In this episode, I cover two competitors head-to-head, and show you how $20K turned into over $212K. A dividend stock versus a non-dividend stock, which one was the better investment?
I also cover the following topics in this episode:
- What are dividend stocks?
- What are non-dividend stocks?
- Introducing the competitors (TXN vs AMD)
- And the winner is?
- 961% return vs 736%
- 36% dividend yield based on the purchase price
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 cover two competitors head-to-head, and show you how $20K turned into over $212K. A dividend stock versus a non-dividend stock, which one was the better investment?
I also cover the following topics in this episode:
- What are dividend stocks?
- What are non-dividend stocks?
- Introducing the competitors (TXN vs AMD)
- And the winner is?
- 961% return vs 736%
- 36% dividend yield based on the purchase price
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'll show you how a $20,000 investment turned into over $212,000. We're going to cover two competitors a dividend stock and a non-dividend stock. Stick around to see which one was the better investment. Hi, my name is Kanwal Sarai and welcome to the Simply Investing Dividend Podcast. In today's episode we're going to cover the following four topics We'll start with what are dividend stocks, then we'll look at what are non-dividend stocks, and then I'm going to introduce to you the two competitors, the two stocks that we are going to compare head to head. Remember, one of them is a dividend stock and the other one is a non-dividend stock. And then, finally, the last topic in today's episode is to see which company is the winner, which company comes out ahead. So let's get started with our first topic what are dividend stocks. So, to understand that, you need to figure out and understand what is a dividend. A dividend is basically the company sharing its profits with you, the shareholder. So let's say, a company is offering a dividend of $1 per share and you own a thousand shares, 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 in this case of $1 per share. You can spend that money if you wish. You can spend the dividends because they're deposited directly into your trading account. So, like I said, you can spend the dividends if you wish, or you can reinvest them back into other stocks that are paying dividends. Now I've done episodes in the past where we take a look at what happens to the dividend when the stock price goes down or it goes up. So, in general, stock prices fluctuate all the time. They go up and down, but as long as the company is paying a dividend in this case of $1 per share you will receive that dividend as long as you hold on to those shares. So, basically, the dividends are the return on your investment while you hold on to the shares. And, like I said, stock prices can go up and down, the share price can go up and down, but as long as you're still owning those shares, the company will pay you that dividend. So then, what are dividend stocks? They're basically stocks that are paying you dividends. So let's take a look at an example of four stocks. So, as of this recording, apple, for example the makers of the iPhone are paying an annual dividend of $0.96 per share. Coca-cola, as of this recording is paying an annual dividend of $1.94 per share, nike is paying a dividend of $1.48 and Visa currently has an annual dividend of $2.08 per share. So, for example, if you own 100 shares in Visa, you would receive $208 every year in cash in the form of dividends for owning shares in Visa.
Speaker 1:Okay, so now let's move on to our second topic in this episode. So what are non-dividend stocks? So you can probably guess as to what they are just from the title alone, and they are basically stocks or companies that do not pay any dividends at all. So I just showed you four examples of companies that are paying dividends. Now let's take a look at four examples of companies that don't pay any dividends. So on the screen you can see here we have Amazon, google, netflix, tesla. This is an example of four companies, as of this recording, that are not paying any dividends at all. There's a lot more companies out there that don't pay dividends and there's a lot of companies out there that do pay dividends. Now, keep in mind without the dividend, you have to hope for the share price to keep going up, and hope is not going to cover your living expenses, but dividends can. Without the dividend, you have to keep hoping and praying that your stock price is going to continue to go up, because if it doesn't, you're not going to make any money on that investment if you own shares in companies that don't pay any dividends.
Speaker 1:So now let's move on to our third topic, and it is to introduce our two competitors. We're going to compare two stocks head to head and then we're going to find out which company would have been the better investment. So to begin, I first had to select an industry. There's a lot of different industries out there For today's episode. To keep it simple, I have decided to go with semiconductors. So we're going to pick two companies in this industry and, again to keep it simple, I've decided to go with the third and fourth largest semiconductor companies in the US today. So number three is advanced micro devices AMD, and number four on the list is Texas Instruments.
