Apple, Meta and Salesforce Pay New…

Christine Benz: This has been a big year for dividends. Alphabet, Meta, Salesforce have all initiated dividend payments. So why not pop the champagne in this great new era of higher dividends?

Daniel Peris: Well, again, I’m glad to have them. The book came out on January 31st and Meta’s dividend was announced on February 1st. Hatred. But I’m not popping the champagne cork just yet, because the transition that I foresee in the ownership dividend, that is, the return of the cash bond, driven inexorably by the return to normal rates, interest rates, and the end of the various phenomena that we discussed, namely buybacks are getting tired, Nasdaq is maturing and global neoliberalism is coming to an end, I think it will take a few years. So I think it’s a little premature.

Also, if you look at the Meta and Google dividend announcements, they were combined with much larger share buybacks. So the return on Meta and Google is de minimis, but now it’s not zero. Its de minimis. And the ratio of buybacks to dividend payments, dollar dividend payments, is still, I think, six to one for one and eight to one for the other. But it is a symbol. It’s a move in the right direction. For a stock market dividend investor, they are not yet available as income streams. But I think over time we will see more and they will eventually become available. So stay tuned.

Factors driving paradigm shifts in dividend investing

Dan Lefkowitz: You referred to the paradigm shifts that you anticipate, where stock price appreciation alone is insufficient, dividends are regaining centrality. Perhaps you could explain the argument, what factors do you see that will cause this change?

PD: The return to the cash nexus, again, which basically means a return to business ownership of any effort that you would see, companies are going to have to compete for capital. Again, chapter one of the finance textbook. And they were able to compete for capital with the prospect of unlimited growth and falling interest rates, meaning the lowering of decades-old cash hurdles. And it worked perfectly.

Retirees, baby boomer retirees were able to fund their retirement, not from income, but from capital gains harvesting. It worked because the stock market continued to rise and interest rates continued to fall. As it ends, I expected to basically reverse to compete for capital from investors with interest rates at a more normal level and more contentious buybacks, and the more mature Nasdaq and local rather than global politics, then companies will have to approach more of a cash-on-the-barrel approach that trust in management has reached a maximum level. Here’s my money, take it, do what you want.

I think we’re going to pull away from that and continue through the rest of this decade into the next, companies to enjoy investor favor will have to show cash. So that means more dividend-initiating companies, more dividend-initiating companies, and companies making dividends a more prominent part of the ownership proposition, just like any other business one might invest in.

So look for more dividend paying companies, bigger dividend paying companies, it’s both good news and bad news. For a stock market dividend investor, that means more options, which is good. For the dividend investor in a stock market, it means more options, that’s bad. You have to make more choices, more analysis, determine which of those companies have sustainable revenue streams, which don’t. So, more work ahead of us.

How geopolitics contributes to changing dividends

MR: You mentioned geopolitics or political economy in the book as contributing to the dividend paradigm shift. Can you expand on that?

PD: Dangerous. And I’ll try to hold my tongue and not get into trouble. This interview is recorded at the end of July. It has been a very dramatic 10 days in this country politically. But really, you could look at the events that started in 2020 with covid and the movement towards deglobalization, interest rates hitting rock bottom, the political challenges we’ve faced over the last eight or four years, depending on the way you view it. But these challenges are obviously extremely severe.

I would characterize them without pointing out names, although I would be happy, is that at some point we had a consensus about neoliberalism and globalization. It wasn’t at least among decision makers and investors and so on. It’s good not to have a consensus, but where I think we’re headed now is not just not having any consensus, but it seems like most decision makers are content to never have a consensus again.

We don’t even see the need to agree. Isn’t that what we agree or disagree with? Do we agree with a return to 18th century mercantilism and tariffs? Do we agree with globalization? Do we agree with subsidies? Do we agree with industrial policy?

Not only do we not agree on any of these points, we don’t even see the need to agree on anything. I think that’s a huge risk for investors. We have a high confidence company and our assets trade at a high confidence multiple. I called it a multiple of 25 on the stock market. This is a high confidence multiple. You have confidence in your cash yield, whether it’s a dividend yield or an earnings yield, obviously very low because of the dividend yield, but the 25 multiples actually an earnings yield is very low. That’s because people trust the system to work and what they put their capital into and get back in one form or another.

I think the risk is that we’re heading in the direction, going down in the direction of a low-trust society, and low-trust societies don’t have 25 multiples. Not to lead us down a dark path, but you asked.