3 Stocks For Total Return That Also Happen To Pay A Dividend

Seekingalpha2023-08-19

The article emphasizes the importance of focusing on total return rather than just dividends when investing.It suggests that areas of the market with strong cash-based sources of intrinsic value, such...

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Miker9110
·2023-08-20
Pay dividend
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Uasbau
·2023-08-20
Not 'Tqa' but Tqs (Thanks)
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Uasbau
·2023-08-20
Interesting article; so if Aapl can dip to $167 shall it be a value buy for long term investment ? Of course Aapl may or may not dip to that level. Tqa
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We tend to prefer to focus on ideas in the large cap-growth sandbox. Why are readers so caught up on underperforming areas?Well, the answer seems to be clear enough: It's all about the dividend. Many readers may be retirees looking to build an income stream, which is great, but many may not have found resources to help them truly understand the concept of the dividend, itself. Do you, for example, believe the dividend is like a traditional bond coupon payment, where a traditional bond coupon payment is independent of the bond price, itself?If so, this article will help you. Quite simply, the dividend is nothing like a traditional bond coupon payment a","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"V":"Visa","AAPL":"苹果","MSFT":"微软"},"translate_title":"3只股票的总回报也恰好支付股息","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AAPL":1.1,"MSFT":1.1,"V":1.1},"content_text":"The article emphasizes the importance of focusing on total return rather than just dividends when investing.It suggests that areas of the market with strong cash-based sources of intrinsic value, such as large cap growth, may be a more favorable area to consider investing.The article highlights Visa, Microsoft, and Apple as examples of companies with strong cash flow generation and dividend growth prospects.Investing is supposed to be easy. The broader markets, as measured by the market-cap weighted S&P 500 (SP500), have advanced at an annualized rate of ~12.7% during the past 10 years. However, after a look around at the type of research that is often most popular on Seeking Alpha, it becomes readily apparent that tremendous effort is seemingly spent on trying to decipher which equity real estate investment trusts (\"REITs\") (VNQ) may have the best dividends, or which mortgage REITs (\"mREITs\") may offer the best payouts, or even which master limited partnerships (\"MLPs\") may offer the strongest distributions. It's sometimes disappointing, at least to me, that readers continue to want more and more content on these types of securities, given that underperformance in these areas has been considerable for the past 10 years.Entities with large net cash positions and substantial free cash flow generation have outperformed not only the broader stock market, but also key high yield areas, including REITs, mortgage REITs and master limited partnerships during the past 10 years. (The respective ETF sponsors)We encourage readers on Seeking Alpha to take a big step back and look at which sandbox you'd like to play in. Does it make much sense to apply your research efforts in equity REITs, mortgage REITs, and master limited partnerships that often are filled with companies with considerable net debt positions and free cash flow that may barely cover their dividends, if only perhaps they are prudent enough with capital spending? Or does it make much more sense to focus one's valuable time and effort on areas of the market that are overflowing with companies with strong cash-based sources of intrinsic value, entities that have net cash on the balance sheet and strong free cash flow generation--areas such as large cap growth? To us, the answer should be an easy one. We tend to prefer to focus on ideas in the large cap-growth sandbox.Why are readers so caught up on underperforming areas? Well, the answer seems to be clear enough: It's all about the dividend. Many readers may be retirees looking to build an income stream, which is great, but many may not have found resources to help them truly understand the concept of the dividend, itself. Do you, for example, believe the dividend is like a traditional bond coupon payment, where a traditional bond coupon payment is independent of the bond price, itself? If so, this article will help you.Quite simply, the dividend is nothing like a traditional bond coupon payment and generally should be viewed as part of capital appreciation that otherwise would have been achieved had the dividend not been paid. The implications on this thought process should be profound to many readers on Seeking Alpha, as in this article, one will eventually recognize that the share price is reduced by the amount of the dividend on the company's ex-dividend date. Unlike a bond and its coupon, the share price is not independent of the dividend.What this means in the most general sense is that investors pursuing an income strategy may not know that doing so directly impacts their capital appreciation potential. Investors get their total return whether they like it or not. What this means is that the total return of a stock should not be viewed in backwards fashion as the sum of the dividend yield and capital appreciation, as it may lead investors to believe that if a company adds to its dividend yield that its total return would advance further. Instead, investors should view all equities similarly whether they pay a dividend or not, assessed by total return, and then view that total return as broken into the areas of dividend yield and capital appreciation. Total return is independent of the dividend yield; it is not driven by it. In this article, we explain why, which bears repeating to hammer home this concept:Let's use [a] real-life example of a...prominent company such as Microsoft (MSFT). Back in 2004, Microsoft announced a special