Speaker 1:Now you might be thinking why did I choose these two companies? Why didn't I pick other companies? So for this I went to Google for some help and I typed in you can see it up on the screen here. I said give me a list of competitors to Texas Instruments. And this is exactly what Google spit out as the results and it says there's a number of competitors. You can see Intel is on the list, micron is on the list, adi is on the list and so is AMD and a number of other companies. I know I'm gonna get a whole bunch of comments as to why didn't I pick Intel versus AMD or AMD versus Micron. Perhaps in the future I might decide to do another episode where I will compare two other companies head to head, but for today's episode I'm gonna stick with the two Texas Instruments versus AMD.
Speaker 1:So now let's take a look at both companies and you can see they are similar in many respects. Texas Instruments was founded in 1930, amd was founded in 1969. In terms of employees, texas Instruments currently has around 34,000 employees. Amd has 26,000 employees and, being the third largest semiconductor company in the US, amd has a market cap of $293 billion. Texas Instruments has a market cap of $152 billion. Now, the big difference between the two and you can see it up on the screen here is the annual dividend. So you can see that Texas Instruments currently, as of this recording, has an annual dividend of $5.20 per share. Amd has no dividend whatsoever and has not paid a dividend. So that's what we're gonna compare today A dividend stock versus a non-dividend stock. They're both in the same industry, they're direct competitors of each other and in terms of their financial positioning they are fairly close. So that brings us to our final topic in this episode.
Speaker 1:So which company is the winner? Which company comes out ahead? And so to figure that out, we need to establish two things. First, we need to figure out a point in time. Are we gonna go back two years, five years, 10, 15? How far back are we gonna go? And then the second thing is we need to determine okay, how much money are we gonna invest in each of these companies? And then, once we have the answer to those two things, then we can figure out which company comes out ahead. So, in terms of point in time, we are gonna go back to the year 2004. So that's gonna give us a 20 year historical track record. So I didn't wanna pick two or three years, that's too short. We wanna make sure in 20 years we capture a lot of the ups and downs in the economy, the bull market as well as the bear markets. So we're gonna go back 20 years for each of those companies and in terms of the amount invested, we're gonna stick with.
Speaker 1:Let's just keep things simple $20,000. So let's say you invested $20,000 in Texas Instruments 20 years ago and you invested $20,000 in AMD 20 years ago. Which company comes out ahead? And again we're comparing a dividend stock, which is Texas Instruments, versus a non-dividend stock, which is AMD. So here you can see up on the screen.
Speaker 1:Here we're gonna look at Texas Instruments first. The share price back in 2004 was $19.54. And if we're gonna invest $20,000 in this company back in 2004, you would have been able to purchase 1,023.54 shares in the company. And similarly, if we take a look at AMD, back in 2004, the stock price was $21.28. Again, we're investing the same amount $20,000 in AMD and you would have been able to buy 939.85 shares in the company. So now you can see the share price back in 2004 for both of the companies.
Speaker 1:You can see the number of shares up on the screen and you can see that we invested 20,000 each in both of those companies. So now we're gonna fast forward to the present time. So, as of this recording, the share price for Texas Instruments has gone up to $168 a share and the share price for AMD has gone up to $178 a share. So which company comes out ahead. So let's continue. So far it looks like AMD is better because the stock price is higher than Texas Instruments.
Speaker 1:But let's continue. And you can see that if we take the current share price multiplied by the number of shares that you own Texas Instruments, the investment in that company today would be worth over a hundred and seventy one thousand nine hundred fifty four dollars. The same twenty thousand dollars invested in AMD today would be worth a hundred and sixty seven thousand two hundred and ninety three dollars. So that's a difference of four thousand six hundred and sixty one dollars. And so you can see up on the screen here that Texas Instruments is ahead. Now, the difference isn't too much if you think about it. It's four thousand six hundred sixty one dollars, but over twenty years, that isn't a lot. The the difference isn't too much. That's what I'm trying to say here. The Delta is not that great now, technically, texas Instruments is the winner here because the investment is worth more than AMD.
Speaker 1:However, let's not forget about the dividends, because we're not done yet. So remember, texas Instruments has been paying a dividend. So if we take a look at the numbers there's quite a few numbers on the screen we can see that back in 2004 the dividend was 0.09 cents per share, so it was basically nine cents a share. That's what the company was paying back in 2004, and then you can see that the dividend has gone up. It looks like it's been going up every single year, as far as I can tell here, just scanning the list and the dividend has gone up, and the dividend today, as of this recording, is five dollars and twenty cents a share, and so you can see that today, as of this recording, you would earn five thousand three hundred and twenty two dollars a year in dividends alone Just from Texas Instruments.
