Season Setup And Guest Intro

SPEAKER_02 0:02

Welcome back to Finance Friends. I'm your host, Fabian, and this is season four. This season we're diving deep into the world of investing. Not just where to put your money, but how to think like a professional investor. We are bringing you conversations with highly intelligent, incredibly motivated investors. Weekly episodes. Make sure you stay tuned in. Today we have Jonathan Neurik, who is the co-founder and CIO of Div Grow. They are a Sydney-based business that manage over$600 million in client assets. And he runs money by focusing on companies that have the ability to grow their dividends. He talks about a couple of great stocks he's invested in and how he's been able to look through companies to ensure they're able to compound their dividends and grow their earnings over a long period of time, in some cases, almost a hundred years. Listening to this one to hear the stock tips and learn about Jonathan's story. Welcome, Jonathan Nurik, to Finance Fred's podcast. We're talking start of 2026 and it's the first recording for us this year. How are you today? I'm good. How are you? Good, thank you. Thanks for having me on the show. And you're you're the CIO, Chief Investment Officer, and also founder of DivGrow.

SPEAKER_01 1:27

Yes, co-founder, actually. Um, we started as a family office um where we're running our own capital, which itself, my father in the previous generation, had founded successfully a hedge fund business, which ultimately was sold. And that uh led to the family office where I worked for a bunch of years preceding Divgrow and then started, but built a team and hence the co-founder.

SPEAKER_02 1:50

Oh fantastic. So can you talk about the journey? How did you get to where you are today? Yeah. Like you did you study finance? You mentioned your dad, a successful hedge fund.

SPEAKER_01 2:02

I did study finance, but my education started as a child, I would say. Um, and and I think it's a very lucky upbringing if this is what you want to end up in. Um I remember being five, six, seven years old, traveling with my dad, who traveled all the time, and he would take me to the McDonald's in the airport, and he'd say, a lot of people bank over there at the bank, but we prefer to own businesses. And let's count the number of burgers being sold and how much are they being sold for? And then later in the supermarket, you would be buying band-aids and you pick up the elastoplast, and it's like, no, no, we are Johnson Johnson owners, and therefore we need to think about what is on which shelf. Yeah, uh, where is it positioned, how much does it cost?

SPEAKER_02 2:49

Big business in merchandising.

