Australia’s Dividend Darlings, don’t expect rate cuts soon & where we find information

Bryce: [00:00:31] Welcome back to Equity Mates podcast, where we explore what's possible in the world of investing. If you've just joined us for the first time, a huge welcome. My name is Bryce and today we have a jam packed show. We're getting an update on the latest inflation and interest rate numbers. We're looking at Australia's dividend darlings and a community question on how to find quality information to chat through it. As always, I'm joined by my equity buddy, Ren. How are you? 

Alec: [00:00:56] I'm very good Bryce. Very excited for this episode. We have a lot to cover, but before we get into it, I want to share my gripe with the English language. Because, some breaking news this morning that I saw in my podcast feed. Not related to finance. Swans Golden Boy Errol Gulden resigns...1. And, my heart was in my mouth and it was not good. It was actually re-signs, but I'm making the call out that we need to put a hyphen between re and signs. 

Bryce: [00:01:34] Definitely. 

Alec: [00:01:33] Because those two things mean very 

Bryce: [00:01:36] Very definitively. Was it a joke? 

Alec: [00:01:40] No, it's just spelt the same. 

Bryce: [00:01:41] No reason. Definitely has a hyphen. 

Alec: [00:01:43] Hyphen? Yeah. Yeah. Well

Bryce: [00:01:45] Like what I'm saying is, is it intentional not to use hyphen to get a click. 

Alec: [00:01:49] No. It wasn't like this footy podcast was like trying to jayapal the Swans fans out there to get a click.

Bryce: [00:01:57] What was the podcast? 

Alec: [00:01:58] It was Fox Footy.

Bryce: [00:01:59] Okay. Oh okay. But they'd make that sort of mistake. 

Alec: [00:02:03] Yeah well that's what. Yeah. Yeah it's a mistake. Yeah. Anyway, wow. My opening gripe is with the English language this morning. But great news that Oracle and Story signed. 

Bryce: [00:02:14] Great news. Yes. 

Alec: [00:02:17] All right finance. Let's go. 

Bryce: [00:02:18] All right. Well let's kick into it. 

Bryce: [00:02:22] Ren, I want to kick off with a fun fact that I didn't know. In a recent court filing that Meta had to file for part of their FTC case. It came to light that Instagram in 2021 made more revenue than YouTube. So Instagram made $31 billion. 31.4 in 2021, YouTube made 28 billion. They don't have recent figures for Instagram. You can only assume it's gone up since then. I think at the moment YouTube is making about 31,000,000,000 in 2023. I found that fascinating. 

Alec: [00:02:57] Yeah, I found the interesting but not surprising. Like, if you'd asked me point blank which made more money, I think I probably would've said Instagram. 

Bryce: [00:03:06] Oh wow. I would have definitely gone to YouTube. I am just so. 

Alec: [00:03:09] I've just had a look. YouTube has 2.7 billion monthly active users. Instagram has 2 billion monthly active users. So YouTube is bigger. 

Bryce: [00:03:16] And I would have assumed time spent on the platform more on YouTube as well. 

Alec: [00:03:21] Yeah, you think so? Yeah. 

Bryce: [00:03:23] I guess if someone were to say to me you had to choose one over the other, I would have hands down go on YouTube. But I think it's amazing. And then now doing money in advertising, in reels that's even come up through our business as well. So making more money that way I think. 

Alec: [00:03:38] Yeah, I think, I think it's like even though YouTube has more monthly active users and longer time on site Instagram would probably have more, not even daily active users, but like hourly active users. If where I'm going makes sense. It's like it. People are just constantly mindlessly opening their phone and opening Instagram. 

Bryce: [00:03:58] I also just think about how you look at both channels from a media advertising point of view, and where our ad dollars go across both channels and like Instagram, we spend more on advertising than we do YouTube. The boost posts and that sort of stuff. So anyway.

Alec: [00:04:15] Actually here you go. So I've just googled it. So even though YouTube has more monthly active users, daily active users, these are, I think both approximate. YouTube has approximately 122 million daily activities, whereas Instagram has 500 million daily activities. So like you can see there the dynamic between the monthlies and the dailies. I look to be honest, the only takeaway from here is that both of these platforms make stupid amounts of money. 

Bryce: [00:04:44] Yeah. So it's 30% of total revenue, apparently. 

Alec: [00:04:47] Yeah. Honestly, I'm surprised there's not more. Like, how is Facebook earning more money than Instagram these days? 

Bryce: [00:04:53] Well, apparently Facebook's well, we know from the share price it's up five fold since the bottom of. 

