$2 Million Dividend Growth Portfolio, Major Tech Earnings, Broadcom & SPYI With Austin Hankwitz

Summary:

• Austin Hankwitz discusses his $2 million dividend growth portfolio and his approach to building it.
• Microsoft, Google and Amazon’s recent earnings.
• Hankwitz highlights his top dividend paying ETF, SPYI and his top dividend paying stock, Broadcom.

Listen below or on the go via Apple Podcasts or Spotify.

Austin Hankwitz talks about his $2 million dividend growth portfolio (5:40), the most crowded trade of the year (11:25) Microsoft, Google and Amazon’s recent earnings (18:30) (BATS:SPYI) Austin’s top dividend paying ETF (34:35) and top dividend paying stock, Broadcom (38:00).

Transcript

Rena Sherbill: Austin Hankwitz, the myth, the legend, the real life person is back with us on Investing Experts. Great to have you back, Austin. Welcome back.

Austin Hankwitz: Thank you so much, Rena. This is going to be a very fun, fun episode.

RS: I agree. I agree. I’ve been looking forward to it. I’m in the moment looking forward to it. For those of you who don’t know the origin story of Investing Experts is that it had a different name called Stock Market Live. It was hosted by Daniel Snyder and Austin Hankwitz, and it was terrific and it was fantastic. And much like the name would imply, it was live and a whole kind of different beast.

So a, for people looking for a taste or a smattering of your investment thesis, I would search those episodes from the previous year. A lot of really great stuff from you and Daniel over there.

But share with investors, you lead an Investing Group on Seeking Alpha. You’ve been writing for us for a while, but you also have a really strong social media presence and elsewhere. Talk to us about what you have going on, what you’re all about, for those of you who are just hearing your name for the first time?

AH: Absolutely. So, hey, everyone, how’s it going? My name is Austin Hankwitz. I’m a full-time finance focused content creator. So that takes a lot of things into consideration. I’m sure you can kind of wrap your head around that, but I’ll walk you through it, right?

So I’m the cohost of the #5 business podcast right now on Spotify called Rich Habits. I have over 800,000 followers across TikTok, Instagram, and Twitter. And I’m also the leader of the Cash Flow Freaks investing group here on Seeking Alpha.

However, since the start of the year, I’ve been publicly building a $2 million dividend growth portfolio. Let me emphasize building. It’s nowhere near worth that right now, right? But it was actually something that was recently picked up by Business Insider a couple of weeks ago.

I’m really proud of its progress and where it’s headed. It would be something we talk a little bit more about in-depth here pretty soon. But that’s a little bit more about me and really excited to jump into the episode, Rena.

RS: What do you talk about on your podcast?

AH: Really good question. So the Rich Habits Podcast is an every Monday morning podcast I co-host with a man named Robert Croak. Robert is the Founder of Sillybandz. I’m not sure if you remember those bracelets that were like took different shapes. They’re kind of like silicone, but he did like $200 million in sales with that company. He’s now a decamillionaire.

He’s doing all the fun stuff. And essentially, it’s the two of us talking about Rich Habits, as you can imagine, as they relate to business, finance and mindset, right? So just trying to educate people as to the small little things they can do on a daily basis to begin take control of their money again and get really excited about investing for their futures.

RS: My daughter was a teen when those bracelets were crazy. So I know them very, very well. How did you get paired up with him or how did you guys connect?

AH: Yeah. So as you know, I’ve got 700 some thousand followers on TikTok. I post content there all the time. And Robert, I believe his New Year’s resolution this year was, I need to start posting videos on TikTok. So the first video he made got 26 million views on the platform, essentially talking through how he believes anyone could become a millionaire within their lifetime. A really great video. Definitely go check that one out.

But essentially I saw the video and I was like, this guy knows what he’s talking about. He seems really genuine. I’m going to reach out and see if we could just be friends, right? After a couple of conversations, we had the bright idea of saying, hey, we should just start a podcast, right? Let’s take what you’re talking about on TikTok, expand about it a little bit more via a podcast episode, right, 20-ish minutes long and see where it takes us.

Well, after – I think it was after the 21st episode, it took 21 episodes. If we’re at like 26 or 27 right now, we started it mid-February. But after episode 21, we cracked the Top 5 on Spotify’s business chart.

For perspective, Dave Ramsey is #4. Patrick Bet David is #1 or #2. Morning Brew’s Daily Podcast is #1 or #2. I mean, we’re right up there with some of these heavy hitters. And we’re just a couple of guys with some Amazon microphones talking about money on the Internet. So we’re super grateful that we have 35,000 people that come back every Monday to listen to us. But yeah, that’s the Rich Habits Podcast.

RS: That’s really awesome. That’s really awesome. Yeah, it’s amazing in this day and age what you can do with just a simple piece of equipment. So talk to us on your – in this portfolio on your way to 2 million, how would you synthesize the overall strategy that you’re looking at there?

