries out there For today's
(05:07):
episode.
To keep it simple, I havedecided to go with
semiconductors.
So we're going to pick twocompanies in this industry and,
again to keep it simple, I'vedecided to go with the third and
fourth largest semiconductorcompanies in the US today.
So number three is advancedmicro devices AMD, and number
(05:33):
four on the list is TexasInstruments.
Now you might be thinking whydid I choose these two companies
?
Why didn't I pick othercompanies?
So for this I went to Googlefor some help and I typed in you
can see it up on the screenhere.
I said give me a list ofcompetitors to Texas Instruments
.
And this is exactly what Googlespit out as the results and it
(05:54):
says there's a number ofcompetitors.
You can see Intel is on thelist, micron is on the list, adi
is on the list and so is AMDand a number of other companies.
I know I'm gonna get a wholebunch of comments as to why
didn't I pick Intel versus AMDor AMD versus Micron.
Perhaps in the future I mightdecide to do another episode
(06:16):
where I will compare two othercompanies head to head, but for
today's episode I'm gonna stickwith the two Texas Instruments
versus AMD.
So now let's take a look at bothcompanies and you can see they
are similar in many respects.
Texas Instruments was foundedin 1930, amd was founded in 1969
(06:41):
.
In terms of employees, texasInstruments currently has around
34,000 employees.
Amd has 26,000 employees and,being the third largest
semiconductor company in the US,amd has a market cap of $293
billion.
Texas Instruments has a marketcap of $152 billion.
(07:06):
Now, the big difference betweenthe two and you can see it up
on the screen here is the annualdividend.
So you can see that TexasInstruments currently, as of
this recording, has an annualdividend of $5.20 per share.
Amd has no dividend whatsoeverand has not paid a dividend.
(07:29):
So that's what we're gonnacompare today A dividend stock
versus a non-dividend stock.
They're both in the sameindustry, they're direct
competitors of each other and interms of their financial
positioning they are fairlyclose.
So that brings us to our finaltopic in this episode.
(07:50):
So which company is the winner?
Which company comes out ahead?
And so to figure that out, weneed to establish two things.
First, we need to figure out apoint in time.
Are we gonna go back two years,five years, 10, 15?
How far back are we gonna go?
And then the second thing is weneed to determine okay, how
(08:12):
much money are we gonna investin each of these companies?
And then, once we have theanswer to those two things, then
we can figure out which companycomes out ahead.
So, in terms of point in time,we are gonna go back to the year
2004.
So that's gonna give us a 20year historical track record.
(08:32):
So I didn't wanna pick two orthree years, that's too short.
We wanna make sure in 20 yearswe capture a lot of the ups and
downs in the economy, the bullmarket as well as the bear
markets.
So we're gonna go back 20 yearsfor each of those companies and
in terms of the amount invested, we're gonna stick with.
(08:53):
Let's just keep things simple$20,000.
So let's say you invested$20,000 in Texas Instruments 20
years ago and you invested$20,000 in AMD 20 years ago.
Which company comes out ahead?
And again we're comparing adividend stock, which is Texas
(09:14):
Instruments, versus anon-dividend stock, which is AMD
.
So here you can see up on thescreen.
Here we're gonna look at TexasInstruments first.
The share price back in 2004was $19.54.
And if we're gonna invest$20,000 in this company back in
(09:34):
2004, you would have been ableto purchase 1,023.54 shares in
the company.
And similarly, if we take alook at AMD, back in 2004, the
stock price was $21.28.
Again, we're investing the sameamount $20,000 in AMD and you
(09:57):
would have been able to buy939.85 shares in the company.
So now you can see the shareprice back in 2004 for both of
the companies.
You can see the number of sharesup on the screen and you can
see that we invested 20,000 eachin both of those companies.
So now we're gonna fast forwardto the present time.
(10:20):
So, as of this recording, theshare price for Texas
Instruments has gone up to $168a share and the share price for
AMD has gone up to $178 a share.
So which company comes outahead.
So let's continue.
So far it looks like AMD isbetter because the stock price
(10:43):
is higher than Texas Instruments.
But let's continue.
And you can see that if we takethe current share price
multiplied by the number ofshares that you own Texas
Instruments, the investment inthat company today would be
worth over a hundred and seventyone thousand nine hundred fifty
four dollars.
The same twenty thousanddollars invested in AMD today
(11:07):
would be worth a hundred andsixty seven thousand two hundred
and ninety three dollars.
