Interview With Todd Wenning, Author Of Keeping Your Dividend Edge by Ben Reynolds
His investment philosophy page starts with one of my favorite Warren Buffett quotes:
“Time is the friend of the wonderful business, the enemy of the mediocre…It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Todd’s overall investment philosophy likely aligns closely with many long-term dividend growth investors. His investing philosophy is outlined in the 5 bullet points below:
- Maintain a patient, long-term mindset
- Own companies with economic moats that are good stewards of capital
- Keep trading costs to a minimum
- Avoid investing fads
- Pay attention to dividends
Without further ado, my interview with Todd is below. Please note that Todd’s opinions expressed here are his own and not those of his employer.
Keeping Your Dividend Edge: Strategies for Growing & Protecting Your Dividends by Todd Wenning CFA
You have an impressive investing background. Please tell my audience a little about yourself and your investing background.
Todd Wenning: Well, I’ve been very fortunate to work for some great companies and with some excellent investors and analysts. I’m also very lucky to have gotten my foot in the door at Vanguard out of college.
I didn’t know a thing about investing and Vanguard took a chance on me as an entry-level registered representative. Though being on the phone all day wasn’t all that enjoyable, I got to talk about the Vanguard funds and speak with thousands of private clients. It was a great way to learn.
Frankly, I can’t think of a better place to begin your investing career than at Vanguard. You’re immersed in the right type of lessons from the start – costs matter, diversify, put clients first, simplify, stay the course, and so on.
The Jack Bogle school of investing, in other words. Even though I’m more of an active investor, those lessons have stuck with me and served me well. Being a long-term investor, for example, you naturally keep trading costs and taxes down, both of which are performance drags.
After Vanguard, I moved to the Washington, D.C. area and took a job with SunTrust Asset Management, where I helped portfolio managers manage high- and ultra-high net worth client accounts. It was there that I saw first hand how powerful dividends can be.
Some of the clients and their descendents were living off dividends from investments made 30-plus years prior. I thought that seemed like a good model to emulate: buy good companies, stay interested, be patient, and reap the benefits later.
My next job was with The Motley Fool in Virginia and later in the London office. Like Vanguard, the Fool is a tremendous place for a young investor to learn. You’re empowered to make important investment decisions and openly share your opinions with the public – two things typically reserved for only the most senior analysts at other firms. It’s the best way to learn investing: put yourself out there, make tough decisions, get feedback, and improve.
My next stop was at Morningstar in Chicago, where I worked as a sell-side analyst for 3 ½ years, covering the paper and packaging industry. Working side-by-side with very intelligent analysts who lived and breathed economic moat analysis was another great learning experience. I was also lucky to lead Morningstar’s equity stewardship methodology where I examined how management teams allocated capital.
Last year, I moved back to my hometown of Cincinnati, Ohio to work for Johnson Investment Counsel, where I’m a buy-side analyst.
It’s been an eventful and fun 13-plus years in the industry. I can’t imagine doing anything else.
Would you classify yourself as a dividend investor, value investor, or something else entirely?
Todd Wenning: I would classify myself as a business-focused investor. I want to own great businesses, pay a good-to-fair price for them, and let time and compounding do the heavy lifting for me.
What I mean by a “great” business is one with durable competitive advantages, a skilled management team, and a solid balance sheet. The vast majority of the companies that interest me pay dividends, as I think there’s something to be said for a company that consistently generates a lot of cash and shares its wealth with shareholders.
That said, I wouldn’t not invest in an otherwise great business just because it doesn’t pay a dividend today. Such companies could prove to be tomorrow’s dividend superstars, after all. Every company eventually enters the mature growth phase and winds up having more cash than they can appropriately reinvest.
What motivated you to write Keeping Your Dividend Edge?
Todd Wenning: Given all the interest in dividend income in the low-interest rate environment, there’s naturally been a lot of discussion around the topic. As I read other books and articles, I felt much of the discussion around dividends was missing three major factors, all of which I wanted to address in the book.
First, the rise of buybacks as an alternative means for returning shareholder cash has changed the dividend landscape in some important ways. Not necessarily for the worse, but it’s changed nonetheless. Today’s investors need to know how their companies prioritize buybacks and dividends and how well management executes on buybacks. Buybacks can help drive dividend growth, if used properly. The trouble is that many management teams lack a cohesive buyback strategy and have lackluster track records of repurchasing their stock at good-to-fair prices.
Second, competition has intensified due to globalization and the rapid pace of innovation. Even the bluest of blue chips today aren’t immune to disruptive threats, so it’s no longer enough to buy blue chip dividend payers, not look at them for 30+ years and hope everything works out. I’m all for patience, of course, but I also think it’s important to keep tabs on your companies’ competitive positions over time.
Finally, I think the swath of dividend cuts incurred during the Great Financial Crisis altered the way companies approach their dividend policies. In the event of fundamentals deterioration, all else equal, I believe companies are more likely to cut their payout than they were pre-financial crisis. And indeed, we’ve seen a rise in dividend cuts over the last 12 months or so, primarily in the energy and commodities space, even among companies with investment-grade balance sheets. In the book, I use a few case studies – Tesco, Pfizer, and Exelon – to illustrate how investors might spot red flags before a dividend cut occurs.
The book aims to provide investors with tools for understanding and thriving in this new landscape.
What are the 3 most common mistakes you see dividend investors making?
Todd Wenning: Reaching for yield, relying too much on a company’s dividend track record rather than what the company’s capable of paying in the future, and not considering valuation.
Do you use quantitative metrics to evaluate a company’s management’s effectiveness, or in your view is it strictly qualitative?
Todd Wenning: It has to be a mix of both. If you’re making a long-term investment in a company, it’s critical to gauge whether or not you think management has integrity.