one-time dividend in the amount of $3 per share. It was payable to shareholders of record as of November 17, 2004, so to be eligible for the dividend, one had to buy the stock the week before, at least two trading (business) days before the record date, before the company went ex-dividend after November 12, 2004. Clearly, the chart below shows that Microsoft's shares were adjusted downward by the $3-per share dividend following the ex-dividend date, and while trading subsequent to that event impacted the stock, it is still important to understand this important market function when it comes to the dividend. If Microsoft had not paid this $3 per-share special one-time dividend, it is fair to assume that its share price would not have been adjusted down by the dividend. Perhaps this is easy to understand for many readers; for other readers, it may be helpful to evaluate the chart below to facilitate the understanding.When a company announces a dividend, its share price is reduced by the amount of the dividend on the ex-dividend date. (Trading View)Don't get me wrong: Dividends are great. They serve a number of purposes for investors, and companies that pay a free-cash-flow backed dividend can be great long-term investments. Visa Inc. (V), Apple Inc. (AAPL) and Microsoft (MSFT) are just a few of our dividend-paying favorites. We also provide a Dividend Growth Newsletter as well as a High Yield Dividend Newsletter to our members, but a dividend is what it is: capital appreciation that otherwise would have been achieved had the dividend not been paid. Within the enterprise free cash flow construct, the dividend is cash that otherwise would have piled up on the balance sheet instead of being dispersed to shareholders. Looking at how stock prices adjust following large, one-time dividends is perhaps the best way to understand the dividend payment, while studying the enterprise valuation process, or the discounted cash-flow method, helps investors understand why this adjustment occurs.Now, retirees may say that they require income, and this is why considerable effort is spent on assessing dividend payments. This is fair. Using dividend-paying equities to furnish one's retirement is a reasonable pursuit, but it should come with the acknowledgement that the dividend itself is actually taking away from a company's capital appreciation that otherwise would have been achieved had the company not paid the dividend. We're not splitting hairs in our explanation of total return, as understanding that total return is independent of the dividend yield could have serious implications on how one views the markets and which strategy one pursues. What is, or rather should be, most important to all investors is total return, as the dividend yield should be viewed as being \"paid out\" of total return, not a driver of it.Said another way, it's very likely that companies with hefty dividend yields--those in the very high-single-digits or in the double-digits--may experience declining share prices over time, as the dividend yield weighs on their stock price over time.Energy master limited partnerships and mortgage REITs have destroyed the accounts of retirees, necessitating them to chase higher and higher yields as their capital positions have eroded. (Trading View)A look at the price performance of the Alerian MLP ETF (AMLP) and the iShares Mortgage Real Estate Capped ETF (REM), for example, has shown ongoing share price declines as entities in this group paid out hefty dividend/distribution yields along the way. Were you expecting that the dividend/distribution payment would act as a headwind to their share prices in this way, or were you thinking that these areas might have similar capital appreciation as other areas that perhaps don't pay a dividend? Quite simply, a hefty dividend yield is a huge headwind to a firm's share price. We think about the effort that many retirees make in trying to understanding these highly-complex, high-yielding areas, and we ask why? Why would one let the income tail wag the total return dog...to mostly achieve underperformance? One of the few answers we can come up with is a lack of understanding of the structural dynamics of the dividend payment, and this lack of understanding may be hurting many investors. For example, a myopic focus on the dividend yield could have resulted in a massive total return difference--between that of a ~15.7% annualized return in the stylistic area of large cap growth over the past 10 years versus a low-single digit one in most high-yielding equities.Instead, we think retirees may be better off focusing on total return first, and then high yield as a secondary consideration. But what happens if an investor is only focused on the payout? A study recently released by Chicago Booth's Samuel Hartzmark and University of Southern California's David H. Solomon called the free dividends fallacy should resonate with readers. In their work, they explain that a focus on dividends could be costing investors roughly \"2-4 percent less per year than could otherwise be expected.\" Interestingly, from an empirical standpoint, the past 10 years have supported their conclusions, with the SPDR S&P Dividend ETF (SDY), which includes many high-yielding Dividend Aristocrats, trailing the SPDR S&P 500 ETF Trust (SPY) by roughly that percentage point range each year over the past 10 years.In some ways, it seems like there may be a strong inverse correlation between the lower the dividend yield, the higher the total return, or conversely, the higher the dividend yield, the lower the total return. In any case, whether it is high-yielding equities or dividend growth equities, a myopic focus on the dividend or dividend yield seems to be costing investors, at least over the past 10 years.We're not saying dividends aren't great (they are). Rather, we're saying that something else is more important, and that's a focus on total return and the cash-based sources of intrinsic value within the enterprise valuation construct--net cash on the balance