So that's a difference of fourthousand six hundred and sixty
one dollars.
And so you can see up on thescreen here that Texas
Instruments is ahead.
Now, the difference isn't toomuch if you think about it.
It's four thousand six hundredsixty one dollars, but over
(11:30):
twenty years, that isn't a lot.
The the difference isn't toomuch.
That's what I'm trying to sayhere.
The Delta is not that great now, technically, texas Instruments
is the winner here because theinvestment is worth more than
AMD.
However, let's not forget aboutthe dividends, because we're not
(11:54):
done yet.
So remember, texas Instrumentshas been paying a dividend.
So if we take a look at thenumbers there's quite a few
numbers on the screen we can seethat back in 2004 the dividend
was 0.09 cents per share, so itwas basically nine cents a share
.
That's what the company waspaying back in 2004, and then
(12:17):
you can see that the dividendhas gone up.
It looks like it's been goingup every single year, as far as
I can tell here, just scanningthe list and the dividend has
gone up, and the dividend today,as of this recording, is five
dollars and twenty cents a share, and so you can see that today,
as of this recording, you wouldearn five thousand three
(12:39):
hundred and twenty two dollars ayear in dividends alone Just
from Texas Instruments.
Now, if we add up all thedividends going back 20 years,
you can see that you would haveearned a total of 40,000 331
dollars in dividends Just forholding on to the shares in
(13:03):
Texas Instruments.
So then, for us to calculatethe total return, you have to
consider not just the stockprice appreciation Plus.
You have to add the dividendsover the last 20 years.
So let's do the simple mathhere.
You can see I've taken the samenumber from the previous slide.
The stock price has gone up forsure.
(13:25):
So the shares themselves areworth 171,954 dollars.
We're gonna now add thedividends that you would have
received.
So that's 40,000, three and 31dollars and you can see the
total investment, the twentythousand dollars that we started
with in Texas Instruments.
The total investment today isworth over 212,000 and 285
(13:50):
dollars.
So that's a total return of 961percent.
And Now let's do the same simplemath with AMD, and it's a lot
quicker, because AMD does nothave any dividends, doesn't pay
any dividends, so you wouldn'thave earned any dividends at all
over the last 20 years.
So we stick with just the stockprice appreciation and you can
(14:13):
see the total return there is736 percent.
So let's go ahead and put thaton one nice little table
together.
You can see on the screen heremarket value in 2004 Was twenty
thousand dollars each in bothcompanies.
You can see now, in 2000,current as of this recording, in
2024, the market value has goneup for Texas Instruments by 961
(14:38):
percent and AMD has gone up by736 percent.
So now you can see that thedifference is much more than
what we had before, when we wereonly looking at the stock price
.
So now Texas Instruments theinvestment in Texas Instruments
is ahead by over 34,992 dollarsand that is a difference of over
(15:05):
225 percent.
So now that is a much moreLarger Delta between the two
companies.
So it looks like TexasInstruments is still in the lead
as a you know, as a competitor.
That would have been a betterinvestment between the two
companies.
Now there's more.
(15:26):
There's something else we needto look at here.
So we're going to go back tothe list of dividends and
there's two things I want you toremember from this list because
we're going to use them in thenext couple of slides.
So you can see that, as of thisrecording, the company is
generating for you, whoeverbought the shares here 5000 over
five thousand three hundredtwenty two dollars a year in
(15:48):
dividends.
Okay, so that's regardless ofthe stock price going up and
down, you will receive over fivethousand three hundred dollars
in dividends every year as longas you continue to hold on to
the number of shares.
Now remember the total dividendincome Since 2004,.
In this example, has been over$40,331.
(16:12):
Right, so you can see that upon the screen here.
That's the total number ofdividends we've received in
Texas Instruments.
So what if we took that $40,331, and we reinvested that today?
So let's say we just let thedividends collect over the last
20 years and now we decide we'regonna take those that $40,331,
(16:35):
and reinvest it.
So what are we gonna reinvestit in?
Well, there's a lot of dividendstocks to choose from.
In this example, I'm gonna gowith Franklin Resources.
You can see up on the screenhere the current share price is
$27.06.
You can see the annual dividendis $1.24.
So the company is paying todaycurrently a yield of 4.6%.
(16:58):
So if we take our $40,331 individends invested in Franklin
Resources, you can see that youwould earn an additional $1,848
this year in annual dividends.
