Masters in Business · Podcast summary
At The Money: Profiting from Dividend Growth
David Bahnsen, author of "Profit From The Profit," discusses how to invest in dividend growth, distinguishing it from speculation and explaining its benefits in volatile markets.
Listen on the show ↗Key takeaways
- 💰All investing fundamentally comes down to the underlying profits of what is being invested in, even for pre-profit companies, as investments are made with an outlook on future profitability.03:27
- 🎁Dividends represent a "palatable, tangible, repeatable profit" for risk-taking investors, providing a direct reward from a company's earnings.04:44
- 🏢True investing is about owning an underlying business that creates value, not merely speculating on stock price changes, which is often a zero-sum game.05:08
- 📈Exogenous returns are derived from external factors like market sentiment, while endogenous returns come from a company's internal performance and value creation.09:35
- 🛡️Despite significant market rallies, dividend growth investing has shown resilience, outperforming the S&P 500 in down years and potentially offering better long-term returns in a high-multiple market.11:57
- 📊Dividend growth portfolios can achieve diversification by owning various sectors while maintaining "benchmark agnosticism" in weighting, allowing for strategic allocation beyond traditional sector classifications.16:00
Chapters
- 3:57Introduction to Dividend Growth Investing
- 5:09The Philosophy of "Profit From The Profit"
- 8:23Ownership vs. Speculation
- 15:28Endogenous vs. Exogenous Returns
- 18:30Revisiting Dividend Growth: Seven Years Later
- 24:14Sector Concentration and Diversification
- 31:40Dividend Discipline: A Double-Edged Sword?
- 35:12Benefiting from Volatility
The digest
Barry Ritholtz interviews David Bahnsen, author of "Profit From The Profit," a book that explores dividend growth investing. Bahnsen, also the founder and Chief Investment Officer of The Bahnsen Group, managing over $10 billion, delves into the philosophy behind dividend investing, its distinction from speculation, and its enduring relevance in today's market.
The Philosophy of "Profit From The Profit"
Bahnsen begins by explaining the core concept of his book, "Profit From The Profit." He emphasizes that all investing, at its fundamental level, comes down to the underlying profits of what is being invested in. Even in cases of pre-profit or pre-revenue companies, the investment is made with an outlook on future profitability. For more liquid and stable investments, particularly in public markets, the focus remains on underlying profits and a discounting of future profits into a present valuation.
Bahnsen argues that investors should take the profits generated by companies they own and allow individual investors to participate in those profits, primarily through dividends. This approach, he notes, has been a historical norm for rewarding risk-taking investors. While companies cannot distribute all their profits—needing to retain some for rainy days, debt repayment, and reinvestment in growth—there must be a tangible reward for the risk-taker. Dividends, in Bahnsen's view, represent a "palatable, tangible, repeatable profit" from those underlying profits.
Keep reading in The Digest
The full 6-minute article, 6 more sections, and every new episode from Masters in Business and the creators you follow.
- Ownership vs. Speculation: Drawing the Line
- Endogenous vs. Exogenous Returns
- Revisiting Dividend Growth: Seven Years Later
- Sector Concentration and Diversification
- Dividend Discipline: A Double-Edged Sword?
- Benefiting from Volatility
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