Hello and welcome to The Download. I'm your host, Dave Richardson, and it is Stu’s days. And we've been late every other week lately. Now we're early, so it's Stu Mondays. I think actually in spring, we should do them bright and early.

The early bird gets the worm, Dave.

Wow. Does the early bird get the dividend, though? That's more important to you.

That's right. Well, ex-dividend, you got to be there for it. You got to be there, Dave.

So I think what the early bird this weekend would have gotten is they would have gone to their front door — if anyone still does this; I imagine there's a couple of people where they got it — or they pulled up their Globe and Mail subscription online, and there was a glowing article about one Stu Kedwell and his team and managing dividend portfolios. Were you happy with the article?

Yeah, I was happy with it. Doug and I have run the fund for a long time. It was the first time we did an article. Scenario-based investing, trying to build positions in companies that are going to grow the dividend over time and also give us some positive optionality relative to where they sit today and going through the different types of dividend stocks that are out there — the high payout stocks, the medium payout stocks, the lower payout stocks — and the growth that you would hope for from each one. So it was good. The last paragraph, I really like. One of my first advisors in the business who's retired now, but he had just some great lines: in a good wind, the turkeys will fly. He just had so many of those great statements. But he sat me down in my first year of investing. I was particularly active in my first year thinking that I could trade my way to success. He just said to me, look, it just doesn't work this way. It was great advice then, and it's great advice today around finding businesses that compound over time. I said to the reporter: you never own the dividend fund and wake up one day and go, oh boy, yesterday was amazing. It's really just this idea of collecting cash flow, having it reinvested on your behalf, watching it grow, water on stone, delivering for a financial plan. That's what the dividend investing is really all about. So we were reasonably happy with how it all turned out. And the reporter was fantastic. Great questions. So a tip of the hat to her as well.

That's fantastic. And so, for anyone who's just joining us the first time here on Stu's days, we do our best to do a weekly episode with Stu, who, as you've probably already heard, has a lot of interesting things to say about investing. He's been doing it a long time. For us who are not professional investors or paid to invest money for other people, as Stu and his team are, Stu has some really great philosophical ideas around how to invest money and how to do well investing over the long term. And so people who listen to the podcast benefit from his wisdom. But again, if you're just listening for the first time or if you've missed a few episodes along the way, the article does a fantastic job of providing a pretty brief synopsis of a lot of that basic philosophy that Stu and Doug Raymond and the others on his team have about investing, and particularly dividend investing, which you might be the best in Canada at that.

Well, that's high praise, Dave. I'm not sure about that. There's a lot of great investors, but us and the team, we're busy beavering away every day on behalf of our unit holder.

And a terrific caricature. A lot of people get accused; they'll have their business photo, so they'll introduce somebody at a presentation or give somebody an award, and they'll put their business photo up. And the person has very clearly been using that business photo for about 20 years. It looks a lot younger than they actually look right now. And so Stu has taken it a step further. He's had a caricature of himself that makes him look like a teen. Are you 10 years old in that caricature?

I must say my family had a lot of fun with it this weekend, Dave.

And we did do a couple of episodes that are on YouTube that you can listen to where you can actually see both of us on video. And we will be coming back with more of those as we work around some of the kinks in the process on that. So you will get to have an audio and video version if that's something that you like going down the road. So, Stu, outside of the article — which again, does a great job of laying the fundamentals down — we were in Montreal last week in front of a big group of advisors and in Toronto the week before that. And you delivered a presentation. And maybe as a nice refresh point as we go into the second quarter of the year starting today, any key elements of that presentation that you think are really important to share with the listeners?