So what does that mean?
(17:21):
So let's take the annualdividends from our new
investment in Franklin Resourcesand add it to the annual
dividends we're alreadyreceiving from Texas Instruments
, and if you add up the twonumbers, you can see it up on
the screen it's over $7,170 inannual dividends.
(17:43):
So this is incredible.
Now let's take a look, and whatwe're gonna do here is we're
gonna do some simple math andwe're gonna calculate the
dividend yield based on yourpurchase price.
So they refer to this as thedividend yield on cost.
So, like I said, the totalnumber of dividends from
(18:04):
Franklin Resources plus TexasInstruments is over $7,170 a
year in dividends.
If we divide that by ourinitial investment, which was
$20,000 and we express that as apercentage, you can see it's
36%.
So you are now earning 36% ayear on your investment and
(18:30):
hopefully that's going toincrease next year because
Franklin Resources has a historyof increasing its dividend.
Texas Instruments has a historyof increasing its dividends.
So as both companies increasetheir dividend every year, your
dividend yield on cost is goingto grow every single year,
(18:51):
hopefully, as they increase thedividends.
So 36% return is fantastic forjust holding on to those shares.
Again, regardless of the stockprice.
And I've done episodes in thepast where we look at other
companies and we look at theirstock prices.
So stock prices can go up anddown for each of these two
companies, but as long as theycontinue to pay the dividend,
(19:12):
you're looking at a 36% returnyear after year after year after
year and, like I said, it'llgrow when the dividends grow as
well.
And look at the other thing whatwe've done here is we've taken
the initial $20,000 investmentin one company and now we've
turned it into an investmentinto two companies.
(19:33):
So now we've diversified theportfolio and these two
companies are in completely twodifferent industries.
So now we've also lowered therisk because we're not putting
all our eggs in one basket andwe are benefiting by reinvesting
those dividends into anothercompany that is also paying
(19:54):
dividends.
So now, if we compare our twocompetitors head to head Texas
Instruments, which is a dividendstock, amd, which doesn't pay
any dividends.
Let's take a look in summaryTexas Instruments the dividend
yield based on the purchaseprice is 36%, so that's a 36%
return annually just for holdingon to the shares.
(20:17):
And, like I showed you before,the return since 2004 has been
961%, whereas AMD doesn't pay adividend.
So the yield dividend yield iszero and AMD has returned since
2004, 736% return.
So now we can clearly see thatthe winner in this example is
(20:42):
Texas Instruments.
And, like I said, we've alsodiversified the investment
because we took the dividendsand put them into another
company in a different industry.
So we've put somediversification in the portfolio
and we continue to generateover $7,000 a year annually in
(21:04):
dividends just for holding on tothe shares, regardless of the
stock price, whereas AMD thereis no dividend.
In both of these examples, ifthe stock price tanks tomorrow
or next week, if the stock pricegets cut in half, you're going
to lose quite a bit of money.
Well, on paper, with AMD, withTexas Instruments, sure the
(21:27):
stock price is going to go downin value as well, but you're
still getting the dividends.
You're still getting the 36%return year after year after
year and, like I said, the 36%return hopefully will grow as
the company increases itsdividend and as the investment
in Franklin Resources increasesits dividend.
(21:49):
So does this mean that youshould go out and buy any stock
today that pays a dividend?
And the short answer is no.
There's a couple of more thingswe need to take a look at and
I'm going to go through thoseright now.
So our approach to investingand I've been doing this for
over 20 years now is to investin quality, dividend paying
(22:09):
stocks when they are priced low.
So the key is not just anystock.
It's got to be a dividend stock, not just any dividend stock.
It has to be high quality andnot just any high quality
dividend stock.
It has to be priced low, soit's got to be undervalued.
So, like I said, stock pricesgo up and down all the time.
You want to invest in a companywhen it's priced low, not when
(22:33):
it's priced high.
So how do you know when you'relooking at a company anywhere in
the world?
How do you know that it's aquality stock and how do you
know that it's priced low?
So for that I've created what Icall the 12 rules of simply
investing.
You can see them up on thescreen right now.
This becomes your checklist.
A company has to pass all ofthe rules before you invest in
(22:57):
it.
If it fails one rule, if itfails two rules, skip it, move
on to something else.
A company has to pass all ofthe 12 rules and that is your
checklist before you invest init.