From Family Office To DivGrow’s Launch

The Dividend Growth Research Backbone

Behavioural Edge: The Dividend Staircase

SPEAKER_01 2:51

Uh yeah, very much so. So the education started as a child, and I've been, let's call it, an active investor from 10 or 11 or 12. Uh, some of those positions we still have. Yeah, and it really shows the benefit of compounding. But fast forward, I did study finance. Um, I did commerce law at UNSW in Sydney. I spent some time as a lawyer, um, which in truth wasn't really for me. I struggled with the relationship between output in a unit of time and billing for the unit of time, yeah. Uh, which works for lots of people, but in investing, especially in our style of investing, you might have three insights a year. Yeah. And and and there's some kind of um difficulty in the relationship of having to be equally productive every unit of the day. Every day. Uh, and after a few stints in law and investment banking came into the family office to start grooming for the next generation. Yeah. A five or 10 year transition period. And what we noticed was that families around us who had been successful, sold their businesses, had lots of experience with advisors, funds, handholders, they kept saying, I love the sound of what you're doing. Can't I allocate to you? And I thought there isn't a shortage of providers of financial services, but there seems to be a gap here. People with all the knowledge, all the ability, all the access are begging for this. Um, I love the idea of making a really big difference to a family over the generations because improved investing really will impact the generations, and decided to take the IP that we had in our family office and launch DivGrow. We did it in 2019. And here we are six years later. So what is the can you run through your investment process? Yes, absolutely. Um the the premise is is based upon research out of MIT, spearheaded by Professor Myron Gordon back in the 50s. Uh it's well publicized and has been documented and tested for for many decades, and it holds true. And him and his team, who ended up winning a Nobel Prize in later research, they showed interesting dynamics around changes in dividends. First, they found that companies that pay dividends as a category outperform those that don't over the long arc of time. Yeah. Then they found that companies that increase their dividend every year outperform simple dividend payers. There's only one way to be able to raise your dividend every year for a long time, and that's your business getting stronger at time, more productive. Then they found that those companies that grew their dividend the fastest outperformed by more. And ultimately, over time and at various points in time, the sustained rate of change in the dividend corresponds to a similar sustained rate of change in price. Now, if we bring that to a simplified version, if you can find a business or an asset of in a in a different class that, let's say, can grow its dividend or the cash receipts in your hands by 15% a year for 20 years, you should expect, according to their research, the share price or the asset value to go up at the same rate over time. Not every day. Because on any given day, the market might be very concerned about what the RBA might announce or what the present United States might choose to do today, but over time the two are in sync. We looked at that and we thought nobody is implementing. But this is interesting. What if we were able to build a skill set to identify those companies in advance that are able to compound their dividend in an above average rate for a long time? Then we would be able to compound our dollars at an above-average rate for a long time. But then there's a second and even more important part to this, which is to succeed in investing, you need to do two things right. One, you need to find a good asset to own. And then you need a behavioral framework to be able to actually own it for the amount of time that it takes for it to deliver the outcome you're hoping for during your research. And dividend behavior is fantastic for feedback because it's easy to understand. From the most sophisticated hedge fund manager down to a novice child, once you understand what a dividend is and you watch it grow, grow rapidly and on a sequential timetable, it's very grounding. It feels like you're on an upwards trajectory, what we call a dividend staircase, rather than what feels like a roller coaster, how a lot of people relate to shares and or share prices. And by shifting your attention to this fundamental but very real, very powerful proxy, we find that it's a liberating emotional experience for us. And our clients tell us that even where they own the same asset somewhere else, when push comes to shove during a COVID environment where there's a lot of volatility, they look to the dividend increases that we report, that we transmit, and they feel better and they can actually stay the course.

SPEAKER_02 7:52

Yeah, okay. So you're articulating a lot more of a focus on as long as the organization can continue to pay their dividend and grow their dividend, that's what we focus on. And we know in the long term the share price will reflect that growth.

SPEAKER_01 8:07

That's right. But the important consideration is the rate of change, because the rate of change corresponds to the rate of change in the share price. So a company where the dividend is increasing, but it's increasing very slowly is of no interest to us because if it's increasing at 2, 3, 4% a year, that becomes your share price appreciation expectation based on this Gordon growth model, dividend discount model. And that's assuming the same payout ratio. Correct. Correct. Uh it's it's a a good thing to point out because what we're actually looking for are growth companies that are primarily reinvesting in their business. The dividend is only a small part of what they earn. It's actually often a result of a family that chooses to treat its shareholders uh with respect by not taking egregious pay packages and primarily just own the stock that they don't want the next generation or the one after to let go. And to be able to access some funds to be able to live relative to their asset base, they turn on a dividend. And the dividend increases with the free cash flow generation growth or the earnings growth, with 90, 80, 70% being reinvested in growth.

SPEAKER_02 9:22

Yeah, because obviously in the US and Australia, dividends are treated differently from a tax perspective. How does that uh affect your investing? Because in the US, um, from my understanding, I'm not a tax agent, but from my understanding, you know, the the the payout uh the the dividends are a lot lower in the US because they want to reinvest in the company and grow. Um, whereas we in Australia have franking credits where if the the company, the Australian companies already pay tax on that income, then there can be a tax deduction for the investor if they receive that as an income. How does that affect your investing?