Alec: [00:04:58] No. I'm just saying from a relative engagement and user base point of view. It feels like the fact that facebook.com is making more than Instagram is crazy. 

Bryce: [00:05:09] Yeah. Well, yeah. Anyway, Fun fact, apparently Zach's killing it at the moment with what he's doing with AI and the ability for advertisers to now target and spend. Effectiveness of spend on Facebook is apparently now going through the roof again. So. 

Alec: [00:05:28] I'll believe it when I say it.

Bryce: [00:05:30] Well, the share price is definitely reflected. 

Alec: [00:05:32] But I mean, like we've experienced firsthand the. 

Bryce: [00:05:35] I think there's a bit of user input that needs to go into it. 

Alec: [00:05:42] If AI and all that, it's been to make it great so that it should be easy for users. 

Bryce: [00:05:45] Anyway, let's, let's move on. I said at the top we'd be looking at the latest inflation and interest rates, overnight, US inflation data came in hotter than expected at 3.5%. All I think we should say Ren is that our calls on interest rates that you made last year and that I made at the start of this year, look to be even getting more and more likely, you made the bold call in October or wherever it was late last year, that there would be no interest rate cuts at all in 2024. I had a bold prediction that we might see an increase in interest rates in 2024, and it looks like it might be heading that way. 

Alec: [00:06:19] In the US. 

Bryce: [00:06:20] In the US, in the US, Biden came out and said that there is more to do. The inflation numbers are certainly not where they want it to be. Former Treasury Secretary Larry Summers said that we need to now take seriously the next rate cut will be up, not down. 

Alec: [00:06:35] So confusing quote that one. The next rate cut will be up, not down. The next rate move will be up. 

Bryce: [00:06:42] Sorry. Next rate move. Did I say 

Alec: [00:06:43] You don't have to apologise? That's the quote. At least it's the quote.

Bryce: [00:06:47] Yeah. So I guess the takeaway here is that sentiment is quickly changing. I think only a matter of months ago, markets were still betting that there were going to be multiple rate cuts from June. The fed board is now predicting that that's not going to be the case. The US economy is hot. Inflation is not slowing as much as it should be. Oil prices are rising and other commodities are at all time highs. We've spoken about cocoa, but coffee, copper, gold, aluminium, all, input costs. And we know what happens when input costs are high. It contributes to persistent inflation. So yeah, the picture is somewhat turning. 

Alec: [00:07:26] Yeah, I think it's just that there was too much optimism earlier in the year that like we were through the worst of it. And it's like we are definitely through the worst of it. Like let's not get it twisted like some of the inflation numbers that were saying 12, 18 months ago we're not returning to. But it's just like getting through the last of it is going to be the most difficult. And getting a 3.5 to a 2.5 is going to take some time. And unfortunately, you know, like most of what you spoke about there was American. But the commodity price story is a global story. And that's going to affect inflation here at home. But a key driver in the CPI bucket is housing. And unfortunately that is going to be a real what's the opposite of an anchor like a balloon on the inflation number. You know when it's like that. 

Bryce: [00:08:16] Yeah it's unnecessary. Yeah. It's like a yeah yeah. 

Alec: [00:08:19] An anchor is something that is just drastically dragging it down. This is something that's constantly keeping it inflated. Because housing and rental costs are just stupidly high and don't really show signs of getting better. There were pretty soft building approval numbers recently. According to NAB, though the lowest since 2013. And we spoke to Sam Gordon a couple of weeks ago. On the podcast, you can go and listen to that episode. And we just basically asked him what the hell is going on with property, but it's like more and more builders falling over and, you know, no, no one really wants to take on a lot of building projects, so they just don't have the staff to take on those projects. So there are big, lofty goals about building our way out of this housing crisis and bringing price down by getting more supply online doesn't really seem to happen if we don't have the people and the companies to build. And so that's going to be the balloon on the inflation number here. 

Bryce: [00:09:10] Yeah. So if you were factoring in some rate cuts this year, maybe you hold your horses. From my point of view, it doesn't change anything for me when it comes to investing approach. Just keep buying. Markets won't like this. The froth is starting to come out a little bit. We've been going in a left or right direction since late October last year, and the markets are now, I guess, readjusting expectations that we're going to have fewer rate cuts. So just just keep buying. 

Alec: [00:09:39] Yeah. I think yeah, you can lose a lot of a lot of sleep and a lot of here worrying about what's going to happen in the macro economy. But yeah, as we keep saying, like you can't on the market. So just get into the market and you'll be like that over the long term. 

Bryce: [00:09:57] So Ren, I said at the top as well that we're going to be looking at Australian Dividend darlings. 

Alec: [00:10:00] Yes. 