AH: Yeah. So the portfolio right now is broken out into four subsections, right? So the first subsection is dividend growth stocks. Now, the way that I invest is on a platform called M1 Finance. They do a really good job of allowing you to create sort of this pie with slices inside of it. And my pie, of course, is this dividend growth stock portfolio and the slices now are these subsections.

In the first subsection of these dividend growth stocks, that makes up 35% weighting. And those names are a bunch of names everyone knows and loves, right? So we’re talking about Home Depot (HD), Lowe’s (LOW), Union Pacific (UNP), Tractor Supply Company (TSCO), Kroger (KR), Costco (COST), Visa (V), things like that. And those are those companies that have been paying and growing their dividends aggressively over the last 10, 15, 25 years.

The next subsection is my long technology names. I mean, at the end of the day here, I’m a 27-year old trying to build wealth for the future. Therefore, I should absolutely be a capital allocator toward these big tech names, right? I think Meta (META), Amazon (NASDAQ:AMZN), Salesforce (CRM), Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG), big tech. And that makes up, I believe, a 25% weighting in the portfolio. Another 25% weighting in that $2 million dividend growth portfolio is the kind of risky bets.

I mean, at the end of the day, I’m a really big believer in social arbitrage trading/investing. I love Dumb Money on YouTube. Chris Camillo is a mentor of mine. He sort of pioneered that social arbitrage investing. And so when I see something cool that really catches my eye, for example, recently, it might have been Crocs (CROX) last summer. That was a name that I really liked.

More recently now, I’ve gotten into Napco Security Technologies (NSSC), but there’s also monday.com (MNDY) and Palo Alto Networks (PANW). So we’ve got some of the small-cap technology companies, right, one’s probably maybe $10 billion, $20 billion in market cap will kind of sit inside of that.

And then finally, the last subsection is the S&P 500 (SPY), right? I don’t know if I can beat it every year, therefore I want exposure to it in this portfolio. So when you add up that, I think 35%, 25%, 25% and 15%, you should get that 100% portfolio allocation toward this $2 million dividend growth portfolio.

RS: Would you advise any investor to be – just because of what you just said about beating the index, would you advise every investor to be at least somewhat have some of their portfolio invested in the S&P?

AH: Yeah. So never advise anyone to do anything because I’m not registered or licensed, a little disclaimer there.

RS: So true. Would you quote unquote?

AH: Quote unquote. I would certainly encourage folks to have exposure to the S&P 500 in their portfolio at some capacity. For me, most of my exposure to the S&P 500 comes from my retirement accounts, right?

I’ve got a solo 401(k), I’ve got a Roth IRA, I’ve got these other retirement accounts here with hundreds of thousands of dollars in them that I’ve been building over the last several years, that is majority allocated to these index funds that at the end of the day is saying, I believe in American capitalism into the next 20, 30 years.

And sure, I can try and beat the market every year in trade and have all this fun in the near-term. But at the end of the day, I want to make sure that I have a nice pot for retirement. And I believe the easiest way to achieve that is by having as much possible capital, reasonably speaking, right? I can make some ideas here or there, but have a big, big, big majority of that in the portfolio allocated toward those index funds for retirement.

Now that’s retirement, right? Can’t touch that till 59.5. So what about 35-year old Austin to 59-year old Austin? Well, that is where this $2 million dividend growth portfolio comes in. I have an 8-year to 12-year shot clock of achieving that. That’s kind of the, the kind of time horizon I’ve given myself here.

But I think at the end of the day, that might seem, well, it certainly seems very unachievable for a lot of people just because of the sheer mass of how much money that is, right? $2 million in 10 years is a lot of money. And I just want to encourage people to think about it from a zeros perspective, right?

For me, it’s $2 million. For you, it might be $200,000. For the guy in college, it might be $20,000. Or for someone just starting out, it might be 2,000, right? It’s all about how many zeros you want to put behind this number of 2. And that’s sort of where it aligns with where I’m headed in my career.

But for other people that might be a much different number. I think the real crux of it is just educating and getting people excited about investing toward the stock market and investing toward their futures.

I pulled together a couple of points that I thought would be interesting for our listeners to tune into here. The first point I want to talk about was kind of analyzing the most crowded trade of 2023, right?

I think from February through May, June, even July, we saw big tech be this big, big, big crowded trade with the Magnificent Seven hitting headlines everywhere. So I want to talk a little bit about that. And then after that, I want to analyze a little bit of recent tech earnings, right? That might mean Microsoft, Google, Amazon, names like that.

And then finally, I think what our audience would really appreciate, Rena, is to hear a little bit now that, okay, maybe big tech is not a – it was a very crowded trade, but maybe it’s not the trade anymore. What is my favorite trades now coming into the latter half of 2023 and approaching 2024. So what do you think about that?

RS: Sounds awesome. Let’s do it.

AH: Let’s do it. Okay. So kicking things off here with the most crowded trade of the year. Now, I know this is an audio-only podcast. And before we used to be able to throw some cool graphics. So just close your eyes listeners and imagine a graphic of a bar chart, right? And you have all these little, call it, ones and twos on this bar chart, but then you see a massive spike up to 9. And that 9 number stands for 9 billion, and that was the weekly inflow that tech saw late May, I believe, right?