Yield Today Versus Income Tomorrow

SPEAKER_01 10:03

It's a good observation. And you're right here, they're franking credits in the United States, there aren't. And they invest more for growth. Now, the reason for the high payout ratios here, I think there's several factors. One is the tax element, uh, so it makes more sense maybe for people to access their money. There's also the shareholder base is a little bit different. Um the um the industries themselves that dominate the indices are also somewhat different. Here it's largely banks, financial services, resource companies. Uh the competitive dynamics are different, the ability to reinvest are different, and therefore it so happens that most of the large participants on the ASX pay out the bulk of what they earn. It's then not that surprising if they pay out the bulk of what they earn that little goes back into growth because it's little to nothing left.

SPEAKER_02 10:59

Yep.

SPEAKER_01 11:00

And then the growth rate of the companies and of those dividends is slower. For somebody who wants income today, that can be a reasonable solution. However, for somebody who wants to maximize their income down the line in 10 or 15 or 20 years, a company that pays little today has a low yield today, but where that is growing rapidly, will eventually supersede uh the amount of income that you receive because the compounding curve is steeper, the share price growth will be more aggressive, and the total return for the investor will be much higher. You have to be willing to look past current income. And so we often give the example for clients to really put it clearly. Compare, say, one of the banks here with a what's often deemed a financial, but it's not really a true financial, say, MasterCard. Instead of a yield of four, five, or six percent today, in MasterCard, you're looking at less than one percent, which has been true basically all the time, right back to 2006 IPA. But they've been able to grow their dividend 20% a year since then. So it's not much longer before the dividend is a hundred times what it was then. Yeah. Meanwhile, say the NAB or the ANZ is still paying what it was paying 20 years ago, if you're lucky. The share price hasn't really moved, but MasterCard is absolutely following this share price, this dividend trajectory.

SPEAKER_02 12:28

So your income grows, but also your capital appreciation.

Stress Testing And “Local Monopoly” Moats

SPEAKER_01 12:30

So your income started at one-sixth, but now it is many times and it's growing faster, and the share price has gone along with it. So, in terms of the time frame, and before we started recording, we were talking a little bit about time frame. Most people are interested in what's going to work this week, this month, this quarter, and if they've relatively long term in the scheme of things, maybe this year. But we start every one of our letters with our 30-year objective. When we founded Divgro, we said, I, as the chief investment officer have a 30-year mandate, which is to take each one of my dollars and try and compound it into 30 over a 30-year career. We opened the fund on the week of my 30th birthday. It wasn't a coincidence. And that sounds very, very aggressive, but compounding is back-ended.

SPEAKER_03 13:23

Yeah.

SPEAKER_01 13:23

It actually boils down to 12% a year, which we've been delivering. Um, and when you think about that, to be able to achieve that outcome, you need to find companies that grow their dividend a little bit faster than 12% a year. And we're very proud of the fact that over the last six and a half years, our companies on average have grown their dividend at about 14.2% per year.

SPEAKER_02 13:47

Yeah.

SPEAKER_01 13:49

That's great.

SPEAKER_02 13:50

Well, congratulations. Thank you. Well done. Thank you. And another 24 years of success to go.

SPEAKER_01 13:55

And maybe longer after that, right? Uh maybe the 30 will become 100. Yeah.

SPEAKER_02 14:00

And if there's a situation, um, if a company, if there is an anomaly like a COVID, where maybe a company decides let's hold off and not pay a dividend, we want to, we don't, you know, necessarily want to have to recapitalize. Um, do you do you have a year where they give leeway to this company if they aren't able to grow their in grow their dividend for that year?

