In this episode, I show you how to invest like an investing legend, Geraldine Weiss. I cover the following in this episode:
- Who was Geraldine Weiss?
- What was her approach to investing?
- How you can invest like Geraldine Weiss
- Key benefits of dividend investing
Disclaimer: The views and opinions shared on this channel are for informational and educational purposes only. Simply Investing Incorporated nor the author and guests shall be liable for any loss of profit or any commercial damages, including but not limited to incidental, special, consequential, or other damages. Investors should confirm any data before making stock buy/sell decisions. Our staff and editor may hold at any given time securities mentioned in this video/course/report/presentation/platform. The final decision to buy or sell any stock is yours; please do your own due diligence. Stock buy or sell decisions are based on many factors including your own risk tolerance. When in doubt please consult a professional advisor. No advice on the buying and selling of specific securities is provided. All trademarks, trade names, or logos mentioned or used are the property of their respective owners. For our full legal disclaimer, please visit our website.
In this episode, I show you how to invest like an investing legend, Geraldine Weiss. I cover the following in this episode:
- Who was Geraldine Weiss?
- What was her approach to investing?
- How you can invest like Geraldine Weiss
- Key benefits of dividend investing
Disclaimer: The views and opinions shared on this channel are for informational and educational purposes only. Simply Investing Incorporated nor the author and guests shall be liable for any loss of profit or any commercial damages, including but not limited to incidental, special, consequential, or other damages. Investors should confirm any data before making stock buy/sell decisions. Our staff and editor may hold at any given time securities mentioned in this video/course/report/presentation/platform. The final decision to buy or sell any stock is yours; please do your own due diligence. Stock buy or sell decisions are based on many factors including your own risk tolerance. When in doubt please consult a professional advisor. No advice on the buying and selling of specific securities is provided. All trademarks, trade names, or logos mentioned or used are the property of their respective owners. For our full legal disclaimer, please visit our website.
In this episode, you're going to learn how to invest like one of the greatest dividend investors of all time. Hi, my name is Kanwal Sarai and welcome to the Simply Investing Dividend Podcast. In this episode, we're going to cover four topics. First, I will introduce you to Geraldine Wase, then we're going to look at what was her approach to dividend investing, and after that, you're going to learn how you too, can invest just like her. And then we'll finish off this episode with topic number four by covering some of the key benefits of dividend investing. So let's get started with topic number one.
Speaker 1:Geraldine Wase is known as an investing legend, especially when it comes to dividend investing. She was referred to as the Grand Dame of Dividends or the Dividend Detective. Geraldine Wase published a stock market newsletter for almost 40 years. Initially, as GWase, she didn't use her first name, she just used the first initial, g, and this was to conceal her gender in a male dominated industry. According to the Hulbert Financial Digest, iqt Investment Quality Trends, which is her newsletter, returned an average annual gain of 11.8% from 1986 to 2022, beating the Wilshire 5000 Total Market Index.
Speaker 1:Geraldine Wase was born in San Francisco in March 16, in 1926. In 1945, she graduated from the University of California at Berkeley, with a degree in finance and business. Her early inspiration was none other than Benjamin Graham, also known as the father of value investing. She was inspired by Benjamin Graham's book Security Analysis, first published in 1934. And then she was also inspired by his second book called the Intelligent Investor, published in 1949.
Speaker 1:In 1962, geraldine Wase started to look for work as a stock broker or an analyst, but all of the companies dismissed her request for work and they felt that this was not a place for a woman to be in the stock market or stock broker service. In 1966, she collaborated with Fred Whitmore and together they founded Investment Quality Trends. Now, investment Quality Trends marked Wase as the first woman to start an investment advisory service. Now Wase bought out Whitmore a few more years down the road, but she continued to hide her gender by signing all of the newsletters was just the first letter in her first name, gwase. However, all of that changed in 1977 when she appeared on a PBS talk show called Wall Street Week, and that's when the world found out that G Wase was in fact Geraldine Wase. Now, by then, in 1977, the subscribers were making so much money that they really didn't care about her gender.
