I’ve been getting a lot of questions lately about dividend stocks, so I wrote about them this week. These are some of the best-performing equity strategies over time, but it’s not as easy as picking high-yielding stocks. Nor should an investor allocate too much to any single factor unless there’s a very specific goal.
There’s this idea that dividend-paying stocks are safe havens during times of economic contraction, and that can be true. But be careful because when weakness fuels dividend cuts or suspensions, watch out.
That’s why we are recommending a more diversified approach to generating income. You can now buy a 6-month Treasury and get over 5%. That’s amazing and hasn’t happened in 15 years. For those with access to private markets (like us), we see net yields in private debt and direct lending at 9-12%.
The point here is, why take on the idiosyncratic risk of picking a bunch of stocks when you can instead own equity income ETFs and then combine other asset classes that no longer require massive amounts of duration?
It wasn’t long ago when generating income was super hard and warranted a more granular approach (like picking single stocks). Today, it’s a new world, and it’s time to rethink how we approach income for our clients.
The excerpt below came from a Chartr email earlier this week:
The earliest reference to the “Tooth Fairy” that we know of today cropped up in the Chicago Tribune in 1908 as advice for parents to help children through the tooth-losing process. However, some trace the practice to the “tand-fe” — or tooth fee — that Norse people would pay to children after their first loss, though the Vikings likely weren’t shilling out more than$6 a tooth.
I’m not going to waste any time fact-checking this because (1) I wouldn’t know where to even start, and (2) I just don’t care. This is in reference to a report released this week from Delta Dental. They do an Original Tooth Fairy Poll every year, asking 1,000 parents nationwide how much their children are getting for each tooth, and published the results this week.
Pushing aside the unimaginable fact that Delta Dental found and presumably paid surveyors to call 1,000 parents and has done so for 25 years, it looks like inflation is hitting parents from all angles. This year’s payout was 16% higher than last year’s, to $6.23/tooth.
Usually, this would be the catalyst for a six-paragraph rant on the insanity of leaving that much money under the pillow for someone who has zero concept of money, but I have to admit that I recently left a $20 bill under my daughter’s pillow after she lost her first tooth.
This brings me to my point. The source of tooth inflation has nothing to do with a supply/demand imbalance like we’re seeing in the broader economy. It’s 100% due to parent laziness and lack of preparation. Allow me to explain.
All we had on us was a $20 bill. We don’t keep cash in the house anymore, and after a few glasses of wine, the motivation to drive down to the ATM was sub-zero. What we should have done, what parents all over the country should do, is take a page from my parent’s playbook.
Let’s go back to “no concept of money” for a moment. I could have left my daughter $20, $50, or even a cool, crisp Benjamin under her pillow, and her excitement would not have changed much. As in, her marginal happiness per dollar is not logarithmic. It’s not even linear. Giving her $50 versus $10 does not result in 5x more happiness.
I’m pretty sure my parents knew this when I was a kid because I never got anything under my pillow that was made from paper. They were masters at putting unique coins that none of my friends had at the time. As a kid, I valued this more than money itself.
To be clear, they weren’t putting Krugerrands or sunken pirate treasure under my pillow. Not even close. I’m talking more like 50-cent pieces, Canadian funny money, and silver dollars. But trading quantity for perceived rarity worked.
And don’t for a second assume that I look back and think I got swindled. Far from it. If anything, it’s like what Walter White told Gus Fring in Breaking Bad, “I respect the strategy.”
Rest assured that the Sorrentino household won’t make this mistake again. We already stocked up on a pile of Susan B. Anthony’s, so we’re ready for round 2.
Enjoy the weekend…
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