So I was able to gather some data here from Bank of America, and they sort of illustrate on this bar chart that a lot of money, tens and tens and tens of billions, if not hundreds of billions of dollars in the first half of the year has moved into the technology sector of the stock market throughout that Q1 and Q2 – throughout Q1 and Q2, making it the largest inflow into tech since 2002.

And I was also able to gather some data from the Goldman Sachs Prime book. And it says that semiconductor stocks make up roughly 80% of that inflow. So it makes a lot of sense. We saw the AI hype, everyone is getting excited about if it was NVIDIA (NVDA) or (AMD) or Broadcom. (NASDAQ:AVGO), right?

So semiconductor stocks made up 80% of that massive inflow and for good reason, right? But we also saw that inflow touched the names of Apple (AAPL) and Microsoft and these other names in the Magnificent Seven.

But what I think is interesting to kind of analyze here is if we look back to the data provided by Bank of America’s global research in May, right as Q2 was coming to an end, we can see that the overwhelming majority of whenever they kind of asked their hedge fund contacts, hey, what do you think is the most crowded trade right now? The majority of these hedge funds said, “oh, long big tech, right?” That was the most crowded trade.

Now, this is an important call up because when we look at these crowded trades performance after they hit that sort of #1 status, there’s the most crowded trade that performance after that status hit is not that great. So if we rewind our clock here back to last May, thinking about when everyone was long oil, right?

We saw all the energy and oil and (XLE) ETF was rocking and rolling up until May. And then May of 2022, we saw long oil hit that #1 most crowded trade. XLE ETF has largely stayed the same since hitting on that status now an entire year later.

I’m not saying that these semiconductor names and big tech won’t continue to rise and move in the right direction, but I’m certainly skeptical if the names like Apple and Microsoft and others will continue to rip even higher to new all-time highs over the next six to 12 months, right?

So now the question might be, Rena, and I want to get your perspective on this as well is, so if long big tech is mostly done, what should people be thinking about instead? You tell me. I’ve got a couple of answers, a couple of ideas, but I’d like to hear your perspective as well.

RS: Well, it’s something we’ve been talking a lot about on the podcast, like given this AI bent and what’s coming or what may be coming, what people predict will be coming based on what’s already here. I’ve heard a smattering of opinions from just kind of what you’re describing that big tech makes the most sense. They’re investing the most money. They have the most access. They are building it, in terms of Intel (INTC) I’ve heard in terms of the chip wars between China and U.S. that that’s the most salient tech stock to look at.

And then we also had this discussion, Kirk Spano and Ramy Taraboulsi talking about which AI stocks in addition to some of the bigger plays that they’re navigating some of the unknown parts of the market a little bit more nimbly.

So again, I think it somewhat depends on your own personal take, not to throw a question back at you or not to fully answer it, but I think also it depends on your timeline. If you’re focused on a certain area of AI, if you want to get into it broadly, if you want to go safely, if you want to have a little bit more risk, I think all of those factors play into it, but I think there are a lot of right answers. That’s how I would answer it.

AH: I like that. I like that a lot. Well, I think a lot of people here are sort of – we think about the Magnificent Seven. And so let me see if I can just remember all seven, right? We have Apple, Amazon, Google, NVIDIA, Tesla (TSLA), Meta, and Microsoft. There we go, Magnificent Seven.

So if we look at the crazy year-to-date performance of the S&P 500, let’s say up to May and June and even bits of July before we saw this volatility now in August, the Magnificent Seven was up 50-some percent, right, and which obviously pulls their P/E ratios higher.

But if we take out the Magnificent Seven from the S&P 500, and we have now, and I put this in quotes, right, “the S&P 493”, I know the S&P 500 kind of fluctuates in the number of names there, but let’s just call it the 493. The P/E ratio for that 493 is around 17 times right now, which I would argue is relatively fairly valued, right? It’s not these 30, 40 times profits that we’ve seen with some of these other tech names where they – we saw what happened with Apple after their mixed earnings. They weren’t able to sort of keep that valuation. And we’ll talk a little bit about earnings here in a second. But I think folks, investors, especially people who have those, who are – whose risk appetites might be a little bit smaller in nature, are wanting to get more excited about the more fairly valued dividend paying stocks. Think the names inside of (SCHD), right?

We think Costco and Williams-Sonoma (WSM) and Home Depot, you mentioned that. They just had earnings and to check those out. Lowe’s, Realty Income Corporation (O), Union Pacific, Snap-on (SNA), Tractor Supply Company, Kroger, Visa, right, these are names that are in my dividend growth portfolio that I believe are, sure, did they perform not as favorably as the Magnificent Seven this year? Of course. I would argue most things didn’t perform as favorably as the Magnificent Seven.

But now that the Magnificent Seven has done its thing, it’s up so much, it’s ran its course, it obviously doesn’t surprise me that now that we’ve seen this pullback in August so far, that they’ve pulled back the most, right? Magnificent Seven is down about 7% just in the month of August compared to the S&P of about 1.5% or 2% now.

