Get Smart

Guest Author

Economic Warfare

Rene Aninao
Thoughts On Money

Returns Over the Next 10 Years

Trevor Cummings
Alt Blend

100. Not 100%

Steve Tresnan

About

Dividend Cafe provides market perspective rooted in first principles, not the fads of the day. Authored by our Managing Partner, David Bahnsen, it covers a wide array of topics, it doesn’t try to do what it cannot do, and it strives to offer needed perspective not readily available in most financial commentary.

The MONDAY Dividend Cafe covers all going on in the present tense in public policy, housing, energy, markets, the Fed, and more.

The DAILY RECAP is rather self-explanatory.

And ASK TBG gives you a chance for daily interaction with our people on any issue important to you.

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November 1
Bipartisan is Not Always Good for Markets
Bipartisan is Not Always Good for Markets – November 1, 2024

We focus on assorted election issues, the future of the leadership at the Fed, and other items that should leave you elated with anticipation....

More>
LAST WEEK'S DIVIDEND CAFE

Ask TBG

Question:

“I am all in on your dividend growth philosophy for U.S. equity exposure. But for diversification, common knowledge says that some percent of one’s portfolio should be invested in foreign equities. What are your thoughts on this statement, and do you invest in that arena for your clients? Given its many economic problems, is China investable at this time?”
~ Jay H.

Answer:

I believe a few things about this topic:

1. International equity ownership was much more of a diversifier in the 80s, 90s, and the aughts than it has been for the last fifteen years.
2. There is NO diversified U.S. equity owner who is not heavily invested in international markets. The vast majority of U.S. large-cap equities are substantially exposed to global markets, with $600 billion (30%) of total quarterly revenues coming outside the United States for the S&P 500 alone.
3. You add currency risk and geopolitical risk (and therefore, theoretically, risk premia) with international investing (developed or emerging markets)
4. Valuations and risk/reward trade-offs are more attractive to us in emerging markets than internationally developed markets, though the risks of #3 are substantially intensified
5. I wrote about a China investing outlook on a Dividend Cafe titled, "Affected by China Unwillingly and Unknowingly" earlier this October, that provides more context.
~ David L. Bahnsen, November 4, 2024

Question:

What is the screening process on the front end that goes into building the universe of names eligible to be considered for your Dividend Growth Equity portfolio?  Is it a certain threshold of earnings yield or other metrics?
~ Barry S.

Answer:

We start with a quantitative screening process to narrow the playing field using things like dividend yield, growth of dividends, balance sheet strength, and valuation.  However, different absolute metrics are used depending on the sector and industry.  Solely screening the S&P 500 with static set factors (dividend yield >2%, Dividend CAGR over 5%, valuation under 20X, earnings yield over 4% etc.) would be a start, but where the secret sauce and work is actually done is the extensive bottom-up research on each business one by one.  We have seasoned equity analysts divided and specialized in each sector who do all the heavy lifting of sell-side research, the company calls, and financial analytics and modeling.  We have high-level access to paid-for tools that allow us insight into senior management personnel of the businesses we consider, from the CEO to C-Suite executives.  I can go on and on here, but specifically related to your question about the quantitative component on the front end, it may only be 5-10% of our process, with the remaining in those other deeper fundamental components.
~ Brian T. Szytel, October 31, 2024

Question:

“If I recall correctly from your reports, the number of oil rigs in use dropped precipitously because of Covid.  Does the recent all-time high in oil production mean all those rigs are back in use?  If not, where is the oil coming from, and what will it take to bring idle rigs back online?"
~ Ralph P.

Answer:

No, we are getting MORE OIL from LESS RIGS.

But we remain WELL BELOW all time high rig county of ~800 pre-COVID.
~ David L. Bahnsen, October 30, 2024

Question:

Why wouldn’t TBG use a municipal bond index ETF that has lower internal expenses versus a municipal bond Mutual Fund in a portfolio?
~ Bob F.