So rule number one do youunderstand how a company is
making money?
If you don't skip it, move onto something else.
Rule number two 20 years fromnow, will people still need its
(23:19):
product and services?
Rule number three does thecompany have a low cost
competitive advantage?
Rule number four is itrecession proof?
Rule number five is itprofitable?
Rule number six does thecompany grow its dividend?
Rule number seven can thecompany afford to pay the
dividend?
Rule number eight is the debtless than 70%?
Rule number nine avoid anycompany with a recent dividend
(23:42):
cut.
Rule number 10, does thecompany buy back its own shares?
Rule number 11, is the stockpriced low?
And we check for three thingsthere.
We're going to look at the P-Eratio.
We want to make sure it's low.
We look at the P-B ratio theprice to book value make sure
it's low.
And then we compare the currentdividend yield to the company's
20 year average dividend yield,and so the current yield must
(24:05):
be higher than its 20 yearaverage.
And if a stock meets all ofthose three conditions, then the
company passes rule number 11.
And rule number 12, keep youremotions out of investing.
So, if anyone is interested,I've created the Simply
Investing course.
It's an online course,self-paced, and there's a number
(24:27):
of online videos, and we covereverything, to get started with
dividend investing, in 10modules.
So, module one we start withthe investing basics.
Module two we cover the 12rules of Simply Investing in
detail.
Module three you learn how toapply the 12 rules.
Module four you learn how touse a Simply Investing platform.
(24:50):
Module five you learn how toplace your first stock order.
Module six learn how to buildand track your portfolio.
Module seven you're going tolearn when to sell, which is
just as important as to knowwhen to buy a stock.
Module eight learn how toreduce your fees and risk,
especially if you own mutualfunds, index funds and ETFs.
(25:10):
Module nine you're going to getyour own action plan to get
started immediately, and module10,.
We answer your most frequentlyasked questions, and we also
have a Simply Investing platformthat applies these rules to
over 6,000 companies in the USand in Canada every single day.
(25:32):
So you can log into theplatform and immediately see
which companies are worthconsidering and which companies
to avoid, because you can seeright away which companies fail
which of the rules and whichcompanies pass which of the
rules.
So if anyone's interested, youmay want to write down the
coupon code save10, save10.
(25:53):
It's going to save you 10% offof the course and the platform
as well.
If you enjoyed today's episode,be sure to hit the subscribe
button.
We have a new episode out everyweek.
Hit the like button as well,and for more information, take a
look at our website,simplyinvestingcom.
Thanks for watching.
In this episode I'll show you how a $20,000
investment turned into over$212,000.
We're going to cover twocompetitors a dividend stock and
a non-dividend stock.
Stick around to see which onewas the better investment.
Hi, my name is Kanwal Sarai andwelcome to the Simply Investing
(00:25):
Dividend Podcast.
In today's episode we're goingto cover the following four
topics We'll start with what aredividend stocks, then we'll
look at what are non-dividendstocks, and then I'm going to
introduce to you the twocompetitors, the two stocks that
we are going to compare head tohead.
(00:46):
Remember, one of them is adividend stock and the other one
is a non-dividend stock.
And then, finally, the lasttopic in today's episode is to
see which company is the winner,which company comes out ahead.
So let's get started with ourfirst topic what are dividend
stocks.
(01:07):
So, to understand that, youneed to figure out and
understand what is a dividend.
A dividend is basically thecompany sharing its profits with
you, the shareholder.
So let's say, a company isoffering a dividend of $1 per
share and you own a thousandshares, you will receive $1,000
(01:28):
every year for as long as youown those shares and as long as
the company continues to pay thedividend in this case of $1 per
share.
You can spend that money if youwish.
You can spend the dividendsbecause they're deposited
directly into your tradingaccount.
So, like I said, you can spendthe dividends if you wish, or
(01:49):
you can reinvest them back intoother stocks that are paying
dividends.
Now I've done episodes in thepast where we take a look at
what happens to the dividendwhen the stock price goes down
or it goes up.
So, in general, stock pricesfluctuate all the time.
They go up and down, but aslong as the company is paying a
(02:09):
dividend in this case of $1 pershare you will receive that
dividend as long as you hold onto those shares.
So, basically, the dividendsare the return on your
investment while you hold on tothe shares.
And, like I said, stock pricescan go up and down, the share
price can go up and down, but aslong as you're still owning
(02:30):
those shares, the company willpay you that dividend.