sheet and future expectations of free cash flow. Such a view is not inconsistent with our being believers in the tenets of dividend growth investing either--reinvesting compounding dividends, growing yield on cost--but we're not letting the dividend tail wag the total return dog. A couple percentage points per year in underperformance truly adds up. The three ideas we're highlighting in this article may be three of our favorite dividend growth ideas, but in the context of this article, let's call them three of our favorite total return ideas that also have great dividend growth prospects. We think this is a better way to view dividend growth investing.VisaThe high end of our fair value estimate range stands at $283 per share. (Valuentum)Visa Inc. probably has the best business model in our coverage universe. The company benefits from a network effect, acts as a toll-road operator collecting fees every time one of its cards is swiped, and the credit card giant puts up huge operating and free cash flow margins. Visa is a top “weighting” in the portfolio of the Best Ideas Newsletter, and we don’t see that changing anytime soon. The high end of our fair value estimate range for Visa stands at ~$283 per share, with shares trading at ~$238 per share at the time of this writing. Though Visa has roughly a net-neutral balance sheet, including U.S. litigation escrow, the firm's free cash flow generation is phenomenal. Through the first nine months of fiscal 2023, its free cash flow generation of ~$13.07 billion has handily covered cash dividends paid of ~$2.8 billion. Shares yield ~0.8% at the time of this writing.MicrosoftThe high end of our fair value estimate range is $368. (Valuentum)Microsoft Corporation is probably the best play on the monetization of artificial intelligence, with the firm already rolling it in 365 Copilot as a voluntary upgrade. At the end of June, Microsoft held $111.3 billion in total cash and cash equivalents, exclusive of $9.9 billion in equity investments, and short- and long-term debt of $47.2 billion--good for a very nice net cash position. For the three months ended in June, cash flow from operations at Microsoft surged to $28.8 billion, while capital spending came in at $8.9 billion, good for free cash flow generation in the quarter of $19.8 billion. Common stock dividends paid in the quarter were just $5.05 billion, meaning that Microsoft's free cash flow coverage of its dividend is amazing, something that is further bolstered by a nice net cash position. The high end of our fair value estimate range of Microsoft is $368 per share (shares are trading at ~$316 each). Microsoft's dividend yield is ~0.9%.AppleThe high end of our fair value estimate range is $200. (Valuentum)We think Apple’s \"Vision Pro\" could spell upside to its fiscal 2024 and fiscal 2025 numbers, and now it’s looking likely that Apple could spark a huge jump in sales of its Apple Watch, after this year’s iteration, if it able to successfully deliver on embedding blood-pressure monitoring technology to the \"Watch X\" (it has been reported the company has had trouble embedding this technology in the past). We continue to like Apple’s cash-based sources of intrinsic value: its net cash position remains solid, and future expectations of enterprise free cash flow remain robust. At the beginning of July, Apple had a net cash position of ~$61.3 billion, while free cash flow generation of ~$80.1 billion easily covered cash dividends paid of ~$11.3 billion during the first nine months of fiscal 2023 by a large margin. As with Microsoft, Apple has tremendous dividend growth prospects. The high end of our fair value estimate range of Apple stands at $200 per share; shares of Apple yield ~0.6% at the time of this writing.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[{"id":210809743859848,"gmtCreate":1692491929290,"gmtModify":1692491934369,"author":{"id":"3567752887434518","authorId":"3567752887434518","name":"Miker9110","avatar":"https://community-static.tradeup.com/news/376b8215951358aaecd7891f086a6dad","vip":1,"crmLevel":1,"crmLevelSwitch":0},"htmlText":"Pay dividend","listText":"Pay dividend","text":"Pay dividend","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":7,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/210809743859848","repostId":2360533292,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":210772943855840,"gmtCreate":1692483041615,"gmtModify":1692483047149,"author":{"id":"3581724772671504","authorId":"3581724772671504","name":"Uasbau","avatar":"https://static.tigerbbs.com/67cdf409f2239595269918513a5faac9","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Not 'Tqa' but Tqs (Thanks)","listText":"Not 'Tqa' but Tqs (Thanks)","text":"Not 'Tqa' but Tqs (Thanks)","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":9,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/210772943855840","repostId":2360533292,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":210771936010400,"gmtCreate":1692482699299,"gmtModify":1692482704314,"author":{"id":"3581724772671504","authorId":"3581724772671504","name":"Uasbau","avatar":"https://static.tigerbbs.com/67cdf409f2239595269918513a5faac9","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Interesting article; so if&nbsp;Aapl can&nbsp;dip to $167 shall it be a value&nbsp;buy for long term investment ? Of course Aapl may or may&nbsp; not dip to that level. Tqa","listText":"Interesting article; so if&nbsp;Aapl can&nbsp;dip to $167 shall it be a value&nbsp;buy for long term investment ? Of course Aapl may or may&nbsp; not dip to that level. Tqa","text":"Interesting article; so if Aapl can dip to $167 shall it be a value buy for long term investment ? Of course Aapl may or may not dip to that level. Tqa","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":10,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/210771936010400","repostId":2360533292,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":30,"commentSize":1,"repostSize":2,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false}}