Case Study: Cintas And Resilient Demand

SPEAKER_01 14:22

It's a very good question. We have never experienced a company in our portfolio that failed to increase its dividend. COVID notwithstanding. And that's because of two factors. One is we put our companies through an extremely rigorous set of testing in advance about how they're likely to behave under stress. Stresses will come and they're likely to be unforeseen unless they're an own goal. Sometimes a management team makes a mistake. Uh but a COVID-style example, you didn't see it coming. We didn't see it coming. Uh, but when you look back, and many of these companies have been around for a long time. In fact, Half Our Portfolio is about 100 years old since its founding. They have seen many difficult periods in the past. We can see how they're likely to behave, treat their shareholders, treat their employees, treat their suppliers, treat their communities. And so we believe that we have already done testing in advance, such that when a stressful environment comes, they will be able to continue paying the dividend. But there's a secondary aspect, which is our companies are not on doing things that are very exciting, they're very predictable, and they all have a concept that we call an installed base of customers, where they choose not to, or they simply can't turn off their relationships because it's a form of monopoly. Uh yeah, if it's a true monopoly that can be regulated away from you. So what we want is something akin to an effective monopoly or a localized monopoly. So I'll give you an example. We're in a company called Syntas. Syntas. Syntas. Syntas has an interesting foundation story. In the Great Depression, two circus performers circus stopped because people didn't have the discretionary income. They decided to go to like mechanic auto shops and stuff and take the discarded rags, which were available for free. Said, can I have it? They said, Yeah, sure, do what you like with it. They would launder it and they'd come back and sell it as used but clean and therefore useful in an environment people trying to economize. The same way that if you go to a golf club pro shop, you can buy new balls or you can buy washed balls that landed in the lake and somebody washed. And they're my balls and up in the lake, yeah. Mine too. And this is in the 30s, but today, out of the 16 million businesses that requ or government agencies that require uniforms to operate on any given day, whether that's the police force or the KFC, CENTAS serves about 1.2 million of those businesses. Every day they're by far the largest. Now, coming back to this concept of local monopoly. So when you say serves them, what do you mean by that? They're delivering compliant, branded uniforms that have been laundered to the highest standard. They deliver through their van.

SPEAKER_02 17:23

Yeah.

SPEAKER_01 17:23

Exactly the right amount. Yeah. It meets every regulatory standard. Because if you're the cook in the back of a KFC, you need certain, you know, in case there's an oil spill, or if you're a police officer or uh somebody who works for the fire department, there are different requirements around your uniform. And today's Cyntas is the big juggernaut. It still has a very long runway. But the point I was trying to make is that even in a COVID, if a police officer needed to go to work or if KFC wanted to run, they needed the uniforms to be there. So it's not a surprise that CentAS during COVID was able to continue its business. It's a critical business. It's not a sexy business.

SPEAKER_02 18:05

Never going to be a sexy business. All the sexy businesses are the best businesses.

SPEAKER_01 18:09

But what it translates to is an inability to switch it off, a high degree of predictability, and as a result, they're able to grow their dividend at an astounding rate if you look at it. High teens through thick and thin for decades. More than 40 years in a row. And that translates into an experience where our dividends continue to climb even during shocks, like a like a COVID.

Finding Future Dividend Growth Leaders

SPEAKER_02 18:38

And how do you identify these companies?

SPEAKER_01 18:41

It takes a lot of research. And they it's not simply a screening process because that will often lead you to a lot of the dividend giants of the past. And the past is past. And the business environment is dynamic. It's very Darwinian. There is always a competitor trying to come and and steal your lunch. But what we are looking for are the parameters for what the dividend is likely to be in the future. Coming back to the Centus example, just because we asked about monopoly, but didn't finish the thought, something can trend towards a local monopoly. If I have the most laundries and the most vans and the most customers in a location, I can price under you. So you can't come and compete with me. So even in terms of regulation, which we covered before, uh they're causing the prices to be lower, not higher. And therefore, while there's a trending towards a localized monopoly in any given location, it's actually better for the customer. But in terms of sourcing these things, we are looking for companies that are incredibly predictable, predictable. They're not on the cutting edge of some kind of technology cycle because that's very hard to predict.

SPEAKER_02 19:55

Yeah.