So I think what’s happening is as investors, especially those who are a little less risk, have a smaller risk appetite, are beginning to pull their money out of these crazy high flying AI tech, big tech names at 30, 40, 60 times P/E in cases of NVIDIA and moving them now into the more fairly valued dividend paying stocks, right, the other 493 names inside of the S&P 500.

RS: The 99%?

AH: The 99%. But it’s hard to talk about the 99% without giving credit to the 1%, which is Microsoft, Google, and Amazon here. So I’d love to share with you, Rena, a couple of my favorite takeaways from these recent earnings calls, right?

RS: Yeah, go for it.

AH: Starting here with Microsoft, I think, it’s no longer a, convince everyone, we’re going to benefit from AI game, but now instead a, it’s time to quantify and prove to investors just how big of an opportunity AI will be for Microsoft.

Now this is a company with $200 billion in annual revenue, which means they’re really going to need a lot of momentum from artificial intelligence to actually move the needle forward for them.

Azure growth was 27% during the quarter. AI contributed to about 1% of that growth, which was somewhat lighter than folks were expecting. But more importantly here, capital expenditures are expected to increase by 47%, going in now to 2024, which considering the immense AI opportunity in front of them makes sense, but let’s hope that Microsoft isn’t pulling a Meta and saying, wow, a shiny new object, let’s put billions of dollars toward it, like what Facebook/Meta did there with the Metaverse.

I’m not at all comparing AI to the Metaverse. I think that was just a silly move by Zuck, but AI is a better opportunity. I’m glad they’re investing to it, but it makes sense to the investor who cares about free cash flow to be sort of following what that CapEx looks like.

Now, to me personally, right, Microsoft is a wait-and-see game right now. I think they’re going to be crabbing around in stock price over the coming months and quarters until they can prove to their investors that they deserve this valuation north of this $3 trillion market cap, right? They’re trading up 40%, 50% year-to-date.

Investors bid the stock up because of the OpenAI partnership, because of all the cool new companies that are using Microsoft Azure to have access to these LLMs and the AI infrastructure that they’ve built, which I think is a really big opportunity, right, led to about 1% growth there for Azure that might turn into 5%, 10%, 15%, 20% in the future.

But right now, that’s not the case. And so we’re having to wait and see. I hold the stock, I’m excited about the name, but I’m not actively giving it an overweight rating inside of my portfolio, if that makes sense, Rena.

RS: It does. So would you say investors are looking over the next months, years, those numbers to steadily increase?

AH: I would imagine, and we’ll get into a little bit here, Rena, about how a name now, just to let you all know here, I’ve got two exciting sort of stock picks for you at the end. One is my favorite dividend growth ETF, and another one is one of my favorite dividend growth stocks.

And the reason I like this stock, Rena, specifically is because they will see actual increases to revenue because of AI in the next 12, 18, 24 months. And I think that’s what investors are really starting to look at and care about.

Sure, you can have a – we saw Google’s presentation. You can mention AI 62 times, which is great, but we want to see how it really impacts the bottom line of the company.

RS: Yeah. You were going to get into two other stocks’ earnings?

AH: I was. Yes. So the other two here, speaking of Google, as you know, Google up next to, I think they had an incredible quarter, right? Operating cash flow has been the name of the game for this company for most of its history. And this quarter, they reported $28.6 billion of it, more than $3 billion than expected by Wall Street, right, really, really strong earnings there. Everything seems to be going right.

Search revenue grew, YouTube accelerated, crowd revenue beat expectations while also operating with a profit. They mentioned AI a few times, not the 82 times they did in their other presentation there, which was good. But their management team actually emphasized plans to further enhance their search product with new large language models there, LLMs. And that includes PaLM 2 and Gemini, which is exciting, which allows search to be more intuitive.

But personally, I like Google a lot. I was banging the table about Google across – if it was TikTok, I remember I made a video on TikTok, Rena, December 12th. Google was about $100, $90. And I was telling everyone, listen, the stock is over corrected to the downside. I think their operating cash flow is going to absolutely print in 2023. Definitely take a look at this one. And that’s certainly what they’ve done this year. Really excited about this one and something I’m continually buying more and more of.

RS: Can I ask you, we saw releases, or I think it was yesterday, I guess, the 13F filing releases. Do you pay attention at all to hedge funds, buying or selling some of the stocks that are in your portfolio?

AH: Yeah. I certainly do, Rena, because I think at the end of the day, everyone is buying or selling a stock for a reason. You buy a stock for one reason, because you think the price is going to go up. You sell stock for many reasons. It could be to allocate to something else. It could be to take like whatever, right? But if you’re buying a stock, I think that’s very important.

So I pay more attention to the buying than I do the selling. I think people sell for a ton of different reasons, again, especially if you’re a hedge fund and you want to lock in profits or show your investors a specific number for the quarter, whatever that might be.