Speaker 1:Now, geraldine wrote her first book, which I highly recommend, dividends Don't Lie Finding Value in Blue Chip Stocks, and she published this book in 1988. Then she had another book published in 1995. I also recommend this one called the Dividend Connection how dividends create value in the stock market. Her work has appeared in the New York Times, fortune, barron's and the Wall Street Journal. At the age of 96, she passed away on April 25th in 2022.
Speaker 1:So what was her approach to investing? Let's take a look at that right now. Her approach can be summarized in one simple statement, and that is value investing through analyzing dividend yield, and the key focus here is dividend yield, and I'm going to show you exactly what that means in this episode right now. So, to begin, we have to cover two terms first, you have to understand what is a dividend and you have to understand what is dividend yield, and then we can go through what was Geraldine's approach to selecting dividend stocks. So what is a dividend? So if you've been following watching my episodes in the podcast, you will already know what the answer is, but for those of you that are new to this episode, we'll just cover that in just a few minutes. So a dividend is simply the company sharing its profits with you, the shareholder. So in this example, you can see it up on the screen If a company is paying a dividend of $1 per share and you own 1000 shares, you will receive $1000 every year for as long as you own those shares and as long as the company continues to pay the dividend.
Speaker 1:Now the stock price can go up and down Doesn't matter. I've covered that in other previous episodes. It does not affect the dividend per share. The dividends are paid based on the number of shares you own. So, again, the stock price can go up and down, but if the number of shares you own doesn't change, then you will receive those dividends. Now you can spend the dividends if you want, or you can reinvest them. They are deposited as cash electronically into your trading account. So again, you can spend them if you wish, or, as dividend investors, we like to reinvest them into other stocks that pay us dividends.
Speaker 1:So what is a dividend yield? It's quite simply the annual dividend divided by the share price. So let's take a look at an example here. So let's say the company is paying an annual dividend of $1 per share and the share price today happens to be $20. So 1 over 20, when we want to express that as a percentage, you can see is 5%. So what does the 5% mean? What is that telling us? So in this example, let's say you had $20,000 to invest in this company, 5% of $20,000 is $1,000, which means you will receive $1,000 every year for as long as you own those shares and as long as the company continues to pay the dividend. So another way to look at it is in this example if you had $20,000 to invest and the share price was $20 a piece, you would be able to buy a thousand shares and remember the dividend is $1 per share. So we end up with the same number you get $1,000 every year in dividends. So the good thing is you don't need to calculate the dividend yourself or the dividend yield.
Speaker 1:Let's take a look at a screenshot. This was taken a while ago so it depends on. You know it'll be different when you're watching this video, but at the time of the recording, the dividend per share for Coca-Cola you can see here was $1.76 a share and the dividend yield at the time was 2.96%. So you can get both of these values anywhere online where you get stock prices. So in this example, we're using Yahoo Finance and we're able to get those values. So essentially, the dividend yield is the return on your investment while you hold on to your shares. Now remember, you don't have to sell any shares. The dividends come to you as long as you continue to own those shares in the company.
Speaker 1:Let's take a quick look at an example here, and we're going to use Jack and Jill as an example. So you can see here that Jill is investing in a stock that has a dividend yield of 5% and we've already shown before 5% of, let's say, $20,000. Let's say both Jack and Jill have $20,000 each to invest. Jill is going to receive $1,000 a year. Jack decided to invest in a company that doesn't pay a dividend, so the dividend yield is zero and you can see that Jack is going to earn $0 in dividends each year. So Jill is going to be better off because she is getting a return on her investment while she holds on to her shares. Now there's a potential for Jill to earn even more, and that is by using Geraldine Wase's approach to dividend investing, and we're going to look at that right now.
Speaker 1:So let's go back to our example of dividend yield. So remember, it's the annual dividend divided by the share price or the purchase price the day you buy those shares. So in this example, let's say you were going to buy the shares, the dividend was $1 per share and the share price was $20. If you bought them at that price, your yield would be 5% a year. Now let's say you decide not to buy the shares and you decide to wait a couple of days or a week, and let's say the stock price drops to $15 a share. You can see that my dividend now is 6.7%. Now let's say you waited a few more days and the stock price dropped even further to $10 a share, and you can see now my yield is 10%. And let's say you waited a few more weeks and the share price dropped even more to $5 a share. Now you can see that the dividend yield is 20%. Now, in reality, the dividend is going to range anywhere from 1% to maybe 3%, 4%, 5%, but in this case I'm trying to keep the math simple so it's easy to understand.
