At The Money: Can Dividend Investing Give You Yield AND Growth? (October 21, 2026)
Investors who want to reduce risk while maintaining equity exposure may want to explore dividend equities. David Bahnsen is founder, managing partner, and chief investment officer of The Bahnsen Group, a national private wealth management firm. His new book is “Profit from the profit: the past, present, and future of dividend growth investing.”
Full transcript below.
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About this week’s guest:
David Bahnsen is founder, managing partner and chief investment office of The Bahnsen Group, a national private wealth management firm. His new book is “Profit from the profit: the past, present, and future of dividend growth investing.”
For more info, see:
Personal Bio
Professional website
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TRANSCRIPT:
At The Money: Dividend Growth Investing with David Bahnsen
Part 2 — Bloomberg Radio
David Bahnsen is founder, managing partner and chief investment officer of The Bahnsen Group, a national private wealth management firm. His new book is Profit from the Profit: The Past, Present, and Future of Dividend Growth Investing.
BARRY RITHOLTZ: Dividends are one of the oldest and most highly regarded forms of equity investing. But in an era of mega-cap growth stocks, should you own dividend-paying equities? To help us unpack all of this and what it means for your portfolio, my extra special guest is David Bahnsen. He is the founder and chief investment officer of The Bahnsen Group and author of a brand-new book, Profit from the Profit: The Past, Present, and Future of Dividend Growth Investing. Welcome, David. Thank you so much for joining us.
DAVID BAHNSEN: Good to be with you, Barry.
BARRY RITHOLTZ: So let’s start with first principles. Given the current environment with AI and semiconductors and tech, which tend not to pay dividends, why should investors care about dividends when really it’s all about total return these days?
DAVID BAHNSEN: Well, I don’t think it’s ever a matter of dividends versus total return. It’s a way in which people get to total return. And I think that you bring up a great point: the big tech moment caused some people to believe they don’t need dividends, they don’t need value, they don’t need valuation. We think that the way the dot-com tech moment ended is somewhat of a rebuttal to that thinking. It didn’t end very well.
We are in a moment in this AI period where some of the largest free-cash-flow-generating companies in history are now negative free cash flow because the capex is so high. We don’t want to make a call on how that’s going to play out. We would just simply suggest that there’s a different risk profile when companies are returning capital from free cash flow to shareholders — still profitable, still growing profits, healthy balance sheets. And by the way, there are some great dividend growers even within the AI world. Our ownership of Broadcom over a seven-year period is one of the most profitable investments we ever had.
You can’t really have the AI moment without data centers. Blackstone is one of the great dividend growers of the last decade. So it just takes the research to go find the right names that fit into the narrative.
BARRY RITHOLTZ: So let’s stay with that point. What does it reveal about a company and its business when they’re willing to consistently pay a dividend, consistently increase that dividend? What does that tell us that sometimes earnings reports might not catch?
DAVID BAHNSEN: Well, dividends don’t lie. They’re cash. And it’s a line I’ve used many times over the last 25 years, Barry: there are plenty of people whose tax return shows an income that’s lower than what they really make. But there’s nobody whose tax return shows an income that’s higher than they really make. People don’t pay taxes on income they didn’t make. A dividend is real, and it reflects something real. In EBITDA you have a lot of opportunities for, let’s just say, not totally verifiable growth of a company. And so free cash flow is pure. A dividend from it reflects management’s confidence in the growth of the business. A slowing growth of the dividend maybe reflects management’s own view, but there’s nobody who should have a better view of things.
And you could trust their press releases if you want. You can trust the 10-Qs and what they say. But I really trust cash they put in my bank account.
BARRY RITHOLTZ: So let’s distinguish between companies, especially mature businesses, that continue to grow their dividends versus those companies that seem to be running out of ways to manage their cash.
DAVID BAHNSEN: Well, that’s a very important distinction, and it’s not just managing their cash, but it’s growing their business. Look, there’s no company that should never get to a point of cash flow productivity. When you are growing and you have infinite reinvestment opportunities where you’re getting a higher return on invested capital than the investor can get, you should be continuing to reinvest your own cash.
But eventually there is no infinity of what a company can do with that cash. So what do they end up doing when they don’t want to return it? They either just hold onto it and manage it in their own cash management vehicles — Apple’s been doing this forever. So do you want Apple holding on to hundreds of billions of cash in their own cash management vehicles? Or what do companies really end up doing most of the time? CEOs are notorious for M&A, and I would suggest that most M&A has served to be vanity projects and capital destructive. Now, not all — there are some that have been very synergistic. But when you look at the kind of return on equity that is generated from the great dividend growers over time, when they mature to a point that they can do it, their returns are unlike anything we’ve ever seen in history.