Bryce: [00:10:01] Companies that have been consistently paying dividends. So what have you got? 

Alec: [00:10:06] Well, I want to start by introducing the concept of the Dividend Aristocrats. Are you familiar with this concept? 

Bryce: [00:10:12] I am, companies that continuously increases dividends year after year. 

Alec: [00:10:17] So specifically like the technical definition is companies in America's S&P 500 that have raised dividends for 25 years or more. No, not even not even raised or kept steady. Raise dividends for 25 years or more. And if you fall out of the S&P 500 or you don't raise your dividend. 

Bryce: [00:10:44] You're gone. 

Alec: [00:10:44] You're gone. So that's the technical criteria for the Dividend Aristocrats. Okay. How many companies do you think fit that criteria? 

Bryce: [00:10:54] In the states. 

Alec: [00:10:55] Well the S&P 500 is the states. 

Bryce: [00:10:57] Yeah eight. 

Alec: [00:10:58] No 67. 

Bryce: [00:10:59] Oh wow. 

Alec: [00:11:00] Yeah I know it's heaps. And there are some really well known companies. It's a lot of quite boring companies. It's like the three Ms of the world and it's like Coke's in there and stuff like that. So there are ETFs that buy these Dividend Aristocrats. So I track the Dividend Aristocrats. The index over the last five years has returned 43%, 44%. So not bad. 

Bryce: [00:11:27] Year on year. 

Alec: [00:11:29] No, no, no. Over the five years. Yeah. And so it got me wondering if there is an Australian version. And I'm calling these the dividend darlings rather than the Dividend Aristocrats. So what I did was I jumped onto a Tikr and use their stock screener. Anyone can jump on to Tikr, tickr.com/equitymates. The link will be in the show notes. But all I did was rather than 25 years, I started with just ten years. And I just said any company on the ASX and then I did, has increased their dividend per share more than 0%. For the last ten financial years. How many companies? So not ASX 200. Just total ASX, all 2000 Aussie stocks. How many companies do you have? I can fit that criteria. Pretty close 12. Yeah. If I then I change the inputs to have raised or kept steady for the last year. 

Bryce: [00:12:30] So I'm not going backwards. 

Alec: [00:12:31] Yeah. Not going backwards. How many companies do you think fit that criteria? 

Bryce: [00:12:37] So not going backwards? Maybe 40. 

Alec: [00:12:39] Exactly 40. Oh, yeah. Yeah, yeah. But I want to focus on the 12 because that's a lot easier to talk about on a podcast. And there's 40. Some of the companies that you would expect to be in here, like you would think like BHP, Rio, like they are the dividend darlings. 

Bryce: [00:12:54] I know two that would be in there. 

Alec: [00:12:55] Name them. 

Bryce: [00:12:56] Sol Pats. 

Alec: [00:12:57] Yes, Washington H. Soul Pattinson. 

Bryce: [00:13:02] And Brickworks.

Alec: [00:13:02] Brickworks nailed it. That's two of the 12. So in order of largest market cap. The smallest market cap, Sonic healthcare. Car Group, which is what Car Sales have changed their name to. Soul Patts, as you mentioned, APA Group one that's about to come off the board, Altium Limited, because it got bought out, so it's not going to be listed anymore. Charter Whole Group, the property developers, Technology one. Brickworks you mentioned. Centurion Arena Reit. And then two more Nick Scali furniture. 

Bryce: [00:13:39] No way.

Alec: [00:13:40] Yeah. And Fiducian Group. So that list was a little surprising to me.

Bryce: [00:13:47] Yeah Nick Scali surprised me. I don't know why. Just doesn't feel like it fits in with those others. How long is this? Over 15 years. 

Alec: [00:13:53] No, ten years. Ten years. So the Dividend Aristocrats in the US 25. But after ten years, I only had 12 stocks. So I figured, let's just leave it there. The Nick Scali story is a fascinating story. Like, look at the share price over the last, like ten years. I mean, like, it's ten back since it was listed, but since 2014, it's gone from, like, $2 to $15. It's crazy. 

Bryce: [00:14:18] Killed it. 

Alec: [00:14:18] Furniture.. So. So those are the 12 companies that I'm naming Australia's dividend darlings. The question then becomes how has it performed as a. 

Bryce: [00:14:30] As an index.

Alec: [00:14:31] Cluster, as a group? Do you wanna have a guess? I did the last ten years. 

Bryce: [00:14:36] Over the last ten years, those companies, I mean, so it's got some good ones in there. The Nick Scalise have had some pretty incredible run up in price over the last ten years. The Brickworks have been consistent over the last ten years. I'm going to say like over 100%.