So I don’t really pay too much to the selling, but I certainly pay attention to the buying. And I think what’s really important too, and Chris Perera, I think his name is on Twitter, sort of pioneered this analysis strategy, which is to track how many institutional investors, just the number, not how much – how big their positions are, but just the number of how many institutions have begun to purchase a specific name.

So, for example, I think I don’t know what software he uses. But what he does is whenever he talks about a specific name from a technical analysis perspective or an earnings perspective, he always is sure to mention, oh, and by the way, 13% more institutions bought it this quarter or own it now this quarter than they did the previous quarter, or 46% increase in institutional ownership across the board compared to last year’s quarter, right?

So I think that is something to keep an eye on because at the end of the day, who’s going to bid those prices up? The institutions are. I don’t know any retail investors that are really going to move a stock price up like that.

RS: Yeah, at least not in 2023, right?

AH: Most definitely.

RS: All right. Let’s hit the last earnings headliner that you’ve got.

AH: Yeah. The last earnings headliner of Amazon, right? I think Amazon is back, Rena. I am so excited about Amazon. So for nearly 18 months now, Amazon has been battling with “free cash flow problems”, right, causing their stock to either trade sideways like most of 2021 or completely fall off a cliff in most of 2022.

However, after reporting an incredible Q2 earnings with operating income beating expectations by 60%, their stock rebounded aggressively. Free cash flow came in at nearly $8 billion compared to the negative $23 billion they saw last year’s quarter.

Now, the reason for this intense negative free cash flow is obviously their investments into new technologies like next-day delivery, retail stores, and things of that nature, all of which take years upon years to really improve that bottom line or so we thought.

Actually, Rena, we’re beginning to see some improvement already, especially in their gross profit margin, which just hit an all-time high this quarter of 48.4%. Management also noted that AWS demand has stabilized, giving investors much more clarity as to what they can expect next quarter.

Now, personally, I’m going to sit back and enjoy the ride with Amazon. I just actually allocated more capital to Amazon in my large technology subsection of this $2 million dividend growth portfolio.

I sold a little bit of Salesforce (CRM). I moved that into Amazon for a couple of reasons, right? AWS growth is stable, strong AI pipeline coming, steady gross merchandise value, growth, free cash flow guidance of $8 billion for next quarter, right? All of these reasons to be excited for Amazon, I feel like it’s finally their time to shine here in 2023, 2024, and hopefully throughout 2025 as well. So I’m really, really excited about this one.

RS: I’m curious, you’ve mentioned some ETFs and you mentioned that you’re going to be mentioning some ETFs as we move along here. I’m curious how you would articulate what investors or which investors would be – would benefit from choosing ETFs over stocks? Or is there a place for both? Like, is it just about a risk profile? Who would benefit from buying individual big tech stocks as opposed to ETFs? And how would you articulate that?

AH: Yeah, it’s a really good question. I think that at the end of the day, every investor should have ETFs and index funds somewhere in their portfolio, right – excuse me, somewhere in the portfolio. If you are an investor that is not a hedge fund, right? Michael Burry makes very selective, crazy bets, right? Good for him, do your thing.

But if you’re a retail investor trying to build wealth for the next 10, 20, 30…

RS: If you’re a mortal.

AH: …yeah, if you’re a mortal, kind of building wealth for the next 10, 20, 30, 40 years, you need diversification. And I’m not talking about so much diversification where it’s like death by a thousand cuts, right? I know Warren Buffett has been very vocal about being too diversified. People make that mistake. I’m talking about investors that need to be diversified to an extent, right?

So what that might mean for the average listener right now could be 25%, 50%, 75% of their portfolio allocated to ETFs that have allocation across 200, 300, 400, 500 names like we see with (SCHD), (VOO), (VGT), (VUG), right? Some of these really nice names from Vanguard and Schwab.

But yeah, I think just for the everyday person, there’s two things that are really important. One, diversification. And two, if you want to make a bet or if you think that, hey, I did my research, I really like monday.com, I really like Palo Alto Networks (PANW), or I really like this big tech name, I want to have exposure to that, go for it. It’s your portfolio, right?

Do what makes you happy, but don’t make the mistake of allocating too much capital to a single stock that has the opportunity to fall off a cliff, like we saw in 2022 for some names there.

So I think if that’s what keeps you excited, keeps you – or if allocating capital, Rena, to a specific stock allows you to reach a financial goal, right, some people are big into REITs or an ETF that pays a specific dividend or maybe something of that nature. Maybe you really believe in the management team of a name or their ESG score, things like that. And that helps you reach a financial goal or a milestone in your professional or your – helps you reach a milestone in your personal portfolio investing, go for it, right? It’s your money, do your thing. But I think at the end of the day, you should have a smooth balance between ETFs and single stocks.

RS: And I’m going to ask a pretty much the same question about dividend investing. If you would share with listeners, should investors have an entirely dividend focused portfolio? When does it make sense? What do you look for in a dividend stock? Like how important is the yield? What are some of the other things you’re looking at? If you would share some of that.