BARRY RITHOLTZ: So I’m glad you brought up Apple, which has become very well known for a massive stock buyback program over the past 10, 15 years. How do you compare the usage of free cash flow to either issue a dividend or to buy stock back? They’re both a return of capital to investors, but in a very different structure.
DAVID BAHNSEN: The problem, Barry, is that more often than not, they’re not a way to return capital to shareholders. How do you have record levels of share buybacks and yet more shares that exist now than did before all these share buybacks? The math is what it is. And so you have to look to net share issuance. And if they’re doing share buybacks, the net share issuance should be negative. But why has it grown leaps and bounds? Because for the most part — I’m not picking on Apple here or any particular company, but across the spectrum, and Silicon Valley’s notorious for this — share buybacks are executive compensation. They are not return of capital to shareholders.
Now, where companies are reducing their share count, that is a way to return capital to shareholders, and I’m all for it as a both/and. But my argument is that to the extent many investors are retirement oriented, they’re cash flow oriented, they need periodic income — you can’t eat a stock buyback. And so there is still something that is just tangible about receiving the cash of it. But the other issue is share buybacks go first whenever a company runs into trouble, and dividends tend to be last, because of that social contract that has been created by great dividend growers over long periods of time. So from the financial crisis of ’08 to the COVID moment, we saw this: share buybacks all but evaporated. For the great dividend growers — and I can speak to the portfolio we manage — we had zero dividend cuts through that horrible period. So it isn’t a hundred percent immune from the risk, but it’s far more immune from it than share buybacks.
BARRY RITHOLTZ: So I’m so glad you brought that up, because the question always comes up: when is a dividend sustainable? So what measures do you look at? Is it free cash flow or growth rate or earnings stability? Why not just buy the stocks with the highest dividend yield?
DAVID BAHNSEN: Well, the sustainability of the dividend is a very different question than why not buy the ones at the highest yield. Because the highest yield often could be a very imminent dividend cut — what I refer to as accidental high yielders. It’s just math, right? You have a 4% yield, a hundred-dollar stock price, you’re getting four bucks, and then the stock goes down to 50. You’re still getting four bucks, but now it’s 8%. Did you really get anything better? No. Did you lose 50% of your value? Yes. That’s not what we want. We want the yield going higher because the dividend’s going higher. And so there’s a big difference between a high yielder and a dividend grower.
Now, what do we look to? You mentioned three or four quantitative metrics. The answer is all of the above and then some. But where I just simply do not believe this can be done quantitatively, exclusively or passively, is in that qualitative element of when a company wants to pay the dividend, not when they’ve been dragged into doing it. So there is a cultural propensity to grow the dividend. Some C-suites do not like it, and we want to avoid those. Some where you have heavy founder ownership — I think of a company like Lamar Advertising or Enterprise Products Partners, which is still heavily owned by the family that started the company. They’re receiving just billions of dollars of dividends each year. They want to keep growing those dividends. So we like those stories where the alignment of management and shareholder is there.
BARRY RITHOLTZ: So you mentioned the stock that got cut in half, and it appears the dividend yield has doubled when in reality it’s four bucks either way. That’s a classic yield trap, a classic dividend trap. What are the warning signs investors should be aware of when, hey, this looks like it’s high yield, but really it’s a dividend cut waiting to happen?
DAVID BAHNSEN: Well, one of the issues I believe has been a career saver or career maker for me, Barry — you of course were a prolific writer at the time of the financial crisis — I sold Citigroup stock at $51 a share when they announced they weren’t cutting their dividend in October of 2007, and it went to 97 cents. And so I don’t want to confuse everyone if they’re looking at charts now; reverse stock splits have confused everything. But I’m talking in 2007 numbers. This stock really did go down 99%, as you know.
So why did I sell the stock at $51 and then spend the next few years bragging to clients that we did? Because they said, “We’re not cutting the dividend, but we just borrowed $10.5 billion from the Saudi Arabians and Kuwaitis” at, I think it was, a 10% coupon on the debt. Borrowing from your credit card to pay your bills is not how a dividend gets sustained, as you and I know. Citi was a great example. So you have to look to the qualitative realities of the business. And when a company’s at $4 and they’ve been growing it for 20 years and they stop growing it, but they haven’t cut it yet — that’s a warning sign. When the rate of growth slows, that’s a warning sign. So we look to the free cash flow, the business model, the competition that’s come in, the investment thesis. It requires fundamental research. It is true.