Speaker 1:Now, all things considered equal, would it be better for you to buy the shares at $20 each or $5 each? Of course, $5 each is going to be better for you. All things considered equal. Because when the shares are trading at $5, you're going to get a higher dividend yield. Why is that? Well, because the stock price is low, you're able to buy more shares for the same dollar amount that you were going to invest If you were going to invest $20,000. Well, if the shares are trading at $5 a share, you can buy more shares versus if they were trading at $20 each. So if you can buy more shares when the price is low, you're going to get more dividends. Your dividend yield is higher. The return on your investment while you hold on to those shares is going to be higher. So there is a benefit to buying low. You've all heard the phrase buy low and sell high.
Speaker 1:So now we're going to figure out how do you know when a stock is priced low and how do you know when a stock is priced high. So here we can see that as the stock price is dropping, what is happening to the dividend yield? The dividend yield is going up, and the reverse is true as the stock price starts to creep back up, the dividend yield comes down. So you can see that if the stock price was $100 a share, your dividend yield in this example would be way less than 5%, because the stock price has come up and the yield is going to drop. So this is really important. This is essential to the entire approach that we're looking at, and this is what Geraldine Ways talked about when she talked about using dividend yield to figure out if a stock is priced low or if a stock is priced high. So I'm going to repeat this again, because this is super important as the stock price starts dropping, the dividend yield starts to increase, and the reverse is true as the stock price starts to creep back up again, the dividend yield is going to go down, and you can see that up on the screen right here. So, as the stock price starts to go up, the dividend yield goes from 20% to 10% to 6.7% to 5% and, of course, if the stock price keeps going up, then the yield is going to go to 4%, then 3%, 2% and then 1%, and then the reverse is true as the price drops, the yield is going to go up.
Speaker 1:Okay, so stock prices go up and down all the time, and what's important for us is to know when is a stock priced low, because, all things considered equal, that's when you want to be buying, when the stock is priced low and to that we refer, to that as undervalued. It doesn't mean it's a bad stock. It means that the price is below its historical average right. So we want to pick and choose when companies are priced low. Why do we want to do that? Because we're going to make more in dividends, because we can buy more shares. So you can see up on the screen here stock prices go up and down all the time.
Speaker 1:So what if I was to tell you that this stock that we're looking at right now over the last 25 years has had an average dividend yield of 3%. So the dividend yield goes up and down every time the stock price goes up and down, but the average over the last 25 years for this company has been 3%. And what if today, the current dividend yield is 5%? Well, you can see that 5%, the current yield is higher than the average yield. And remember, when the dividend yield is high, it means the stock price has dropped in value. So that is your buying area below the orange line. You can see it on the screen here. The entire area below the orange line is your buying area. That is where the stock is priced low, the stock is undervalued. That's where you want to consider buying a stock. So we put that up on the screen here. This is the rule If your current dividend yield is greater than your average dividend yield, then the stock is priced low, undervalued. Remember, buy low and sell high. So now we know that this is the time that we would consider purchasing the stock because it is historically at a low price.
Speaker 1:Now what if I was to tell you that the current dividend yield today for this stock is 1%. Now you know that 1% is less than its average dividend yield. Right, the dividend yield has gone down. It was 5%, now it's 1%, and when the yield goes down, the share price goes up. So when the current yield today in this example is 1%, that means that this stock up on the screen here is now priced high, it's overvalued, it's above the orange line, and when it's there, we don't want to buy stocks. When they're priced high, we don't want to overpay for a stock. So, quite simply, when you look at this graph, the average dividend yield, which is the orange line, is 3%. Whenever the yield is greater, the current yield is greater than its average. Stock is undervalued. Whenever the current yield is less than its average, then the stock is overvalued. Okay, and that's what we're showing up on the screen here, right? So in this example, if the current yield today is 1% well, 1% is going to be less than 3% then the stock is priced high, overvalued.