SPEAKER_01 19:56

They are run ideally by families. They predict. Primarily reinvest. So dividend investors are overlooking them because dividend investors, like in the Australian environment, are often looking for high cash flow now instead of high cash flow later. And at the extreme, some of our companies' dividend yield today is 0.08%. And these are some of the best dividend growth companies that exist. And so you often have to look past the typical parameters of a dividend-based uh stock selection process to find these gems where there is a lock over a marketplace that is still expanding, but you have the apex predator that is going to keep winning in this environment, and that helps you, in a sense, know that the dividend's going to climb.

SPEAKER_02 20:46

Yeah. And have you had to exit a position since you started? Yes. Yes.

SPEAKER_01 20:51

The business environment changes. Yeah.

SPEAKER_02 20:53

Can you give me an example of a company that you've exited in?

Reallocating From Giants To Wingstop

SPEAKER_01 20:57

Uh yes. Um we like, for example, quick service restaurants, franchise systems. Yeah. And we identified a company called Wingstop, which may not yet be familiar in Melbourne, but Wingstop opened in Sydney last year to queues that went hundreds of people long to this unbelievable fanfare. In fact, a few weeks after it opened, we took the team, we tried the whole menu. They thought it was a joke. Can I have something of everything? Yeah. But we're always looking for better. So while our preferred holding period is very, very long in any given company, if we find a company that is winning more in that marketplace, we will look there. So I mentioned earlier McDonald's. McDonald's once upon a time was able to grow very fast. But today, in its core markets, it's pretty ubiquitous. It's a little bit harder for McDonald's to grow its footprint because really, in quick service restaurants, there are two dynamics that spur your growth. One is more units. So more franchisees opening a shop and paying you a royalty, franchise fee, however you want to describe it, out of their sales. And when you have a large footprint, just the law of large numbers makes it harder to grow. And the other way is through more sales going through that shop because you're getting a royalty. That might be more footfall, it might be increasing the price, it might be people just buying more stuff. Now, in the case of Wingstop, which we identified, we could see unit economics for the franchisee, which were superior to everything in the industry by a lot. Free cash flow, cash on cash returns for the franchisee of 70% after year one, which is just almost unheard of in the industry. And franchisee economics is what dictates how many franchisees are queuing up to open more of your stores.

SPEAKER_02 22:56

Yep.

SPEAKER_01 22:57

And because Wing Stop is an emerging brand, every time the sales grow and more franchisees ask to open more units and you allocate part of your franchise fees towards an advertising budget, your advertising budget is growing aggressively. And so instead of advertising through pamphlets, you can now become a sponsor of the NBA or the NFL. And now when you open, you'll open to people who have already heard about you rather than needing to create that. So there's a fantastic flywheel. So we're always on the lookout in the industries that we like. One of them is quick service restaurants, ideally cheaper kind of thing. So it is it doesn't go away in tougher economic times when people maybe trade down. And we decided to reallocate from the slower growth, but still wonderful businesses like uh McDonald's or Yum Brands, which houses things like KFC towards the dividend champions of tomorrow, which in our view are things like Wing Stop, which only has slightly more than 3,000 units. It's chasing down those others, but that means its growth is much faster. And the evidence has been very rapid dividend growth. So sorry, you're still an investor in this company? In Wingstop. Yeah, yeah. The question was about changing, and so we let go our position in McDonald's, we let go our position in Young Brands, and we built a position in Wingstop.

SPEAKER_02 24:28

So get what do they do? What do Wingstop they serve chicken wings? Chicken wings. I think I have heard of them. I don't know, maybe AFR read an article or something about them.