The Procter & Gambles, the Exxon Mobils, the McDonald’s, the Johnson & Johnsons — they’ve managed to a payout ratio, a balance sheet, a cash flow that’s enabled them to continue growing through thick and thin. Other companies are too tight; they’re paying out 90% already and there’s no margin for error. So we have to take that a little more seriously. But this is why I believe it requires some active management. We’ve done it well over the years. A lot of people that really are invested in this have done well with it, but it isn’t foolproof. General Electric cut their dividend. AT&T cut their dividend. But there were clear warning signs those were coming for those paying attention.
BARRY RITHOLTZ: So I like the example of Citigroup, and you and I can swap war stories over lunch. But you raise a really interesting question. A company consistently paying a dividend, if purchased at the wrong time — or even more importantly, the wrong price — can be a total disaster. How do you think about valuation and price when you’re making a purchase of a dividend stock?
DAVID BAHNSEN: Well, it’s interesting. A lot of people have a valuation metric, and valuation is very important to us, both for margin of safety but also just because we think total expected return is relevant to entry price. People with a calculator should be able to verify that I’m right about that. What you pay matters for your total expected return. So the P/E ratio is the most common, and people can use forward or backward. And people look at CAPE, and you can look at price to cash flow, you can look at price to book. I think all these valuation metrics matter. But why is dividend yield itself not a valuation metric — a company’s own historical dividend yield? So there are companies we own right now that have a 2% dividend yield, and they’ve been growing it like crazy, and yet they’ve historically had a three-and-a-half percent dividend yield. It’s just that the stock price is so high.
It pained me, Barry, to sell Walmart about a year and a half ago. I’d owned it my whole career. We made a fortune. Walmart went public the year before I was born and grew the dividend every year of my life. They didn’t do anything wrong. They just happened to go up 60% in one year in stock price. And what had been a three-and-a-half percent dividend yield on average for decades was now one and a half percent — basically an S&P 500-level yield. So from a valuation metric, we sold the stock. Same with Broadcom. The stock was up 16 times. They had grown the dividend 14% per year for eight years in a row. But the yield got to be 1%. So we used the yield as a valuation metric itself.
BARRY RITHOLTZ: So we’re recording this the day the book comes out, August 25th, 2026. And this is an era of relatively sticky inflation. We’ve seen 10-year rates and yields come up to almost 5%. We haven’t had a recession in a while, and we certainly haven’t had a major bear market in a while. But I’m curious, how do dividend-yielding stocks and how do dividend growth stocks do in the sort of environment of rising interest rates and high inflation? How do they do during recessions and bear markets?
DAVID BAHNSEN: Well, when you have a beta that is about 0.6 to the market, you naturally have less sensitivity, by definition, to the market itself. The only two stocks in the Dow that were up in 2008 were Walmart and McDonald’s, which were two of the great dividend growers of the last 50 years. They tend to be much more defensive. However, I will also point out that in terms of the offense against inflation, there is no inflation if oil prices aren’t going higher, if cheeseburgers don’t cost more, if soap and towels and Pepsi soda pop don’t cost more. So there’s an inherent inflationary benefit in the fact that the dividend growth has always, in every calendar year, been higher than whatever the growth of prices is — the inflation rate. If you’re getting a portfolio that’s growing dividends from six to 9% and inflation is somewhere between two and 5%, then you are by definition beating inflation in that cash flow. That is, to me, a very important element of the portfolio itself. Whether or not we go into recession, I think that this speaks to the sort of all-weather nature. There’s offense and defense involved in dividend growth.
The last time we had a bad market that was long term — not just the 30 days of COVID or the five days of Liberation Day, but you recall very well both — dot-com lasted two and a half years, from 2000 to 2002; the financial crisis, the market drop was 18 months. And in that period, the S&P was up, from 2000 to 2009, 0%. Most dividend growth portfolios would’ve been up somewhere in the range of seven, 8% per year. So I think that it is a very good time to be looking at it.
Now, what’s a fair question is: hey, but how much did I lose in opportunity cost? The 2009 to 2026 bull market, the S&P’s compounded 15% a year. It doesn’t do me any good to make three or 4% in your stupid dividends while I’m missing that. The fact of the matter is, about half of those years dividend growth has done better than the market. Half of them, not as much. But it’s right there in the same range in a screaming bull market for the index, a screaming low-volatility period where the yield of the S&P is at the lowest it’s ever been.
BARRY RITHOLTZ: Really, really interesting. One of the criticisms I’ve heard made about dividend growth investing is sometimes investors confuse receiving cash with creating wealth. The classic example is buying a stock right before the dividend issuance, and when it goes ex-dividend, the price falls by the amount of the dividend that gets paid. Tell us what this criticism misses. What’s the mistake there?