So then, what are dividendstocks?
They're basically stocks thatare paying you dividends.
So let's take a look at anexample of four stocks.
So, as of this recording, apple, for example the makers of the
iPhone are paying an annualdividend of $0.96 per share.
(02:54):
Coca-cola, as of this recordingis paying an annual dividend of
$1.94 per share, nike is payinga dividend of $1.48 and Visa
currently has an annual dividendof $2.08 per share.
So, for example, if you own 100shares in Visa, you would
(03:16):
receive $208 every year in cashin the form of dividends for
owning shares in Visa.
Okay, so now let's move on toour second topic in this episode
.
So what are non-dividend stocks?
So you can probably guess as towhat they are just from the
title alone, and they arebasically stocks or companies
(03:39):
that do not pay any dividends atall.
So I just showed you fourexamples of companies that are
paying dividends.
Now let's take a look at fourexamples of companies that don't
pay any dividends.
So on the screen you can seehere we have Amazon, google,
netflix, tesla.
(04:00):
This is an example of fourcompanies, as of this recording,
that are not paying anydividends at all.
There's a lot more companiesout there that don't pay
dividends and there's a lot ofcompanies out there that do pay
dividends.
Now, keep in mind without thedividend, you have to hope for
the share price to keep going up, and hope is not going to cover
(04:24):
your living expenses, butdividends can.
Without the dividend, you haveto keep hoping and praying that
your stock price is going tocontinue to go up, because if it
doesn't, you're not going tomake any money on that
investment if you own shares incompanies that don't pay any
dividends.
(04:45):
So now let's move on to ourthird topic, and it is to
introduce our two competitors.
We're going to compare twostocks head to head and then
we're going to find out whichcompany would have been the
better investment.
So to begin, I first had toselect an industry.
There's a lot of differentindustries out there For today's
(05:07):
episode.
To keep it simple, I havedecided to go with
semiconductors.
So we're going to pick twocompanies in this industry and,
again to keep it simple, I'vedecided to go with the third and
fourth largest semiconductorcompanies in the US today.
So number three is advancedmicro devices AMD, and number
(05:33):
four on the list is TexasInstruments.
Now you might be thinking whydid I choose these two companies
?
Why didn't I pick othercompanies?
So for this I went to Googlefor some help and I typed in you
can see it up on the screenhere.
I said give me a list ofcompetitors to Texas Instruments
.
And this is exactly what Googlespit out as the results and it
(05:54):
says there's a number ofcompetitors.
You can see Intel is on thelist, micron is on the list, adi
is on the list and so is AMDand a number of other companies.
I know I'm gonna get a wholebunch of comments as to why
didn't I pick Intel versus AMDor AMD versus Micron.
Perhaps in the future I mightdecide to do another episode
(06:16):
where I will compare two othercompanies head to head, but for
today's episode I'm gonna stickwith the two Texas Instruments
versus AMD.
So now let's take a look at bothcompanies and you can see they
are similar in many respects.
Texas Instruments was foundedin 1930, amd was founded in 1969
(06:41):
.
In terms of employees, texasInstruments currently has around
34,000 employees.
Amd has 26,000 employees and,being the third largest
semiconductor company in the US,amd has a market cap of $293
billion.
Texas Instruments has a marketcap of $152 billion.
(07:06):
Now, the big difference betweenthe two and you can see it up
on the screen here is the annualdividend.
So you can see that TexasInstruments currently, as of
this recording, has an annualdividend of $5.20 per share.
Amd has no dividend whatsoeverand has not paid a dividend.
(07:29):
So that's what we're gonnacompare today A dividend stock
versus a non-dividend stock.
They're both in the sameindustry, they're direct
competitors of each other and interms of their financial
positioning they are fairlyclose.
So that brings us to our finaltopic in this episode.
(07:50):
So which company is the winner?
Which company comes out ahead?
And so to figure that out, weneed to establish two things.
First, we need to figure out apoint in time.
Are we gonna go back two years,five years, 10, 15?
How far back are we gonna go?
And then the second thing is weneed to determine okay, how
(08:12):
much money are we gonna investin each of these companies?
And then, once we have theanswer to those two things, then
we can figure out which companycomes out ahead.
So, in terms of point in time,we are gonna go back to the year
2004.
So that's gonna give us a 20year historical track record.