AH: Yeah. So do I think every investor should have a dividend portfolio? No, I don’t. I think that – so the reason I started building this dividend growth portfolio is because I realized that I wanted to retire before 59.5, right? I wanted to build a portfolio that could sort of act as a bridge between Austin is 35, 40 and is ready to retire, but is still not able to touch his retirement account without a 40% sort of penalty there.

So that’s why I built my dividend growth portfolio and why I’m actively building it for the next eight, 12, 15 years. Again, I don’t think everyone should be doing that. I think a lot of people, just by the way that their income kind of matches, they won’t be able to kind of achieve both.

A lot of people just kind of invest toward this long-term retirement goal of 59.5, 65, right, when social security kicks in, which is great. And I love that for anyone that’s doing that.

But if you do want to build up a passive income stream through a dividend sort of growth stock portfolio, and it makes sense for your specific financial goals and milestones and just profile, I look at three things specifically.

The first thing I look at is how long has the company been paying a dividend? As you know, we’ve got the Dividend Kings, the Dividend Aristocrats, right? All these names that have been paying a dividend for decades upon decades.

Now, if a company has been paying a dividend, think Lowe’s, for example, for the last several decades, I’ve got a hunch they’re going to continue to do that. So that’s the first thing I look at.

The second thing I look at is dividend growth, right? How much on over the last, call it, five or 10 years has this dividend payments grown over the years? So has that been in the double digits? If so, I’d categorize that as a dividend growth stock. Is it in the mid-single digits? That’s not that bad. Or is it in the low-single digits? That might be like an AT&T (T), right, or a 3M (MMM) and that’s not that great. So just – that’s the second thing I look at.

And then finally, the last thing I look at here, Rena, is free cash flow. At the end of the day, these dividends are coming from the company’s free cash flow, right? Or it’s coming from debt, which is not very healthy and not a very good thing. But from a free cash flow perspective, is the company growing free cash flow?

How much of that free cash flow is being paid out, right? What’s that payout ratio looking like? Things of that nature. I definitely try and dive deeper into that and understand why that might be happening or where that’s sort of shaping up for the foreseeable future. So those are the three things that I try and keep an eye on as I build out this portfolio.

RS: Appreciate that. Do you – or how much do you pay attention to the macro picture, if at all?

AH: So I pay attention to it. I don’t act upon it, right? I certainly pay attention to it because I think everyone should pay attention to what’s going on around them, what things are happening with the LEI or what’s PPI. We have CPI, all of these other different things that are happening.

I pay attention to that for sure. But does that mean that one day I’m going to sell my portfolio and go on into cash because I’m worried about a crash. No, I’m not going to do that, right?

The Rich Habits Podcast, I think two episodes ago, we did a really big episode about why people don’t become rich. And one of them is because they move in and out of the markets all the time, right? They don’t have that long-term mentality.

And there was a study that was shared by Putnam Investments a couple of years ago that said if someone took a $10,000 investment and they bought the bottom of 2008, and they kept that investment in the S&P 500, right, 2008, and they kept that all the way through the end of 2022, that $10,000 investment would be worth around $36,000 throughout that, call it, 14-year period.

Now, if that same person missed the top 10 best performing days in the market, which if you’re moving in and out of the markets all the time, it would be very easy to miss 10 days out of 14 years, right? 10 trading days out of 14 years, that’s very easy to miss. Their returns would only be $16,000, right, cut in half.

Now, if that same investor missed the 20 best days, they would have lost money, right? Their returns would be only $8,000, and it gets down to $6,000 if you miss the Top 30. So it’s very easy for investors to forget about sort of time in the market versus timing the market.

But I do know and I’m empathetic that investors, especially the great ones out there that are listening right now that are also publishers and users of Seeking Alpha, understand how macroeconomic might impact their portfolio in a negative way.

So they want to move into cash to prevent that or hedge against that with different types of leverage or option contracts, whatever that might look like. So I’m definitely empathetic to that.

But to me personally, it’s not something I’m really trying to do, right? My goal is to build this portfolio over the next eight, 10, 12, 15 years. And I need all my money invested in the markets to do that.

RS: Do you want to get into your top picks, the Top ETF?

AH: Let’s do it. Most definitely. So my top dividend paying ETF pick right now is a newer ETF called (SPYI), right? It’s not a stock, it’s an ETF, but I’ve been accumulating this one for several months now. It’s something I’m very excited about owning inside of my dividend growth portfolio. I’ve written about them, I think, twice now.

Excuse me. I’ve written about them twice now on Seeking Alpha. One of them, I compared them to JEPI. And then the most recent one came out, I think, it was a couple of days ago now, I compared them to both (JEPI) and (XYLD). So SPYI, what are they?

They’re essentially a covered call ETF that tracks the performance of the S&P 500, but instead of selling at the money covered calls like XYLD, or holding those value names like JEPI, they’re selling out of the money covered calls, allowing them to both take in and pay out monthly premium to their investors while participating to the upside in rising markets, right?

Your total return is nearly double of JEPI year-to-date and beating XYLD’s total return by high-single digits year-to-date, something again, I just wrote about here on Seeking Alpha. So go, give it a read, please.