DAVID BAHNSEN: Yeah, but when people do that, they fail to understand how markets work. It’s almost like a Treasury Secretary thinking he can buy 30-year bonds and the bond market won’t figure out how these things work.
BARRY RITHOLTZ: I just had that conversation earlier today. I’m like, aren’t you the world’s biggest issuer of debt? How is a tiny announced buyback going to do anything to the long end of that? But go on.
DAVID BAHNSEN: But of course, our Treasury Secretary was himself a global macro trader, and the mentality you bring up about trying to arbitrage dividend payments is something that short-term traders would do as well. So it’s a fine mentality for traders, but it’s a silly mentality in terms of the long-term impact in macroeconomic reality. It doesn’t arbitrage anything to go buy a dividend when markets are pricing in those realities and the algorithmic nature of things can pick up on it ahead of time, et cetera. You are not buying the timing of the receipt of a dividend. You’re buying the company’s underlying growth. You can’t fool the fundamentals.
So I would argue, Barry, that non-dividend investors are doing this far more than dividend investors. Fundamentally, most people that right now believe, “I want to buy the market because there’s someone else who thinks the market’s going to do well. I want to buy Nvidia because there’s someone else who thinks Nvidia’s going to do well” — even if it’s not fully self-conscious, the portfolio strategy of many investors today is dependent on what they think other people will do. Dividend growth investing says I’m isolated to it. I don’t even really need to look at the prices on my screen that much. I believe in the companies executing, growing profits, and growing what they return of that to me over time. And all these other arbitrage things — day by day, week by week, or in some cases nanosecond by nanosecond — are irrelevant to the long-term value creation.
And so you look at a company like McDonald’s that has literally created, with reinvested dividends, a 400,000% return. You look at a company like Simon Property Group — it’s the most profitable-for-investors REIT ever concocted, after going through a couple of 60% drawdowns with COVID and the financial crisis and so forth. This long-term compounding of capital results in a mathematical thing where old guys like you and me wake up one day and companies that we bought a couple of decades ago are returning 50%, a hundred percent per year of what we paid for the stock to us in dividends. And that’s for nothing other than just your normal market-return-level compounding. And yet your return on original cost from Procter & Gamble, Johnson & Johnson, Coca-Cola, Exxon — these types of companies — is massive. Blackstone only went public at the time of the financial crisis. I bought it in 2011. We’re getting 30% per year on what I paid for the stock in dividends. So the math of this transcends trying to game the system.
BARRY RITHOLTZ: And our final question: for someone who wanted to build a dividend growth portfolio, what sort of rules would you give them for selecting holdings, determining position sizes, reinvesting dividends, and then the big question — when, if ever, do you sell?
DAVID BAHNSEN: Well, I think that the answer to how to select the names is to be diversified. I personally own, and in our portfolio generally speaking, between 30 and 35 companies. So we’ll have companies that are 4% of the portfolio at purchase and some that are one and a half or 2%. We don’t go lower than that because we want it to matter. We don’t go higher than that at purchase because we’re trying to stay diversified. But you don’t need a 70- or 80-company portfolio to be diversified. Thirty names is plenty well diversified. And by the way, you’re not going to find 80 names in the S&P 500 that are growing their dividend anymore. So that’s how much the culture’s changed. You want conviction, you want concentration, but you want diversification.
And then again, the characteristics that matter are quantitative — cash flow, leverage, growth of earnings. The qualitative side is: is the business model defensible? Is there a durability to what they’re doing? And then that cultural propensity to grow the dividend.
As far as the issue about when to sell a name, there is always the bad side. We’ve had to sell names for bad reasons: the thesis has changed, something is broken, something on a risk-reward basis is unattractive, we want to get out of it. So I mentioned I sold Citigroup before they cut the dividend. We sold BP when the oil spill was going on because I just didn’t believe that the Obama administration and other regulators were going to end up letting — there was just too much political heat around a name like that. So you see things like that from time to time. But then there’s a really good reason to sell sometimes, and I mentioned Walmart before — Apollo, Broadcom, these are names we sold just because they did so well that the opportunity cost was now we needed to move from what had become a 1% yield to a new name at a three or 4% yield. And so those are the sell disciplines we bring to the process, Barry.
BARRY RITHOLTZ: Really, really interesting stuff. So to wrap up: if you’re interested in a portfolio that more or less keeps up with the broad index but tends to do much better during downturns, consider a dividend growth portfolio. You have to be aware of yield traps. You have to be aware of things that look like they’re high yielding when in reality it’s just their price coming down. Have a set of quantitative rules to help you both select and manage the portfolio, but recognize that this continues to be an ongoing source of both income and wealth creation.
I’m Barry Ritholtz. You’re listening to Bloomberg’s At The Money.
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