Well, I think that the number one question is: markets have run a long way; should I invest right now? And a couple of things on that front. Obviously, as you've pointed out before, we're big friends of dollar cost averaging, so we continue to think that's a pretty valuable tool. Sentiment certainly is quite optimistic at the current moment in time, and dollar cost averaging helps you deal with that situation. I think a couple of things. Two of the tag lines are: the devil's in the details, and there's the stock market and there's the market of stocks. So you have a situation where bonds — or interest rates, anyways — have bounced around a little bit, haven't really done a whole lot, one direction or the other. Inflation has come down. And there's an argument: has inflation come down because the supply of things increased so that supply became greater than demand, and that's why you had inflation cool? Versus: did we really ever temper demand? I think that's more of a question in the United States than anywhere else. And we've talked about how consumers in the United States haven't really felt interest rates because of the way their mortgage market works. But so far, inflation has come down to this 2.5 to 3% range. And will it persist there? What will it take for central banks to get it right to 2%? Will it meander in this range? I think for the equity market, there's a couple of implications. The first is, if it meanders, the 10-year bond probably stays right around here. So when you have a big valuation, it's really dependent on earnings growth coming through because there's no margin of error on that valuation. The second thing is that the average business's valuation is lower than the market as a whole. If we see the headline S&P 500, it might be 20 to 21 times. If we looked at the equal weighted market, it's a lower valuation. You have a handful of stocks that have more reasonable valuations. The economy looks to be doing okay. A lot of those businesses have been very focused on efficiency. So the ability for earnings growth to begin, again, for some of those companies in the back half, looks like a pretty interesting possibility. For a lot of businesses, there hasn't been a whole lot of earnings growth in the last 18 to 24 months. And that's the area of the pond that we're looking more with greater interest at this juncture.

So, I was listening to a lot of stuff over the weekend — a long weekend, so a good time to catch up on some reading and listening — and a lot of analysts that I was listening to along this point of earnings and needing to see that earnings growth. We've now moved literally past the idea that the Federal Reserve might start lowering interest rates in March. You're now into June, July, or maybe even past that. As you stated, your long-term interest rates have been stuck — if you look at your US 10-year, right in around 4.25% — and it's wobbled a little bit on either side of that with some numbers that have come out. But it seems like it's stuck there. And so the net result is, as you say, it's just about earnings now. So who's going to come through and who's not? And so how do you and the team look out into the marketplace and figure out who's got the goods and who doesn't, as you look out over the next 9 to 12 months?

Yeah, so as an analyst, we're asking them to simultaneously ask what could get better and what could get worse at the same time. We always want to understand what is the optimistic case and what is the pessimistic case. You look through different pockets of earnings. Say you look at financial companies maybe with higher interest rates, where you might have been worried about provisions for credit. If the economy starts doing a little bit better and those provisions start to peak out, they can go from headwind to tailwind. So you can begin to think about how that might work on the earnings front. In the industrial area of the economy, a lot of people have talked about the renovation of American industrial capacity across semiconductors, renewable energy, infrastructure, reshoring. There's a whole bunch of thematic components that are driving earnings growth in those areas of the market. So they have a secular tailwind, and perhaps they could get a little bit of a boost if pockets of the economy start to do better. Of course, in technology, those earnings have been quite strong, and they might persist. I'm not sure that there's more to come just because the economy gets better by 1% or something like that. But could that persist? So for every area of business, you're going through and saying, what could your revenues look like? What could your margins look like? And then that gets back to the earlier comment around how much debt do the businesses have? And what interest rate are they paying on that debt today? And as they refinance it at these current interest rates, will that be a modest tailwind or modest headwind? So we had to go through each company on that front as well. And if you have more debt and you have a higher payout ratio, then you're not going to grow as fast as you might have in the past. So it's very company by company. And lots of discussions with management teams, lots of discussions with analysts and reading and that type of thing to try and come up with these scenarios.

The idea that that 10-year may end up sitting around 4.25% and not come a whole lot lower than that — maybe not go a lot higher either. Is that tough competition for a dividend stock or is that more or less irrelevant? It's stock by stock and each company, how much you expect they can grow their dividend or buy back their stock, whatever it might be to add shareholder value?

