Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / Why Lindt Dividends Compound Better Than High Yields
Transcript
- Lucas: So yesterday I was looking at the dividend history for Lindt & Sprüngli — the Swiss chocolatier — and it kind of stopped me. This is a stock that yields barely one and a half percent. And yet, over the past decade, it has absolutely crushed the total return of most high-yield dividend stocks in the S&P 500. Luna: One and a half percent? That's below the ten-year Treasury, which is yielding four point six two as of today. Why would anyone hold that for income? Lucas: Right, that's the immediate reaction. But here's the thing — Lindt has grown its dividend at a compound annual growth rate of over eight percent for the last ten years. So if you bought it a decade ago, your yield on cost today is probably around three and a half percent. And that number keeps climbing every year. Luna: So the initial yield is low, but the growth makes up for it over time. It's the tortoise versus the hare, but with dividends. Lucas: Exactly. And I think a lot of dividend investors get seduced by the hare — a stock like Verizon, which yields almost five point eight percent today. That feels great in your pocket right now. But Verizon's dividend growth over the last five years has averaged about two percent annually. Meanwhile, its payout ratio is over fifty percent of earnings, and its debt load is substantial. Luna: So you're trading a high yield today for slower growth and more risk. But isn't cash flow now important for retirees? Lucas: Absolutely — and I'm not saying high yield is bad. But I think the framework should be: what is the dividend's trajectory? If you need income today, Verizon makes sense. But if you have a ten- or twenty-year time horizon, a stock like Lindt that grows its dividend faster than inflation can actually put more cash in your pocket down the road, even though it starts small. Luna: Walk me through the math on that. Say I put ten thousand dollars into Lindt versus Verizon ten years ago. Lucas: Sure. Let's use rough numbers. Ten years ago, Lindt's yield was about one point five percent, so your first year income would be a hundred and fifty dollars. But with eight percent annual growth, by year ten, your dividend income would be around three hundred dollars — on your original investment. For Verizon, starting yield ten years ago was maybe five percent, so five hundred dollars year one. But with two percent growth, year ten income is about six hundred dollars. So Verizon still pays more in absolute terms. Luna: But Lindt's stock price likely appreciated more too, right? Lucas: That's the real kicker. Lindt's share price has compounded at about twelve percent annually over the decade, versus Verizon's maybe four or five percent. So your total return — dividends plus price appreciation — is dramatically higher with Lindt. And if you reinvested those growing dividends, the gap widens further. Luna: So the lesson is: don't just look at the yield in isolation. Look at the growth trajectory and the business behind it. Lucas: Exactly. And Lindt has a fantastic business moat. It's a premium brand with pricing power, global distribution, and a loyal customer base. Its free cash flow conversion is over ninety percent, which gives it ample room to keep raising the dividend. Compare that to Verizon, which is in a capital-intensive industry with constant spending on spectrum and infrastructure. Luna: So the payout ratio matters too. A low payout ratio with high free cash flow means more safety and more room for growth. Lucas: Right. Lindt's payout ratio is around forty percent of earnings. Verizon's is over fifty percent. But more importantly, Lindt's free cash flow covers its dividend by a factor of two and a half times. Verizon's coverage is closer to one point three times. That's a thinner margin of safety. Luna: And in a rising rate environment — like we have today with the ten-year at four point six two — high-yield stocks can get hit harder because they compete with bonds. But a growth dividend stock like Lindt might hold up better? Lucas: Historically, yes. When rates rise, high-yield stocks often underperform because income investors can just buy Treasuries with less risk. But dividend growers tend to have stronger businesses that can pass on costs, so their share prices are more resilient. Look at the last five days: Verizon is up one point eight percent, but Lindt — I don't have the exact number, but it's been relatively stable. Meanwhile, the S&P 500 is up zero point eight percent. Luna: So the market is rewarding Verizon for its high yield in a rate environment that's stabilizing. But the long-term compounding story still favors growth. Lucas: Exactly. And that's the key insight I want listeners to take away: yield is a starting point, not the finish line. The real metric to focus on is the dividend's long-term growth rate relative to inflation and the business's ability to sustain it. Luna: That's a great framework. I know you've talked about dividend aristocrats before — companies that have raised dividends for twenty-five plus years. Lindt isn't an aristocrat because it's Swiss, but it has raised its dividend for over twenty consecutive years. Lucas: Right. And that consistency is what builds wealth. If you look at the Dividend Aristocrats index, the average dividend growth rate is about six percent annually. That's not as high as Lindt's eight percent, but it's still well above inflation. And those stocks have outperformed the broader market over long periods. Luna: So what's your takeaway for our listeners who are building a dividend portfolio today, with rates where they are? Lucas: I'd say: don't chase yield. Build a barbell — some high-yield positions for current income, but also allocate to quality dividend growers with low payout ratios and strong free cash flow. Companies like Lindt, or in the US, maybe a Microsoft or a Procter & Gamble. They may yield less than two percent today, but their growth trajectory is powerful. Luna: And if you reinvest the dividends, the compounding effect is even stronger. Lucas: Exactly. Time is the investor's greatest ally. And if today's episode helped you think about dividends differently — maybe you're reconsidering a high-yield stock in your portfolio — that's exactly the kind of conversation we love to spark. Luna: Yeah, I think a lot of people get stuck on yield alone, and this reframing is really useful. Lucas: If you found value in today's episode, the way we keep these conversations ad-free and independent is through listener support. If you'd like to help, you can visit buy me a coffee dot com slash fexingo. It's a simple way to say 'this was worth my time'. Luna: Absolutely. Even a small contribution goes a long way in keeping the podcast going. Lucas: So back to the actual investing takeaway: next time you see a stock with a six percent yield, ask yourself — can this company grow that dividend at least as fast as inflation? If the answer is no, that yield might be a trap. The real wealth is in the growth. Luna: And on that note, I think we've given everyone plenty to chew on. Thanks for listening, and we'll catch you next time. Lucas: Take care, everyone.