The Wingstop Flywheel And Unit Economics

SPEAKER_01 24:39

I actually think we might have even been quoted talking about Wingstop in the AFR, if not other publications, uh, because we've often been fairly loud about our adoration for Wingstop. But Wingstop, there was this entrepreneur who had succeeded in pizza shops. Yep. Which he sold in in Addison, Texas. And he wanted to go back into the quick service restaurant space. And instead of what most formats begin with, you have a shop because you think you make a really nice hamburger or a good sandwich or something like that. He started in reverse and he said, let's model out how we have the highest franchisee economics because that means the growth rate will be the fastest because people will beg me to open stores. What do we do? Well, we put it around something that has a very cheap input price, but not necessarily a cheaper sale price. And chicken wings are very cheap to source because most of your competitors are looking for things like breast meat to put into their product. So on a per kilo or per pound basis, chicken wings, much cheaper. Good start.

SPEAKER_02 25:48

Yeah.

SPEAKER_01 25:48

Right? Because your gross margins are higher. Uh, we will build a takeaway-oriented shop so that the rental footprint is much smaller.

SPEAKER_03 25:58

Yeah.

SPEAKER_01 25:58

And because delivery has been growing very rapidly in the last 20 or 30 years, we will discourage people even picking it up themselves and having more delivery drivers and now the third party.

SPEAKER_02 26:10

I think K is trying to move towards that way as well.

SPEAKER_01 26:12

Yeah. Everybody's moving that way, I guess. And that means that we don't need as big a footprint and we don't need as prime real estate, which is very expensive. Now, let's do something that is easy to cook, is quick to cook, and we differentiate in something that doesn't take up cooking time and resources. So we'll create legendary sources, but one core dish. Yeah. Because one, you can sell the modifier, you can easily change the modifier, which is various sauces, lemon, pepper, all sorts of different things. So you're new, but the core stays, it doesn't take up space, and the cooking is simple. So you can run a wing stop with four people, unlike a typical quick service restaurant that might be 10, 12, 16 people. Maybe more.

unknown 26:55

Yeah.

SPEAKER_01 26:56

And you will have an indulgent occasion so that you can advertise in a very emotive way. So you can draw somebody in rather than selling something that is like a daily occurrence who's kind of boring and somebody can take it away from you. Now you put all of that together and you have enormous margins, peerless margins on the gross level, the lowest costs of operating. Uh, and the throughput ceiling in any one of these shops is way higher than most things because the cooking time is so quick. Uh, you can work on a fresher basis because you're doing way fewer things.

SPEAKER_03 27:38

Yeah.

SPEAKER_01 27:39

And people really like chicken wings because the occasion is one that is good for lunch, for dinner, for afternoon, watching the football. Yeah. Right. They advertise around sports.

SPEAKER_02 27:51

Yeah.

SPEAKER_01 27:51

Um, good for late night. Yeah. So a lot of day parts. There's a lot of work about considering working on the early morning day part, uh, which hasn't really begun in earnest yet. Uh, but it's a very exciting franchise. And now we waited to see because we have a rule of thumb and we create a lot of rule of thumbs that emerge out of our research, which is for a brand to be able to travel culturally around the world, because we mentioned McDonald's, we mentioned KFC, which are virtually ubiquitous. We wanted to see that in at least three geographies that are culturally different, where food tastes a little bit different, you got to at least a hundred units. Because it's one thing to be in Texas or in the surrounding states, but that might mean that you'll just be stuck in America, which is fine, it's a big market.

SPEAKER_03 28:37

Yeah.

Global Scalability Rules Of Thumb

SPEAKER_01 28:38

But you want to know that you can grow globally. And so we were tracking the openings in Mexico, in Indonesia, until we got to that point where we had at least 103 geographies that told us that the brand can travel. Lo and behold, they opened up in King's Cross in Australia. No advertising in advance. A few Instagram posts that half suggested that there might be an opening date. Day one, 9 a.m., cues hundreds of people though. That's our kind of thing. And today, the base is a bit more than 3,000 restaurants, but they have contracted franchisees for more than half of the base to open. And they're desperate. You can't even apply anymore as uh let's call it a mom and pop. I'm gonna try my first go. Yeah, you need to be a professional. Now you have to be a professional, private equity backed, quick service restaurant experienced operator and prove that you've succeeded with 500 plus units in your territory. Show how much capital you can put behind it, a proper plan for how fast you can open. And so the the future is very bright for Wingstop and the dividend is growing rapidly. Yeah.