Speaker 1:So let's take a look at a real-life example with Coca-Cola. Is it undervalued or is it overvalued? Is it priced low or is it priced high? So the current dividend yield today again, we're going to use the screen capture that we took as of the recording, the current dividend yield was showing us as 2.96% and we've already calculated the 25-year average dividend yield for Coca-Cola is 3.14. So you can see that the current yield is less than its average dividend yield. Therefore, as of this recording, the stock is overvalued or priced high.
Speaker 1:So what do we do? We skip it, move on to something else, another stock that you would consider for investing. So we're going to go back to this approach, right, that Geraldine Wase was talking about. It was value investing through analyzing dividend yield. So I've shown you the dividend yield, how to analyze it and how to know when a stock is priced low and how to know when it's priced high.
Speaker 1:Now, in the the book Dividend Connection, geraldine Wase writes, blue chip companies take great pride in their reputations for dependability. They are reluctant to lower a dividend, even in periods of cyclical stress. Such stress normally reduces the price of the stocks and creates a good buying opportunity. Right, that's when the stock is going to be priced low. Now she continues in the book and says well-established blue chip companies offer the best potential for increasing shareholder value through dividend growth and capital gains. History has shown that there is no profitable substitute for quality.
Speaker 1:Okay, so this is another piece that Geraldine Wase is talking about. We talked about value, using dividend yield to figure out the value. Is the stock low or high? But now she's also introducing something else, which is quality, and she refers to them as blue chip companies. So that brings us to our next topic, then how can you invest like Geraldine Wase?
Speaker 1:And the key here is value and quality. So not just having a stock that's priced low, but making sure that it is a stock that is of the highest quality. So how do you know, when you're looking at a company any company in the world if it's valued, priced low and if it's a quality stock? So for that I've created what I call the 12 rules of simply investing. You can see them up on the screen here.
Speaker 1:Rules number 1 to 10, if a company passes the first 10 rules, tells us that we are now looking at a high quality company. And rule number 11 is going to tell us if a stock is priced low or priced high. So this becomes your checklist. You want to make sure that a company passes all of these 12 rules, not just 9 out of the 12 or 8 out of the 12. All of them. If a company fails even one rule, we skip it. Move on to something else. So remember, rule number 1 to 10 will tell us we're looking at a quality company. Rule number 11 will tell us if a stock is priced low or priced high. So rule number 1, do you understand how a company is making money? If not, skip it.
Speaker 1:Rule number 2, 20 years from now, will people still need its product and services? Rule number 3, does the company have a low-cost competitive advantage? Rule number 4, is it recession proof? Rule number 5, is it profitable? Rule number 6, does the company grow its dividend consistently? Rule number 7, can the company afford to pay a dividend? Rule number 8, is its debt less than 70%? Rule number 9, avoid any companies with recent dividend cuts. Rule number 10, does the company buy back its own shares? And rule number 11, is the stock priced low?
Speaker 1:So there's three things that we check in there. One we already talked about in this episode we compare the current dividend yield to its average dividend yield. Right, we've already covered that. The next thing we look at is the PE ratio. We want to make sure it's low. And then we look at the PB ratio, the price to book ratio. If a company passes all three conditions, then the company passes rule number 11. And rule number 12, keep your emotions out of investing.
Speaker 1:So I'm going to leave you with two important quotes from Geraldine Weiss. And she says we all hope for capital gains, but the only thing we can really count on is the dividend. And here's another quote just to reinforce the last quote, but this is very important. And Geraldine Weiss says A clever accountant can make earnings appear good or not so good, depending on the season or the objective. There can be no confusion about a cash dividend. It is either paid or it is not paid, and that is so true Earnings earnings per share can be manipulated to show a higher value if a company wants to, but a dividend is paid out as cash to the shareholders, so you can't fake the dividend, you can't manipulate it, because it's tangible cash that is paid to the shareholders. So that brings us to the last topic in this episode the key benefits. What are the key benefits of dividend investing and this approach that we've talked about that Geraldine Weiss started using many, many, many decades ago. So I'm just going to talk about some of the key benefits here.