Well, you can construct a pretty good dividend portfolio today that has a very similar yield from a starting point. So the price of dividend growth, you have to understand some of the volatility that comes with it. It might be less volatility than the market as a whole. But if you could have a collection of stocks that yielded somewhere in the neighborhood of the 10-year and the dividend grew at 5% plus, and the pool of dividends that you're receiving from those different companies grew at that level over time, then you’d look at that over 10 years, then you're saying, okay, well, I can take 10 years at 4.5 or 4.25% — whatever we're at right now in the 10-year — or I can take the same, and 10 years from now, the amount of dividends that I'm collecting per share might have almost doubled — if not up three quarters to almost doubling over that period of time, depending on the ultimate growth level. So you can still find attractive ways to build that portfolio over time.

Is there an interest rate that works best for dividend stocks, or is that another one of my dumb questions?

When short-term interest rates are dropping, people often ask: does that help? It probably helps a little bit. A stable 10-year bond, maybe slightly declining, can be helpful. But it all depends on what type of economic environment it brings with it. So that's also something that's pretty important to figure out.

So, Stu, is there a question last week that particularly caught you by surprise? I know we talked a little bit when we were on stage together about artificial intelligence and other areas that that might impact. Anywhere you were traveling around where you got a question that you thought was particularly thought-provoking or drew something out that you were happy that it was shared with the broader audience?

There has been some studies written about what the efficiency of artificial intelligence or the opportunity in other sectors from employing it could be. So the one thing that scenario analysis helps with is: sometimes in the stock market, if you're saying, well, if this is true, then a bunch of other things also have to be true. If a bunch of big companies are making huge investments in artificial intelligence, they then intend to turn and use that investment to sell a service to an end user, which is probably more like the average business. If the average business is going to buy that service, they also need to have a business case to buy that service. So hopefully it drives revenue or creates efficiency, which could be a propulsion to the broader earnings pool as much as it's been, so far, more of a handful of businesses. So that was one thing that came out. I think the other thing people ask about styles of investing because growth investing has been so strong. I think the important thing there is, I think, to pick a style and stick with it rather than rotating vigorously between them. So there's lots of ways to make some money in the stock market. I think the consistent way to do it is to say, I'm going to approach the stock market with the same lens on an ongoing basis rather than jump from one horse to the other, trying to accelerate my return. So whether or not it's growth investing, value investing, dividend investing, you name it, probably the answer to that question was just to apply one of the styles consistently.

Consistently. I think one of the real markers, if you look through history at the most successful or most famous stock investors, they had an approach that they stuck to, in terms of the way they look at markets and the way they evaluate companies. It doesn't mean they can't change their mind on a particular area of investment, but their approach is consistent. And even then, crazes and things will take the market away from them, and it looks like they may have lost their way, but it's amazing how it always comes back to them. That's really the hallmark, having that consistent style.

Consistent style and mastering your emotions so that you're able to take advantage of how you put money to work and things like that, that also becomes very important.

So although he is always the master of his emotions while managing money, I was able to get Stu to lose control of his emotions and have a steamed hot dog in Montreal. And I found out that you're a big steamed hot dog fan like I am.

I have had the odd hot dog in my life, Dave, that's for sure. We talk bun quality, we talk condiments, we talk the whole thing. But you’re a connoisseur, especially in the Montreal market; you know the places.

I am an expert in the Montreal market, but you pointed out, again, this was knowing companies and knowing hot dogs. You were quick to point out a shift away in one particular restaurant from a top-sliced bun. For those of you who don't know the top sliced, they're still around at your local grocery store, but I think they're the classic for a steamed hot dog. For a chien-chaud. Excellent. Well, Stu, congratulations on the article and for staying so young despite your poor eating. And thanks, as always, for the wisdom around the markets. I think this is a period we're in right now where you've had a really nice rally and things are looking okay, but how much farther can it go and what are the conditions to take it farther? And so it's a time to be paying attention to people like you around your thoughts on where things might go.

All right. Well, thanks very much, Dave, and thanks to everyone who's listening.