But I think what’s also interesting about this ETF is they pay monthly distributions. Their distribution yield – annual forward distribution yield now is 12.1%. They take advantage of Section 1256 contracts, allowing you, the investor, to have tax efficiencies, right? Think about what those mean.

So 1256 contracts essentially allow you, in the eyes of the IRS, 60% of your capital gains to be taxed as long-term capital gains, and the other 40% only to be taxed there is that short-term talking about that income there, right? And then also they do a little bit of tax loss harvesting as well. This ETF is coming up on the one-year anniversary.

I know it’s not too long of a history here, but I think it’s very important for investors to be considering to be adding it to their dividend growth portfolio, especially if they care about passive income generation inside of their portfolio like I do in my dividend growth portfolio.

So the SPYI ETF is something I’m very excited about and I wrote about a couple of times here on Seeking Alpha, so go give those a read.

Now, the second one here…

RS: Can I just ask you anything especially to be cautious about in terms of a newer ETF?

AH: Yeah, absolutely. I mean, at the end of the day, everyone do your own research, right? Please read the prospectus for all these different companies, but – or ETFs and obviously companies, but ETFs specifically that have the prospectus. But at the end of the day, yeah, so cautions to consider, right?

I would think about the performance of the management team in the past, that’s something to consider. I would also consider the current holdings on a week-to-week or month-to-month basis, right, what that looks like. Keep an eye on that. But I mean, from the sort of newness of this, JEPI was new at some point, right? XYLD was new at some point. SPYI is new right now, but it won’t be new in three, five, 10 years from now.

So I think it’s a take it by month by month, maybe not day by day, but certainly month-to-month, quarter by quarter type mentality. Keep an eye on this one as it’s more on the new side. But I think it would be irresponsible to take credit away from an ETF just because they’re on the newer side.

RS: All right. Happy for you to go to the top stock.

AH: Yeah. Totally. Now the next one here, I’ll briefly run through it because I want to encourage everyone to do their own research as well. But the top dividend paying stock I like right now is Broadcom, right? (AVGO) is the ticker there. They’ve seen a massive push higher in stock price since this whole AI thing has started, but I don’t think that they’re all hype, right? I think there’s actually some juice in the squeeze, right?

Management shared that AI specific revenue should make up about 15% of their total semiconductor revenue this year, up from only 10% last year, but this figure is expected to rise to 25% of total semiconductor revenue in 2024. This is incredible, right? This should absolutely shimmy down to their free cash flow line item and make their investors very happy, especially if they care about those sweet, sweet dividend payments.

I wouldn’t be surprised if this AI specific revenue began to make up 30%, 35%, 40% of total semiconductor revenue over the years to come here for this company, Broadcom. So I’m really excited about it. It’s something that I have in my portfolio. It’s one of my largest positions now in that sort of subsection of the dividend growth portfolio, right, with those dividend growth names. And it’s something that I’ve been an investor in for the last, call it, two years or so now, just personally.

But I really like the name. I’m really excited about them. And if you care about that free cash flow and those dividend growth, right, we talked about sort of that 10% range being where it really turns into a dividend growth stock, I’m going to pull it up here live on Seeking Alpha, but I’ll tell you now what their dividend growth has looked like.

So their compounded annual growth rate for their dividend payment over the last five years is 23%. Incredible, right? How do you think that number is going to grow now as AI begins to really bolster up their total semiconductor revenue for 2024, 2025, and 2026. I am really excited about this.

Dividend Safety on Seeking Alpha is an A+, Dividend Growth is an A, Dividend Yield is a B, and Dividend Consistency is a B+, right? So two thumbs up for me, 2.15% for dividend yield, annual payout of nearly $20 a share and a payout ratio of only 43%. That is my favorite dividend growth stock right now, Broadcom. And my favorite ETF again is SPYI.

RS: Those are some hyperbolic numbers and, obviously, a lot to be – a lot to like about the stock. If anything, what would put a bearish spin on that stock, or what would you caution yourself, I guess, and other investors to be looking for there?

AH: Yeah. I think, well, first off, another reason to be excited is they have a strong buy on the quant rating. We all know and die by the quant rating here on Seeking Alpha, right? 4.92.

RS: It’s real people. It’s real.

AH: It’s real. I’m telling you guys.

RS: It’s real.

AH: I tell all my friends, like, you all need to take a look at this quant rating stuff. It works. The only reason it’s not a 5, I think here is because the valuation is a D. I would caution myself to consider here or anyone else with Broadcom, I think, again, right, this is a name that is supposed to see a lot of upside from AI.

Similar to Microsoft, right, this name had a big push year-to-date, so they’re up 52% year-to-date. Most of that push came in the late May where they went from about $620 a share up to $850 a share.

Now they’re trading around this $850, $860 range, right? They’re in a holding pattern here for the last couple of months. I would caution now again to this Microsoft mentioned before, right, it’s not just about AI come look at us. It’s okay, how has AI really impacted the business, right?