Speaker 1:So dividend yield can help you determine value. Is the stock price low or is it priced high? And we covered that in today's episode. Without the dividend yield, it's really difficult to figure out. Is the stock price low today or is it priced high? The dividend yield is going to help you determine value. Dividends can provide you with stable and consistent growing dividend income each year. For example, coca-cola has been paying a dividend since the 1800s and has been consecutively increasing its dividend for the last 60 years, which is an incredible track record Procter Gamble over 62 years of consecutive dividend increases. So for us, as dividend investors, the focus is not the stock price. The focus is on the dividend income. So we want to see the dividends coming in consistently and that they're stable and that they are growing year after year, because every time a company increases the dividend, that's more money in your pocket.
Speaker 1:Dividends are real. They are very real and tangible and they provide you with a margin of safety. Now I've covered this in past episodes. I gave an example with TC Energy where I had invested $2,479 in the company and since then I've received over $8,500 in dividends alone, regardless of the stock price. So the dividends provide you with a margin of safety and they reduce your risk. Every time a company pays the dividend, your risk goes down. Every time a company increases the dividend, your risk goes down Again. Without the dividend, then you're just hoping for the stock price to go up and stay up, and hope is not going to cover your living expenses, but dividends can. So dividends provide a real total return and I've covered this in episode 34. If you're interested, please go back and watch episode 34, where we talk about real total return. Dividends can provide extraordinary returns, not at the beginning, but over time, and as you reinvest them you can make more money in dividends, and I cover that in episode 7. So go ahead and watch episode 7 to see some examples of extraordinary returns.
Speaker 1:And then, last but not least, with dividend investing, there is no need to sell your stocks or eat into your capital, because our goal is the dividend income we want to generate enough income to cover our living expenses and more. So we never have to sell our stocks. Without dividends, you constantly have to eat into your capital and you got to sell the shares you have. Now the non dividend investors will say, well, our stocks go up in value. Sure, that's fine, but they can also go down in value. Right, Markets are cyclical, and if you need the money in 10 years or 15 years, or when you turn 55 or 65 and you want to live off of your investments and you don't have any dividend stocks and we're in the middle of a recession that lasts three years, maybe four years, and the value is down, then the worst time to sell any of your stocks is when the value is down. And to eat into your capital during that period of a market downturn is terrible, terrible for your investments. So we never want to be at the mercy of stock prices at all, and so with dividends, you don't have to be at the mercy of stock prices.
Speaker 1:So I'm going to leave you with one last quote from Geraldine Weiss, and it's in her book, the Dividend Connection, and she says successful investing in the stock market is not brain surgery. Anyone can be a successful investor. The secret is no secret. The key is to focus on value and quality, and that's the essence of her approach to different investing and that's our approach at simply investing, and what I've been practicing for over 23 years and teaching for the same amount of time is to focus on value and quality. So how do you Know, when you're looking at a stock, if it's a quality stock or value stock? Well, we covered that in today's episode.
Speaker 1:Right, and that was to focus on the 12 rules of simply investing. So, for those of you that are interested, I've created the online Simply investing course. It is a self-paced course. It's made up of 10 modules. Module 1 we cover the investing basics. Module 2 we cover the 12 rules of simply investing with real-life examples. Module 3 you learn how to apply the 12 rules and we provide you with a Google sheet where you can fill in all the values.
Speaker 1:Module 4 we talk about using the simply investing platform. Module 5 I take you step by step in placing your first stock order. Module 6 you learn about building and tracking your portfolio. Module 7 you learn when to sell, which is just important as to know when to buy. Module 8 Learn how to reduce your fees and risk when it comes to mutual funds, index funds or ETFs. Module 9 your action plan to get started right away.
Speaker 1:And module 10 I answer your freak, most frequently asked questions and for anyone that's interested, we also have the simply investing platform that tracks over 6,000 stocks in the US and Canada and applies these rules to each of those stocks every single day, so you can see immediately which stocks to consider because they're high quality and priced low, and which ones to avoid because they're priced high. So the platform makes that very easy. If you're interested in either the course or the platform, take down the note of the coupon code save 10. Sa Vee 1 0, save 10. It's going to save you 10% off of the course and the platform as well. If you enjoyed today's episode, be sure to hit the subscribe button. We have new episodes out every week. Hit the like button as well and for more information, take a look at our website, simply investing comm. Thanks for watching.