Answer:

It’s a totally different animal.  It's the same conversation about why we wouldn’t buy the equity index versus investing in our actively managed dividend equity portfolio.  We don’t want to own everything in the index when some of it is ill-suited for our strategy.  We want active management in every asset class - stocks, bonds, and alternatives.  We don't use low-cost index-like solutions because we want to be more intentional about the exposures we get in each of those asset classes for clients rather than own the entire market in any one of them.  I have also found municipal bond exposure in an intraday traded ETF solution subpar when underlying holdings don't trade themselves daily (or even weekly at times).  It’s just totally outside how we manage money.  For larger allocations, we have solutions that utilize individual municipal bonds rather than funds themselves on the investment grade side.  I’ll let the performance between the two speak for itself (ahem, it’s better), but this is more about active vs. passive and then what structure is optimal for what we want to achieve (and be accountable for). 
~ Brian T. Szytel, October 29, 2024

Looking For Something Specific?

Monday's Dividend Cafe

Daily Recap

Monday - November 4
DJIA
-256 (-0.61%)
S&P
-0.28%
Nasdaq
-0.33%
2 Year Treasury Yield
4.18% (-4 basis points)
10 Year Treasury Yield
4.30% (-10 basis points)
Top-performing Sector
Energy (+1.87%)
Bottom-performing Sector
Utilities (-1.21%)
WTI Crude Oil
$71.68/barrel (+3.15%)

Podcast

Video

Dividend Cafe History

In September of 2008 the world’s financial markets were brought to their knees by a debt bubble, the likes of which we had never previously seen. The turmoil in financial markets was severe and Wall Street banks were falling by the wayside daily. In this time period, David Bahnsen was working as a Managing Director at Morgan Stanley, responsible for the well-being of his clients. As their anxiety of clients intensified, David began writing a periodic bulletin to them. One bulletin became another, and then another, and all of a sudden, a weekly bulletin was organically born! Well after markets pulled out of the abyss of 2008, the weekly edition continued, evolving into something far more positive than its September of 2008 origins. This commentary distributed by simple email with an ever-growing following morphed into the Dividend Cafe when David and his team launched their own practice in early 2015.

Today, Dividend Cafe is still attempting to do what it was doing in the fall of 2008 – offering truthful perspective that may not be easily found elsewhere. The topics will vary from our dividend growth philosophy, to bedrock investing principles, to the challenges of interventionist monetary policy, to anything else that inspires David in a given week. The underlying objective is the same now as it was when we began – to build trust by telling the truth, not what people want to hear.

History
SUBMIT YOUR QUESTIONS

Get Smart

Guest Author

Economic Warfare

Rene Aninao
Thoughts On Money

Returns Over the Next 10 Years

Trevor Cummings
Alt Blend

100. Not 100%

Steve Tresnan

About

Dividend Cafe provides market perspective rooted in first principles, not the fads of the day. Authored by our Managing Partner, David Bahnsen, it covers a wide array of topics, it doesn’t try to do what it cannot do, and it strives to offer needed perspective not readily available in most financial commentary.

The MONDAY Dividend Cafe covers all going on in the present tense in public policy, housing, energy, markets, the Fed, and more.

The DAILY RECAP is rather self-explanatory.

And ASK TBG gives you a chance for daily interaction with our people on any issue important to you.

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Hightower Advisors, LLC is a SEC registered investment adviser. Registration as an investment adviser does not imply a certain level of skill or training. Some investment professionals may also be registered with Hightower Securities, LLC and offer securities through Hightower Securities, LLC, member FINRA/SIPC. You can check the background of our firm and investment professionals on brokercheck.finra.org. Unless otherwise indicated relative to a specific award or ranking, Hightower Advisors, LLC does not pay a fee to be considered for any ranking or recognition, but may have paid to publicize rankings obtained and disseminated prior to 11.4.2022. All awards / rankings / ratings obtained and distributed on or after 11.4.2022 will be accompanied by specific disclosure as applicable.

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