(08:32):
So I didn't wanna pick two orthree years, that's too short.
We wanna make sure in 20 yearswe capture a lot of the ups and
downs in the economy, the bullmarket as well as the bear
markets.
So we're gonna go back 20 yearsfor each of those companies and
in terms of the amount invested, we're gonna stick with.
(08:53):
Let's just keep things simple$20,000.
So let's say you invested$20,000 in Texas Instruments 20
years ago and you invested$20,000 in AMD 20 years ago.
Which company comes out ahead?
And again we're comparing adividend stock, which is Texas
(09:14):
Instruments, versus anon-dividend stock, which is AMD
.
So here you can see up on thescreen.
Here we're gonna look at TexasInstruments first.
The share price back in 2004was $19.54.
And if we're gonna invest$20,000 in this company back in
(09:34):
2004, you would have been ableto purchase 1,023.54 shares in
the company.
And similarly, if we take alook at AMD, back in 2004, the
stock price was $21.28.
Again, we're investing the sameamount $20,000 in AMD and you
(09:57):
would have been able to buy939.85 shares in the company.
So now you can see the shareprice back in 2004 for both of
the companies.
You can see the number of sharesup on the screen and you can
see that we invested 20,000 eachin both of those companies.
So now we're gonna fast forwardto the present time.
(10:20):
So, as of this recording, theshare price for Texas
Instruments has gone up to $168a share and the share price for
AMD has gone up to $178 a share.
So which company comes outahead.
So let's continue.
So far it looks like AMD isbetter because the stock price
(10:43):
is higher than Texas Instruments.
But let's continue.
And you can see that if we takethe current share price
multiplied by the number ofshares that you own Texas
Instruments, the investment inthat company today would be
worth over a hundred and seventyone thousand nine hundred fifty
four dollars.
The same twenty thousanddollars invested in AMD today
(11:07):
would be worth a hundred andsixty seven thousand two hundred
and ninety three dollars.
So that's a difference of fourthousand six hundred and sixty
one dollars.
And so you can see up on thescreen here that Texas
Instruments is ahead.
Now, the difference isn't toomuch if you think about it.
It's four thousand six hundredsixty one dollars, but over
(11:30):
twenty years, that isn't a lot.
The the difference isn't toomuch.
That's what I'm trying to sayhere.
The Delta is not that great now, technically, texas Instruments
is the winner here because theinvestment is worth more than
AMD.
However, let's not forget aboutthe dividends, because we're not
(11:54):
done yet.
So remember, texas Instrumentshas been paying a dividend.
So if we take a look at thenumbers there's quite a few
numbers on the screen we can seethat back in 2004 the dividend
was 0.09 cents per share, so itwas basically nine cents a share
.
That's what the company waspaying back in 2004, and then
(12:17):
you can see that the dividendhas gone up.
It looks like it's been goingup every single year, as far as
I can tell here, just scanningthe list and the dividend has
gone up, and the dividend today,as of this recording, is five
dollars and twenty cents a share, and so you can see that today,
as of this recording, you wouldearn five thousand three
(12:39):
hundred and twenty two dollars ayear in dividends alone Just
from Texas Instruments.
Now, if we add up all thedividends going back 20 years,
you can see that you would haveearned a total of 40,000 331
dollars in dividends Just forholding on to the shares in
(13:03):
Texas Instruments.
So then, for us to calculatethe total return, you have to
consider not just the stockprice appreciation Plus.
You have to add the dividendsover the last 20 years.
So let's do the simple mathhere.
You can see I've taken the samenumber from the previous slide.
The stock price has gone up forsure.
(13:25):
So the shares themselves areworth 171,954 dollars.
We're gonna now add thedividends that you would have
received.
So that's 40,000, three and 31dollars and you can see the
total investment, the twentythousand dollars that we started
with in Texas Instruments.
The total investment today isworth over 212,000 and 285
(13:50):
dollars.
So that's a total return of 961percent.
And Now let's do the same simplemath with AMD, and it's a lot
quicker, because AMD does nothave any dividends, doesn't pay
any dividends, so you wouldn'thave earned any dividends at all
over the last 20 years.
So we stick with just the stockprice appreciation and you can
(14:13):
see the total return there is736 percent.
So let's go ahead and put thaton one nice little table
together.
You can see on the screen heremarket value in 2004 Was twenty
thousand dollars each in bothcompanies.