Speaker 1:Now, if we add up all the dividends going back 20 years, you can see that you would have earned a total of 40,000 331 dollars in dividends Just for holding on to the shares in Texas Instruments. So then, for us to calculate the total return, you have to consider not just the stock price appreciation Plus. You have to add the dividends over the last 20 years. So let's do the simple math here. You can see I've taken the same number from the previous slide. The stock price has gone up for sure. So the shares themselves are worth 171,954 dollars. We're gonna now add the dividends that you would have received. So that's 40,000, three and 31 dollars and you can see the total investment, the twenty thousand dollars that we started with in Texas Instruments. The total investment today is worth over 212,000 and 285 dollars. So that's a total return of 961 percent.
Speaker 1:And Now let's do the same simple math with AMD, and it's a lot quicker, because AMD does not have any dividends, doesn't pay any dividends, so you wouldn't have earned any dividends at all over the last 20 years. So we stick with just the stock price appreciation and you can see the total return there is 736 percent. So let's go ahead and put that on one nice little table together. You can see on the screen here market value in 2004 Was twenty thousand dollars each in both companies. You can see now, in 2000, current as of this recording, in 2024, the market value has gone up for Texas Instruments by 961 percent and AMD has gone up by 736 percent. So now you can see that the difference is much more than what we had before, when we were only looking at the stock price. So now Texas Instruments the investment in Texas Instruments is ahead by over 34,992 dollars and that is a difference of over 225 percent. So now that is a much more Larger Delta between the two companies. So it looks like Texas Instruments is still in the lead as a you know, as a competitor. That would have been a better investment between the two companies. Now there's more.
Speaker 1:There's something else we need to look at here. So we're going to go back to the list of dividends and there's two things I want you to remember from this list because we're going to use them in the next couple of slides. So you can see that, as of this recording, the company is generating for you, whoever bought the shares here 5000 over five thousand three hundred twenty two dollars a year in dividends. Okay, so that's regardless of the stock price going up and down, you will receive over five thousand three hundred dollars in dividends every year as long as you continue to hold on to the number of shares. Now remember the total dividend income Since 2004,.
Speaker 1:In this example, has been over $40,331. Right, so you can see that up on the screen here. That's the total number of dividends we've received in Texas Instruments. So what if we took that $40,331, and we reinvested that today? So let's say we just let the dividends collect over the last 20 years and now we decide we're gonna take those that $40,331, and reinvest it. So what are we gonna reinvest it in? Well, there's a lot of dividend stocks to choose from.
Speaker 1:In this example, I'm gonna go with Franklin Resources. You can see up on the screen here the current share price is $27.06. You can see the annual dividend is $1.24. So the company is paying today currently a yield of 4.6%. So if we take our $40,331 in dividends invested in Franklin Resources, you can see that you would earn an additional $1,848 this year in annual dividends. So what does that mean? So let's take the annual dividends from our new investment in Franklin Resources and add it to the annual dividends we're already receiving from Texas Instruments, and if you add up the two numbers, you can see it up on the screen it's over $7,170 in annual dividends. So this is incredible.
Speaker 1:Now let's take a look, and what we're gonna do here is we're gonna do some simple math and we're gonna calculate the dividend yield based on your purchase price. So they refer to this as the dividend yield on cost. So, like I said, the total number of dividends from Franklin Resources plus Texas Instruments is over $7,170 a year in dividends. If we divide that by our initial investment, which was $20,000 and we express that as a percentage, you can see it's 36%. So you are now earning 36% a year on your investment and hopefully that's going to increase next year because Franklin Resources has a history of increasing its dividend. Texas Instruments has a history of increasing its dividends. So as both companies increase their dividend every year, your dividend yield on cost is going to grow every single year, hopefully, as they increase the dividends. So 36% return is fantastic for just holding on to those shares. Again, regardless of the stock price. And I've done episodes in the past where we look at other companies and we look at their stock prices. So stock prices can go up and down for each of these two companies, but as long as they continue to pay the dividend, you're looking at a 36% return year after year after year after year and, like I said, it'll grow when the dividends grow as well.