So something that I’m going to be doing now with Broadcom is be very mindful of how AI has impacted their business quarter-to-quarter? And is that accelerating? Is it decelerating? And the minute I see it decelerate, I might begin to trim my position and become to kind of walk back on my heels there a little bit. But until I see that, it’s not something I’m really considering.

But again, that would be the biggest kind of bear. That’s the whole reason that I’m excited about this is because of AI acceleration. So if that AI acceleration goes away, then it’s a reason that maybe my investment thesis is wrong.

So I’d caution investors to definitely take a look at that and be considerate of, how that AI specific revenue has impacted semiconductor revenue over the next, call it, year or two, and if that is accelerating or decelerating and from quarter-to-quarter.

RS: Appreciate that. As we wind down here and I’m happy for you to share anything else that you feel like you want to share with investors that are listening. I’m curious in terms of The Cash Flow Freaks, your investing group service on Seeking Alpha, do you feel like there’s a certain type of investor that would benefit more from the service or that it’s more geared towards?

AH: Well, I think the Cash Flow Freaks does two things very well, right? One, we care about cash flow, obviously, like that’s like the overall kind of – if you think about the top of the pyramid, that’s the thesis.

But then as you come down to the two points of the pyramid of a triangle, on one side of the equation, you’ve got the big names like Broadcom and Apple and Amazon and these really cool, maybe not Apple so much because they had mixed earnings, but Amazon and Google, right? Names who are moving in the right direction from an operating cash flow and free cash flow perspective, right?

I love cash flow in businesses. It makes me very excited. If you can predict the cash flow, you can predict the stock price. That’s my humble opinion. And that’s kind of where a lot of this investment thesis comes from on that one side.

Now on the other side of the equation, to me, what’s really exciting are the names that have IPOed between, call it, 2019 and I don’t know 2021, maybe 2022. And the names that are just now beginning to sort of eclipse into the positive operating cash flow, the positive free cash flow.

A name that comes to mind is (VRT), Vertiv Holdings Incorporated. Another one that comes to mind is Upwork, (UPWK), Upwork, I think so, yeah, UPWK is their ticker. And these are just those opportunistic smaller kind of risky bets.

But at the end of the day, what’s important about those is they are just now beginning to prove to investors, hey, we’re free cash flow positive. We’re operating cash flow positive. We’re going to be here for a decade, assuming all goes well, right? But we now deserve a higher valuation because we’re actually a profitable company.

And so for the Cash Flow Freaks, if you care about on one side, those big, big names, paying dividends, the growth and the growth around cash flow, we do that. We also cover the smaller ones that are now just beginning to kind of eclipse that free cash flow and operating cash flow profitability. The names that you think, a name that recently did this, I believe is DraftKings (DKNG). There’s Spotify (SPOT). We just saw again with monday.com (MNDY). That was a really big one I liked, things of that nature.

But who is the investor that should be thinking about joining Cash Flow Freaks? Someone who cares about cash flow and is very diehard cash flow, but also someone who has an investment appetite about mixed, right? They’re not too aggressive, but they’re also not too conservative.

We obviously, we talked about the other names like Union Pacific, we talked about ho’s, not ho’s, Home Depot, and we talked about Lowe’s, those awesome names that have been paying and growing their dividends for a while now.

So I would think anyone who has a mixed appetite for risk cares about dividend payments, but also is willing to take those bets, those kind of flyer bets there on the names that are flipping free cash flow positive for the first time that they believe are going to begin to move in the right direction like we saw with monday.com.

Last year, it was around $80 a share and now they’re around $160, $170, that’s a 100% return over about one year. We were talking about this a while ago. So those are, I think, the person who would benefit the most from subscribing to the Cash Flow Freaks.

RS: Awesome. Home Depot and Lowe’s before bros. Yeah, I want to keep it in just for that.

AH: Keep it in, keep it in.

RS: All right, Austin, this has been a thrill and a pleasure and a lot of edification for myself and I imagine a lot of listeners. So thanks for coming back on. I hope this is the first time that we’re talking and share again with listeners, first of all, any final words and remind them where they can find you aside from Cash Flow Freaks on Seeking Alpha?

AH: Yeah. Everyone, thank you so much for tuning in. Again, my name is Austin Hankwitz @austinhankwitz on Twitter and Instagram and TikTok if you’re into social media. I also have a newsletter with about 15,000 subs on Substack called Rate of Return.

I’ve got the Rich Habits Podcast, a Top 5 business podcast on Spotify, Rich Habits Podcast. And I’m super approachable. If you have any questions for me, shoot me an email, austinhankwitz@gmail. My email is all over the Internet. I will likely get back to you as long as you’re nice to me. No, I’m just kidding. But yeah, shoot me an email if you have any questions. I’m super personable and easy to get in contact with.

So, Rena, thank you so much for having me. This was an absolute blast and I can’t wait to come back again.

RS: I agree, and I hope everybody is nice. That should be a qualifying factor. Thanks Austin. Appreciate it. Talk to you soon.

For full access to transcripts, as well as analyst ratings, stock quant scores and dividend grades, subscribe to Seeking Alpha Premium at seekingalpha.com/subscriptions.

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