You can see now, in 2000,current as of this recording, in
2024, the market value has goneup for Texas Instruments by 961
(14:38):
percent and AMD has gone up by736 percent.
So now you can see that thedifference is much more than
what we had before, when we wereonly looking at the stock price
.
So now Texas Instruments theinvestment in Texas Instruments
is ahead by over 34,992 dollarsand that is a difference of over
(15:05):
225 percent.
So now that is a much moreLarger Delta between the two
companies.
So it looks like TexasInstruments is still in the lead
as a you know, as a competitor.
That would have been a betterinvestment between the two
companies.
Now there's more.
(15:26):
There's something else we needto look at here.
So we're going to go back tothe list of dividends and
there's two things I want you toremember from this list because
we're going to use them in thenext couple of slides.
So you can see that, as of thisrecording, the company is
generating for you, whoeverbought the shares here 5000 over
five thousand three hundredtwenty two dollars a year in
(15:48):
dividends.
Okay, so that's regardless ofthe stock price going up and
down, you will receive over fivethousand three hundred dollars
in dividends every year as longas you continue to hold on to
the number of shares.
Now remember the total dividendincome Since 2004,.
In this example, has been over$40,331.
(16:12):
Right, so you can see that upon the screen here.
That's the total number ofdividends we've received in
Texas Instruments.
So what if we took that $40,331, and we reinvested that today?
So let's say we just let thedividends collect over the last
20 years and now we decide we'regonna take those that $40,331,
(16:35):
and reinvest it.
So what are we gonna reinvestit in?
Well, there's a lot of dividendstocks to choose from.
In this example, I'm gonna gowith Franklin Resources.
You can see up on the screenhere the current share price is
$27.06.
You can see the annual dividendis $1.24.
So the company is paying todaycurrently a yield of 4.6%.
(16:58):
So if we take our $40,331 individends invested in Franklin
Resources, you can see that youwould earn an additional $1,848
this year in annual dividends.
So what does that mean?
(17:21):
So let's take the annualdividends from our new
investment in Franklin Resourcesand add it to the annual
dividends we're alreadyreceiving from Texas Instruments
, and if you add up the twonumbers, you can see it up on
the screen it's over $7,170 inannual dividends.
(17:43):
So this is incredible.
Now let's take a look, and whatwe're gonna do here is we're
gonna do some simple math andwe're gonna calculate the
dividend yield based on yourpurchase price.
So they refer to this as thedividend yield on cost.
So, like I said, the totalnumber of dividends from
(18:04):
Franklin Resources plus TexasInstruments is over $7,170 a
year in dividends.
If we divide that by ourinitial investment, which was
$20,000 and we express that as apercentage, you can see it's
36%.
So you are now earning 36% ayear on your investment and
(18:30):
hopefully that's going toincrease next year because
Franklin Resources has a historyof increasing its dividend.
Texas Instruments has a historyof increasing its dividends.
So as both companies increasetheir dividend every year, your
dividend yield on cost is goingto grow every single year,
(18:51):
hopefully, as they increase thedividends.
So 36% return is fantastic forjust holding on to those shares.
Again, regardless of the stockprice.
And I've done episodes in thepast where we look at other
companies and we look at theirstock prices.
So stock prices can go up anddown for each of these two
companies, but as long as theycontinue to pay the dividend,
(19:12):
you're looking at a 36% returnyear after year after year after
year and, like I said, it'llgrow when the dividends grow as
well.
And look at the other thing whatwe've done here is we've taken
the initial $20,000 investmentin one company and now we've
turned it into an investmentinto two companies.
(19:33):
So now we've diversified theportfolio and these two
companies are in completely twodifferent industries.
So now we've also lowered therisk because we're not putting
all our eggs in one basket andwe are benefiting by reinvesting
those dividends into anothercompany that is also paying
(19:54):
dividends.
So now, if we compare our twocompetitors head to head Texas
Instruments, which is a dividendstock, amd, which doesn't pay
any dividends.
Let's take a look in summaryTexas Instruments the dividend
yield based on the purchaseprice is 36%, so that's a 36%
return annually just for holdingon to the shares.
(20:17):
And, like I showed you before,the return since 2004 has been
961%, whereas AMD doesn't pay adividend.
So the yield dividend yield iszero and AMD has returned since
2004, 736% return.
So now we can clearly see thatthe winner in this example is
(20:42):
Texas Instruments.
