When you run a new name through those six stages, which test eats the most time — and which is hardest to pull straight from the filings?
I'm fairly new to doing this seriously. I've built a few tools to help with my own analysis — they've genuinely helped, and I think they could be useful to other investors too. But there are gaps I keep hitting, and before I take it any further I want to properly understand how people who really do this work through the process.
Hey Jose, great question and not to be evasive but it depends. Some businesses I need to spend some time on the business model and others the risks, especially if it is not obvious out of the gate. But generally, I spend the most time on 3 areas, moat, management, and valuation. I feel understanding these gives the best chance of determining how durable the company and profits will be. Unfortunately these are more “soft” skills and harder to pull from the financials. Hope that helps.
The 1.10% yield number is the single most powerful argument for active income investing over passive indexing right now, and I think it deserves even more emphasis than you give it here because of what it implies structurally.
When the S&P 500 yields 1.10%, a passive investor needs $5 million to generate $55,000 in pre-tax income. you lay this out clearly. but the deeper implication is that the index has quietly stopped being a diversified portfolio at all. seven companies now represent roughly 35% of the index weight. most of them pay minimal or zero dividends. the remaining 493 companies in the index include dozens of excellent dividend payers, but their weight in the index is so small that their yields are mathematically drowned out by the megacap concentration.
the structural irony is that the dividend investor building a 25-stock portfolio of carefully selected income-paying companies is now better diversified than the index investor who owns "500 companies." because the index investors actual exposure is dominated by seven highly correlated technology names, while the dividend portfolio is genuinely spread across utilities, healthcare, consumer staples, industrials, energy, and financials. conventional wisdom says the index is safer. the maths says the opposite in this specific concentration environment.
Your Microsoft chart from 2013 is doing important work in this piece because it demonstrates something the yield-chasing crowd never accounts for: the income you receive today is based on the yield at your purchase price, not todays yield. Microsofts current yield looks modest. your cost basis yield after 13 years of dividend growth looks spectacular. thats the compounding engine that most investors abandon because the early years feel too slow to justify the patience.
The $22 to $80 per share dividend growth chart across 40 years through every crisis is the one I would put on the cover of this piece if I were designing it. stock prices crashed in 2000, 2008, 2020, and 2022. the dividends paid by those same companies kept growing through all four. thats the income machine working exactly as designed, invisible to anyone who only watches the price chart.
A small correction: the debt pay-down yield is missing in the shareholder yield formula. It ought to be shareholder yield = dividend yield + debt pay-down yield + buyback yield. The debt pay-down yield is available from fiscal.ai
Superb analysis! Wondering what 10 stocks check these boxes?
Hi Dave,
When you run a new name through those six stages, which test eats the most time — and which is hardest to pull straight from the filings?
I'm fairly new to doing this seriously. I've built a few tools to help with my own analysis — they've genuinely helped, and I think they could be useful to other investors too. But there are gaps I keep hitting, and before I take it any further I want to properly understand how people who really do this work through the process.
Thanks in advance!
Hey Jose, great question and not to be evasive but it depends. Some businesses I need to spend some time on the business model and others the risks, especially if it is not obvious out of the gate. But generally, I spend the most time on 3 areas, moat, management, and valuation. I feel understanding these gives the best chance of determining how durable the company and profits will be. Unfortunately these are more “soft” skills and harder to pull from the financials. Hope that helps.
The 1.10% yield number is the single most powerful argument for active income investing over passive indexing right now, and I think it deserves even more emphasis than you give it here because of what it implies structurally.
When the S&P 500 yields 1.10%, a passive investor needs $5 million to generate $55,000 in pre-tax income. you lay this out clearly. but the deeper implication is that the index has quietly stopped being a diversified portfolio at all. seven companies now represent roughly 35% of the index weight. most of them pay minimal or zero dividends. the remaining 493 companies in the index include dozens of excellent dividend payers, but their weight in the index is so small that their yields are mathematically drowned out by the megacap concentration.
the structural irony is that the dividend investor building a 25-stock portfolio of carefully selected income-paying companies is now better diversified than the index investor who owns "500 companies." because the index investors actual exposure is dominated by seven highly correlated technology names, while the dividend portfolio is genuinely spread across utilities, healthcare, consumer staples, industrials, energy, and financials. conventional wisdom says the index is safer. the maths says the opposite in this specific concentration environment.
Your Microsoft chart from 2013 is doing important work in this piece because it demonstrates something the yield-chasing crowd never accounts for: the income you receive today is based on the yield at your purchase price, not todays yield. Microsofts current yield looks modest. your cost basis yield after 13 years of dividend growth looks spectacular. thats the compounding engine that most investors abandon because the early years feel too slow to justify the patience.
The $22 to $80 per share dividend growth chart across 40 years through every crisis is the one I would put on the cover of this piece if I were designing it. stock prices crashed in 2000, 2008, 2020, and 2022. the dividends paid by those same companies kept growing through all four. thats the income machine working exactly as designed, invisible to anyone who only watches the price chart.
A small correction: the debt pay-down yield is missing in the shareholder yield formula. It ought to be shareholder yield = dividend yield + debt pay-down yield + buyback yield. The debt pay-down yield is available from fiscal.ai