Speaker 1:And look at the other thing what we've done here is we've taken the initial $20,000 investment in one company and now we've turned it into an investment into two companies. So now we've diversified the portfolio and these two companies are in completely two different industries. So now we've also lowered the risk because we're not putting all our eggs in one basket and we are benefiting by reinvesting those dividends into another company that is also paying dividends. So now, if we compare our two competitors head to head Texas Instruments, which is a dividend stock, amd, which doesn't pay any dividends. Let's take a look in summary Texas Instruments the dividend yield based on the purchase price is 36%, so that's a 36% return annually just for holding on to the shares. And, like I showed you before, the return since 2004 has been 961%, whereas AMD doesn't pay a dividend. So the yield dividend yield is zero and AMD has returned since 2004, 736% return. So now we can clearly see that the winner in this example is Texas Instruments.
Speaker 1:And, like I said, we've also diversified the investment because we took the dividends and put them into another company in a different industry. So we've put some diversification in the portfolio and we continue to generate over $7,000 a year annually in dividends just for holding on to the shares, regardless of the stock price, whereas AMD there is no dividend. In both of these examples, if the stock price tanks tomorrow or next week, if the stock price gets cut in half, you're going to lose quite a bit of money. Well, on paper, with AMD, with Texas Instruments, sure the stock price is going to go down in value as well, but you're still getting the dividends. You're still getting the 36% return year after year after year and, like I said, the 36% return hopefully will grow as the company increases its dividend and as the investment in Franklin Resources increases its dividend.
Speaker 1:So does this mean that you should go out and buy any stock today that pays a dividend? And the short answer is no. There's a couple of more things we need to take a look at and I'm going to go through those right now. So our approach to investing and I've been doing this for over 20 years now is to invest in quality, dividend paying stocks when they are priced low. So the key is not just any stock. It's got to be a dividend stock, not just any dividend stock. It has to be high quality and not just any high quality dividend stock. It has to be priced low, so it's got to be undervalued. So, like I said, stock prices go up and down all the time.
Speaker 1:You want to invest in a company when it's priced low, not when it's priced high. So how do you know when you're looking at a company anywhere in the world? How do you know that it's a quality stock and how do you know that it's priced low? So for that I've created what I call the 12 rules of simply investing. You can see them up on the screen right now. This becomes your checklist. A company has to pass all of the rules before you invest in it. If it fails one rule, if it fails two rules, skip it, move on to something else. A company has to pass all of the 12 rules and that is your checklist before you invest in it. So rule number one do you understand how a company is making money? If you don't skip it, move on to something else.
Speaker 1:Rule number two 20 years from now, will people still need its product and services? Rule number three does the company have a low cost competitive advantage? Rule number four is it recession proof? Rule number five is it profitable? Rule number six does the company grow its dividend? Rule number seven can the company afford to pay the dividend? Rule number eight is the debt less than 70%? Rule number nine avoid any company with a recent dividend cut. Rule number 10, does the company buy back its own shares? Rule number 11, is the stock priced low? And we check for three things there. We're going to look at the P-E ratio. We want to make sure it's low. We look at the P-B ratio the price to book value make sure it's low. And then we compare the current dividend yield to the company's 20 year average dividend yield, and so the current yield must be higher than its 20 year average. And if a stock meets all of those three conditions, then the company passes rule number 11. And rule number 12, keep your emotions out of investing.
Speaker 1:So, if anyone is interested, I've created the Simply Investing course. It's an online course, self-paced, and there's a number of online videos, and we cover everything, to get started with dividend investing, in 10 modules. So, module one we start with the investing basics. Module two we cover the 12 rules of Simply Investing in detail. Module three you learn how to apply the 12 rules. Module four you learn how to use a Simply Investing platform.
Speaker 1:Module five you learn how to place your first stock order. Module six learn how to build and track your portfolio. Module seven you're going to learn when to sell, which is just as important as to know when to buy a stock. Module eight learn how to reduce your fees and risk, especially if you own mutual funds, index funds and ETFs. Module nine you're going to get your own action plan to get started immediately, and module 10,.
Speaker 1:We answer your most frequently asked questions, and we also have a Simply Investing platform that applies these rules to over 6,000 companies in the US and in Canada every single day. So you can log into the platform and immediately see which companies are worth considering and which companies to avoid, because you can see right away which companies fail which of the rules and which companies pass which of the rules. So if anyone's interested, you may want to write down the coupon code save10, save10. 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 a new episode out every week. Hit the like button as well, and for more information, take a look at our website, simplyinvestingcom. Thanks for watching.