Alec: [00:14:56] No. So I've got the, per year. Per year returns. 

Bryce: [00:15:00] Per annum. ASX probably 15% a year. 

Alec: [00:15:08] Okay, so I went on to Sharesight and I don't pay for it. So I could only put ten of the 12 stocks.

Bryce: [00:15:16] Mainly. I guess you chose the top ten. 

Alec: [00:15:18] So I took Nick Scali and Ficucian as the two smallest market cap companies. Got the flick. 

Bryce: [00:15:25] Okay.

Alec: [00:15:26] And of the ten, that I could put in share. So for me, the per annum return was 55% a year. Compound average annual growth rate. 

Bryce: [00:15:40] Obviously includes dividends.

Alec: [00:15:41] Includes dividends. But then skewing that number was Altium. Altium went from, like $2 over the last ten years. Went from like $2 to $65 a share. So then I did X Altium. So I flicked Altium out and put Nick Scali back in. And the numbers as I look at them on share saw it 29% per annum return. And that's made up of 18% capital gain and 10% dividend. 

Bryce: [00:16:11] Solid. So what's the takeaway here? Go to the index.

Alec: [00:16:16] It's just I mean like the well the Australian dividend darlings have done much better than the US Dividend Aristocrats. So that's a starting point. But I think it's just I, it's, it's a Good over different time over different time periods. Yeah. But this Dividend Aristocrats ETF I'm looking at listed in 2013. So I'll even give them the extra year, because they're 141% Not per year, but like total.

Bryce: [00:16:45] Yeah. 

Alec: [00:16:45] So we've kicked their ass. 

Bryce: [00:16:46] Yeah, yeah. Nice.

Alec: [00:16:47] Unsurprisingly, a factor that is a positive indicator for stocks is a company that is consistently raising their dividend. And this just is testament to that.

Bryce: [00:17:00] I have a slightly controversial opinion. Some of them. Do it to have the bragging rights. 

Alec: [00:17:08] Definitely. And to get it into our Equity Mates Dividend Darlings ETF coming to market 2025. 

Bryce: [00:17:14] Like do you want a company that you're investing to consistently raise dividends for the sake of for the sake of it? 

Alec: [00:17:20] Cut the last three words. It's that. Oh, the last five words of that. Do you want a company that you're investing in to consistently raise dividends? 

Bryce: [00:17:27] That's not my point, though, for the sake of it. 

Alec: [00:17:29] For the sake of it?

Bryce: [00:17:30] Yeah, for a PR stunt, and I'm not naming which companies are in there that I think are doing it for PR stunt, but I think there would be a bit of pressure on some of them, because they do pride themselves on it. 

Alec: [00:17:42] Yeah, I think that's certainly a factor. I think especially in the US. If you're a CEO of a company in the Dividend Aristocrat Index and you've had 25 plus years of dividend growth, you wouldn't want to be the CEO that cuts it. 

Bryce: [00:18:01] No.

Alec: [00:18:02] But like, it's interesting, I'll include just the link to the Wikipedia page in the show notes because it has a list of all the 67 companies. There's some really well known ones, but it also has a history of how companies fell out. And you know, it's obviously like around 2020 and 2008, like when the market crashes and companies get in trouble, that's when you see a lot more companies having to make that hard decision to cut their dividend. But yeah, some big companies were in it. And how I went through some tough times and got the flick. 

Bryce: [00:18:35] Nice. Well there you go. The ASX dividend darlings. 

Alec: [00:18:39] No. Yeah ASX dividend darlings.

Bryce: [00:18:41] Love it. All right. Well we're going to take a quick break. And on the other side we've got a community question coming in from Greg. So stick with us. We'll be right back. Welcome back to Equity Mates. It is time for. This week's question has come in from Greg. So let's give it a listen. 

Greg: [00:19:10] Morning legends, just listen to your latest podcast. And one question I do have is, when you were speaking to. Luke about if you get your information from the internet, it's too late. Apart from the film. Review and reading, some of the older. Books on investing. Where else would you be getting up to date information? Me being a newbie. Who, after listening to your podcast for a while now, is possibly not investing, but gambling I am holding like the longevity of it. It has been ten years. Plan for me and my wife. So yeah, just on that information. Like where can we get up to. Date Information. Thanks, guys. 

Bryce: [00:19:54] Thanks for your question, Greg. And, thanks for the support listening to the show. We really appreciate it. So where to start listening? Listening to that. I think he's feeling obviously like some of the comments Luke we made, which were fair. 

