7. The New Blue Chips & Dividends

in this episode, Josh explains howcompanies generate and disseminate cashflow from profits to their investors.Through dividends

[00:00:19] companies generate cashflow fromtheir operations. And the portion of that cashflow that becomes profits. Theyhave a choice of how they want to disseminate those profits amongst theirinvestors. And when I say their investors, the people that manage thecompanies. The CEO, the CFO, and many of the employees, they own stock too.

[00:00:40] So in many cases, they're tryingto decide, okay, we have an excess of cashflow, which you would call profit ofa hundred million dollars this year. How do we want to give that out? Sodividends are a very popular way for companies to literally take that cash andpay it out to shareholders, proportionate to the amount of the company that hadshareholder owns.

[00:01:01] So they declare a dividend.Usually quarterly, most investors think about dividends annually and theycalculate what yield that would give them on their investment in the stock. Sothey would say, okay, this is a hundred dollars stock that just declared a $2per share dividends on an annual basis. So that means that $2 per share on myhundred dollar investment, I'm getting a yield of 2%.

[00:01:28] So that's how dividends arethought of by equity investors. So it's a little bit bond-like, cause it'salmost like an interest rate, but it's not, it's a return of cash from profits.So dividends have been very popular with investors historically that are livingoff of their portfolio because they take that income and they can spend it.

[00:01:52] The circumstances of everyinvestment are different. The variables that go into that investment decisionare different. The times we live in are different. The proclivities of theinvestor class change in some arrows that are looking for dividends. In otherarrows, they're looking for innovation and instill other areas, their pricing,low valuations, over high growth.

[00:02:15] These are almost like fashionsthat come in and out just as sometimes it's fashionable for people to have longhair. And then three years later with short hair and then it's Jean jackets andall kinds of other horrible things. And some of these fads and trends last forsix months, same thing with investing trends right now, the trend is to owninnovation at high growth.

[00:02:39] I can't tell you that a yearfrom now, that's still what investors will be chasing. They may be chasing someother attribute amongst companies and favoring, a whole different category ofstocks. .