And, like I said, we've alsodiversified the investment
because we took the dividendsand put them into another
company in a different industry.
So we've put somediversification in the portfolio
and we continue to generateover $7,000 a year annually in
(21:04):
dividends just for holding on tothe shares, regardless of the
stock price, whereas AMD thereis no dividend.
In both of these examples, ifthe stock price tanks tomorrow
or next week, if the stock pricegets cut in half, you're going
to lose quite a bit of money.
Well, on paper, with AMD, withTexas Instruments, sure the
(21:27):
stock price is going to go downin value as well, but you're
still getting the dividends.
You're still getting the 36%return year after year after
year and, like I said, the 36%return hopefully will grow as
the company increases itsdividend and as the investment
in Franklin Resources increasesits dividend.
(21:49):
So does this mean that youshould go out and buy any stock
today that pays a dividend?
And the short answer is no.
There's a couple of more thingswe need to take a look at and
I'm going to go through thoseright now.
So our approach to investingand I've been doing this for
over 20 years now is to investin quality, dividend paying
(22:09):
stocks when they are priced low.
So the key is not just anystock.
It's got to be a dividend stock, not just any dividend stock.
It has to be high quality andnot just any high quality
dividend stock.
It has to be priced low, soit's got to be undervalued.
So, like I said, stock pricesgo up and down all the time.
You want to invest in a companywhen it's priced low, not when
(22:33):
it's priced high.
So how do you know when you'relooking at a company anywhere in
the world?
How do you know that it's aquality stock and how do you
know that it's priced low?
So for that I've created what Icall the 12 rules of simply
investing.
You can see them up on thescreen right now.
This becomes your checklist.
A company has to pass all ofthe rules before you invest in
(22:57):
it.
If it fails one rule, if itfails two rules, skip it, move
on to something else.
A company has to pass all ofthe 12 rules and that is your
checklist before you invest init.
So rule number one do youunderstand how a company is
making money?
If you don't skip it, move onto something else.
Rule number two 20 years fromnow, will people still need its
(23:19):
product and services?
Rule number three does thecompany have a low cost
competitive advantage?
Rule number four is itrecession proof?
Rule number five is itprofitable?
Rule number six does thecompany grow its dividend?
Rule number seven can thecompany afford to pay the
dividend?
Rule number eight is the debtless than 70%?
Rule number nine avoid anycompany with a recent dividend
(23:42):
cut.
Rule number 10, does thecompany buy back its own shares?
Rule number 11, is the stockpriced low?
And we check for three thingsthere.
We're going to look at the P-Eratio.
We want to make sure it's low.
We look at the P-B ratio theprice to book value make sure
it's low.
And then we compare the currentdividend yield to the company's
20 year average dividend yield,and so the current yield must
(24:05):
be higher than its 20 yearaverage.
And if a stock meets all ofthose three conditions, then the
company passes rule number 11.
And rule number 12, keep youremotions out of investing.
So, if anyone is interested,I've created the Simply
Investing course.
It's an online course,self-paced, and there's a number
(24:27):
of online videos, and we covereverything, to get started with
dividend investing, in 10modules.
So, module one we start withthe investing basics.
Module two we cover the 12rules of Simply Investing in
detail.
Module three you learn how toapply the 12 rules.
Module four you learn how touse a Simply Investing platform.
(24:50):
Module five you learn how toplace your first stock order.
Module six learn how to buildand track your portfolio.
Module seven you're going tolearn when to sell, which is
just as important as to knowwhen to buy a stock.
Module eight learn how toreduce your fees and risk,
especially if you own mutualfunds, index funds and ETFs.
(25:10):
Module nine you're going to getyour own action plan to get
started immediately, and module10,.
We answer your most frequentlyasked questions, and we also
have a Simply Investing platformthat applies these rules to
over 6,000 companies in the USand in Canada every single day.
(25:32):
So you can log into theplatform and immediately see
which companies are worthconsidering and which companies
to avoid, because you can seeright away which companies fail
which of the rules and whichcompanies pass which of the
rules.
So if anyone's interested, youmay want to write down the
coupon code save10, save10.
(25:53):
It's going to save you 10% offof the course and the platform
as well.
If you enjoyed today's episode,be sure to hit the subscribe
button.
We have a new episode out everyweek.
Hit the like button as well,and for more information, take a
look at our website,simplyinvestingcom.
Thanks for watching.
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