Alec: [00:20:08] To be honest, I think I actually made that comment about once the information's in, on the internet, it's known. So I think for me, when we say like once the information's on the internet, it's priced in. It's because the market moves so quickly now and there are so many market participants that, you know, as soon as news breaks, there's algorithms or there's people that are trading. The information flows so quickly through the market that once we're rating it on the AFR or, you know, whatever news website we use, the market has reacted to that news. Gone are the days where you could, the buffet era where you could find a gem of information and just by reading the paper and investing in it a day or two later or a week later or whatever, those days are gone. But that doesn't mean you can't be a successful stock picker. But the edge that you have and how you make money as an investor in individual stocks doesn't come from having information that other people don't have, but it comes from having the analytical ability or insight that other people don't have. 

Bryce: [00:21:23] Like on your own. 

Alec: [00:21:24] Yeah. It's like I. 

Bryce: [00:21:26] You create your thesis. 

Alec: [00:21:28] The market reacts to information quickly, but you think, oh, the way that they've reacted is incorrect. Like they don't understand what caterpillars are actually doing and what that information actually means, or, how that will affect this company or that company. So when we say that, like the information is known, it's like it's just like the way that you have to think if you want to be a stock picker. And that's the important caveat here, because a lot of people make a lot of money not being a stock pick up. And that's like a perfectly good choice. It's just like, don't think that you found a piece of information online that no one else has found because by definition, if you're finding it online, someone's published it. 

Bryce: [00:22:11] Yeah.

Alec: [00:22:12] And chances are that by the time it was published, a whole bunch of funds have 

Bryce: [00:22:19] Acted on it. Yeah. 

Alec: [00:22:20] Like the extent to that hedge funds go to get proprietary information now is just wild. Like, you know, satellite imaging of car parks above factories to then try and forecast the amount of business that factory is doing based on the amount of staff that have been called into that factory. Like he's just like or, you know, like, satellite images of, like, train carriages and how full they are or, you know, the idea that by the time we're writing something online, it's not known by the market. 

Bryce: [00:22:55] Forget it. Game over. Don't let that discourage you, though, Greg. I think the point is, there is no source of information that we're using or that Luke's using that is going to be that, I guess, first piece of information that no one knows about. I think to Ren's point, if you're interested in individual stock picking, the information is there's so much information now available for you to form your own thesis and, and decide whether what the market has determined is right or wrong. 

Alec: [00:23:26] And all of the best examples of stock picking recently are not examples of people getting new information before the rest of the market, like just the the companies that come to mind are companies where the market thought the growth was already priced in and those that made money thought the market is wrong and underestimating what's happening here. Nvidia and Novo Nordisk. And then on the other side, the other one I'm thinking of is meta. 

Bryce: [00:23:51] Yeah, I was going to say. 

Alec: [00:23:51] All the information is flowing into the market. The market is reacting and sentiment becomes more and more negative. And those that made money said hold on. The market is missing the forest for the trees here, and they're reacting to this new information rather than what has been known forever, which is that these are dominant companies that just print cash. And then again, it was the stock pickers that had the insight that made money. So don't be discouraged by what we're saying here because it's like it's not how you make money. How you make money is analysing these companies and thinking differently about these companies. And we can all do that. 

Bryce: [00:24:29] Love it. Well, Greg, I hope that answers your question. 

Alec: [00:24:32] Hold on. Hold on to Greg. Also ask where we get information. 

Bryce: [00:24:35] He said like, yeah, what's the go to source? Like if for that, I guess the question was more like, is, is there this source where you can go to get this, like. 

Alec: [00:24:45] Up to date? 

Bryce: [00:24:46] Hot off, hot off the press?

Alec: [00:24:47] No, I think there's no in terms of where you get information, there's no perfect source. Like if you're reading the financial news, if you're rating company reports, and if you're using a data source like, like a Tikr or something, to get like that comes from financial information. There's really nothing there's no secret sauce out there. 

Bryce: [00:25:06] Speaking of, we've mentioned a number of platforms. In today's episode, Ren spoke about Sharesight, which is a great tool for tracking your investment portfolio. Ren has the free I pay for mine. I think it's well worth it. So if you want to go to sharesight.com/equitymates, there's an offer for you there if you want to sign up. And similarly Tickr, which is the financial stock screener that we use globally. Head to tikr.com/equitymates.

Alec: [00:25:35] We'll put links on it. 

Bryce: [00:25:37] Yeah. But if you want to ask a question, just head to equitymates.com/contact. All the information is there for you to submit a question for both us or any of the financial advisors that come on the show. But, Ren, as always, pleasure to chat stocks. And, we'll pick it up next episode. 

Alec: [00:25:53] Sounds good.