☕ The hidden risk in dividend investing

Good morning! 👋 

The major averages began red but have all gone green as I type. 

I’m not sure they’ll finish the day that way but, then again, I am not going to worry about being “right” because I prefer to be profitable… even if I’m wrong. 

Yields are up this morning, which means the cost of money just got more expensive. 

Selling would be logical by day’s end if they stay that way. 

The markets reward knowledge, not guesswork. 

Here’s my playbook. 

1 – Kalshi: calling gambling investing or prediction doesn’t make it so 

Kalshi says Super Bowl related trading volume topped $1B. (Read) 

Bets on Bad Bunny’s first song topped $100M alone according to various sources. 

I have mixed feelings. 

Kalshi is being called a “prediction market” to distance itself from gambling but seems to me that’s a lot like calling a drug dealer an unlicensed pharmacist or a wellness consultant. 🤦‍ 

Keith’s Investing Tip: Slapping a new label on speculation doesn’t change the math. If the outcome is binary and the edge is hype or manipulation, you’re entertaining yourself not investing. 

Just sayin’. 

2 – Buffett’s favorite soda goes flat 

Dividend investors love Coca-Cola because it’s a) a long time Buffett fave and b) a dividend “King” with 50+ years of uninterrupted dividend increases.  

The company just reported and the numbers were “fine”. (Read) 

My problem is that “fine” doesn’t cut it. 

Pepsi still wins the taste test imho: 

• Pepsi has tighter control of its value chain, giving it more pricing power and execution control than Coke when fickle, sugar-addled consumers flinch. 
• A higher 10-year annualized dividend growth rate quietly and consistently. 
• I’m all for the “Buffett Effect” but I like cash flow discipline a whole lot better as an investor. 🤷🏻‍   

3 – Buybacks: Easy at $90 oil, optional at $70 

BP just suspended buybacks and shares are down nearly 7% this morning. 

Not like this is a surprise. 

I have encouraged investors to avoid it for a long time because I was worried about balance sheet efficiency. And it would seem, that I mighta been on to something.  

Management has decided to redirect excess cash toward the balance sheet as lower crude prices take their toll – something I said explicitly would be in the cards this year in the One Bar Ahead® Annual Outlook. (Read) 

Most investors misunderstand buybacks to begin with, but that’s something I’ve written about many times already – so I won’t make your eyeballs glaze over again. (See #5) 

What this move really tells you is that the margin for error has shrunk. 

Anyone with half a brain can “return capital” when oil’s at $90 but the stocks you want to own as an investor don’t have to flinch when it isn’t.  

BP’s not alone, btw. There are quite a few oil companies at risk, skating on thin ice as it were. 

Meanwhile, and if you’re an OBAer, stay focused on the one that matters. 

The True Shareholder Yield – a key metric I used to evaluate stocks – is 5.17% versus the ~3.90% listed yield most investors see on various websites. My research shows very clearly that companies with positive TSY do better. 

Keith’s Investment Tip: Yield that vanishes faster than ice on a hot Texas afternoon was never yield to begin with. Don’t chase yield but, instead, hunt for the best, most secure version…. And a higher TSY. 

4 – Thanks for nothing, UBS 

Sell-side analysts are continually a day late and a few trillion dollars short. 

This time UBS has downgraded its outlook on U.S. IT stocks citing lingering “software uncertainty” and increased capital expenditure. (Read) After a vicious selloff in software stocks that vaporized ~$2 trillion+ in investor wealth. 

Scores of investors are having a “thanks for nothing” moment this morning. 

At the risk of sounding like a broken record, Wall Street is almost always late to the party and the sooner you recognize that, the sooner you can put your portfolio into the game and take your emotions outta the equation. 

Up or down doesn’t matter. 

UBS is a great firm but they’re stuck in the same trap other big firms are. 

Big firms frequently chase price, protect privileged relationships, and cover their own asteroids rather than help you make money — which is exactly why disclaimers read the way they do. 

Contrary to what all those slickly crafted adverts want you to believe, Wall Street is not structured to provide you with objective stock recommendations; they're structured to trade, to sell you huge amounts of commission generating products, do investment banking, and so on. 

That's just the way the business operates, and the sooner you rip that Band-Aid off, the sooner you can get down to investing properly and, dare I say it, profitably over time. 

We’ve seen this movie before: 

• Dot-com bust: Wall Street IPO’d junk, hyped it relentlessly, then quietly dumped shares while retail held the bag. 
• Financial crisis: Banks sold toxic mortgage paper to clients while betting against it in their own trading books. 
• Facebook (2018), Meta (2022): Downgrades magically appeared after 40–70% drawdowns. 
• More than a dozen Wall Street analysts rated Enron a buy all the way down to under $1. 
• Crypto winter: Custodians, exchanges, and analysts talked “long-term value” right up until the exits jammed. 

What the public doesn’t realize, and the media can’t grasp, is that professional insiders react very differently to pronouncements like the UBS report which is why I constantly encourage you to think like a shark, not a minnow. 

The world’s best investors, too. 

They’re constantly playing to win, which is why they’re usually the ones buying into chaos and reports like this one — think Buffett in 2008, Templeton at market bottoms, and insiders quietly stepping in while headlines scream panic. Me encouraging you to buy after CrowdStrike’s foibles, into the Tariff Tantrums, the Covid drop and more. 

It's a very simple proposition. 

Do what Wall Street does, not what it says. 

Keith's Investing Tip: If the "downgrade" comes after the damage is done, it’s usually recap theater, not research. Think like a shark, not a minnow. Follow the wallet and you’ll very rarely go wrong. 

5 – If you ever needed a case for shorting or avoiding these two companies, here it is 

DuPont and International Flavors & Fragrances have made a fortune in what is called “food science.” Ostensibly the science of using chemistry to improve flavor and shelf life, they’re really all about cramming as many chemicals and other nonsense into our food supply as possible in the name of bigger profits. 

The handwriting is on the wall and has been for a long time. 

Do you want to eat ultra-processed stuff you can’t pronounce or actually clean food with simple ingredients? 

I know which one I’d prefer. 

And my bet is that Marks and Spencer, a British retailer, does too. 

The company has launched a minimal ingredient range. Every single product in the new range has 8 or under ingredients, transparently displayed and all whole foods. 👏👏👏 

For example… 

Meanwhile, the American food system still leans heavily on industrial ingredient companies whose profits depend on emulsifiers, flavor systems, and chemical workarounds designed to extend shelf life and cut costs. 

Trade Idea: One idea would be to create a “pairs” trade – meaning two instruments, in this case stocks and options that will function as a single investment. Puts, short and avoid DuPont and International Flavors & Fragrances. Simultaneously buy Marks & Spencer (M&S) stock, primarily traded on the London Stock Exchange under the ticker MKS.L, and also available as an OTC (Over-the-Counter) American Depositary Receipt (ADR) under MAKSY. 

Or, simply pick up shares in one or both of my favorite retailers, both of whom have huge private label brands worth tens of billions of dollars that could be “cleaned up” with great profit potential. 

Hmmm. 🧐 

Bottom Line 

Be the hunter, not the hunted. 

Now and as always, let’s MAKE it a great day. 

You got this – I promise! 

Keith 😀