SPEAKER_02 29:52

That's great, great story. Thanks for sharing. Well, we saw Aljana, which is another a chicken shop in Australia, just got private equity backing from the US and and they're growing quite rapidly.

SPEAKER_01 30:01

But just on the way in uh to the studio, I saw them uh around the corner.

SPEAKER_02 30:06

Yes, they are around the corner, just opened on Elizabeth Street. Have you been yet? I have been. Okay. I've been three times. Yeah. I I'm not saying I'm a massive fan. I'm not sure they've got much of a competitive advantage, but I do have friends that think differently.

SPEAKER_01 30:22

I've been to the original a few times. One of the c companies that are dearest to us is Costco.

SPEAKER_03 30:27

Yeah.

SPEAKER_01 30:27

And it's so the nearest Costco in Sydney is quite far away from where I live. And I I I love the journey uh to Costco. We we we love everything about Costco. Uh, and not that far away is an El Jana, so I have been several times because it's part of the experience in our house of going to Costco. What's your thoughts on El Jana? I think it's pretty good, and the line tells a story, right? If if every time you show up, there's a queue, it doesn't really matter what time of day it is. Uh and that till is ticking over, tells a story. Yeah.

SPEAKER_02 31:03

Well, I think there's a big market for the go back to wings because in the US, wings are everywhere, everywhere you go. It's almost like the palmer of the pub. That's right. Uh but we don't have we haven't embraced that culture yet about wings. Some places do American sports bars here. But as Australians start to listen and love more of American sports like the NBA, like the NFL, it's only a matter of time before the adoption increases rapidly.

SPEAKER_01 31:30

Most likely. I mean, there's a commitment for many more wing stops in Australia. There's a loose commitment for 100.

SPEAKER_02 31:35

Yep.

Liquidity, Listings, And Time Horizon

SPEAKER_01 31:36

Let's see how that develops. Uh the returns look like they're stacking up very impressively. Are they a listed company or is that a privately? No, they're they're listed. We we're only enlisted. Yeah. Um, because while we talk about a 30-year horizon and we have this framework around reporting dividend growth to be able to ground people, and we can talk more about that. Uh, we believe that liquidity is important because sometimes life happens. Yeah. And when life happens, occasionally people need access. And that's why we're only in at least what in Australia would be considered large liquid companies, several billion plus mark accounts.

SPEAKER_02 32:14

Yeah.

SPEAKER_01 32:14

So Wingstop is.

SPEAKER_02 32:16

Yeah.

SPEAKER_01 32:16

Awesome.

SPEAKER_02 32:17

And how long have they been around for?

SPEAKER_01 32:19

Wing Stop started in the late 90s. Yeah. Uh took obviously a while to develop because the early goings, the early confounding, if you go from one unit to the second, you're still not big, but that's 100% confounding.

SPEAKER_02 32:30

Yeah.

SPEAKER_01 32:31

Uh in a sense. Um, but they're they're coming on to a decade of being listed. Uh, we watched them carefully until they met some of the other rules of thumb in that industry that we have. Um, but it's been a tremendous performer for us. And in terms of future dividend growth, we think the dividend is going to be many times what it is out in the future.

SPEAKER_02 32:53

Yeah. And obviously they're clearly able to grow their earnings to be able to increase that dividend yield.

SPEAKER_01 32:58

Yeah.

SPEAKER_02 32:59

Um not dividend yield, dividend amounts.

SPEAKER_01 33:02

The effective yield to a purchaser is rising very rapidly, even though the yield to the new purchaser looks low. Yeah. They will catch up because they're able to grow their dividend very fast to a stagnant but high yield today.

SPEAKER_02 33:17

Yeah, there's very Australian business that most people are familiar with has struggled a bit the last couple of years is CSL.

SPEAKER_03 33:23

Yeah.

SPEAKER_02 33:23

You know, they were able to grow their dividend, even though they reinvest a lot of money into RD, they're able to grow their dividend substantially over a long period of time.

Healthcare Picks: Abbott Over CSL

US Dividend Cadence And Feedback Loops

SPEAKER_01 33:32

So we do like critical healthcare companies. We don't own CSL, though we've studied it carefully. Um we like things, like we mentioned, that we can't turn off. Uh so for example, we are in Abbott Labs. You might have seen people running around with their continuous glucose monitors. Uh you see more and more people wearing them. You now see athletes wearing them. They're bringing out one for non-diabetics of people just to learn more about how they respond to food and things like that. We've done our own trials with them because it's interesting. Um, and we believe that they are the absolute number one in the space. Once, especially a diabetic wears that it's actually life-saving. Um, it keeps them in range much more of the time. It's clearly superior than all the competitors. The sales tell you that. The number of units in circulation tells you that, and the future is bright. And if you compare and contrast that to some of the Australian healthcare companies, many of which have done wonderfully, we think they're a bit more predictable. And we think in many respects they are priced because they are not necessarily not that long ago. CSL was the largest or second or third largest company on the ASX. Had a lot of followers, and because it was a high-quality company, it traded more expensively than a company of similar dynamics that might have been number 100 in the United States in terms of size and following. So we have found that we prefer companies in the US all else being equal. The other aspect is that while companies in Australia that pay dividends and those that increase dividends, the frequency of the dividend is different. And the amount is different. So most companies here will pay a final or final and interim. They'll typically be different. And so from a feedback standpoint, making sure that you're always on track, there's, I mean, it's not hard work, but you need to be carefully following is the interim plus the final more than the interim plus the final last year and compare it. And sometimes you have to wait six months to be sure of that. Whereas in the United States, the behavior is typically, especially in these great dividend growth companies, they create a dividend, they will pay that for four quarters in a row, and then they will increase that. And so the time lag in feedback systems is much more predictable, it's much more, let's say, short cycle. So you can break the long term, which every investor says they're trying to achieve, into much shorter instalments, and it gives investors a better chance of staying on track rather than being bluffed out by whatever the goings are today, tomorrow, or the next day, yeah, that distract them. And how can people invest in DivGrow? Um well, we're a wholesale fund, so people obviously need to meet the wholesale sophisticated requirement. But we have plenty of material on our website. We publish extensively, we appear often in the media, like today. Um, that's all available on devgrow.com.au. Yep. Um so if somebody is interested, very happy to have somebody in our team meet with them. Awesome. And and take them through what we do, why we do it, and why it's so effective.

SPEAKER_02 36:52

Yeah, awesome. And you've been able to grow the business quite substantially. So how much do you manage at the moment?

How To Invest With DivGrow

SPEAKER_01 36:58

Just over 600 million. Um, and that's growing very substantially. What we're very proud of, and this is not an often quoted number in the marketplace. I mean, you can't get it because most won't publish it, other than the publicly listed fund managers, is the time that a client stays in the fund or the dollars retained in the fund. And we believe, if there were league tables of what percent of investors come into the fund and are still there three years, four years, five years, six years later, we believe we would score highest or amongst the highest anywhere in things that are liquid, because the experience around reporting changes in dividends, which are understandable and very constructive from an emotional standpoint, creates a much superior journey to most systems that say we're clever, we got a system that works, trust us, and let's see. Here we report every week, and people are welcome to join our email, which is comes out every Friday, and it details not the change in price during the week, but the change in dividends in the portfolio during the week. So it might say something like this This week visa increased their dividend by 14%, and we became entitled to our dividend from Costco, which is 13% higher than this time last year, and two sentences about what makes Costco special.

SPEAKER_02 38:19

Yeah.

SPEAKER_01 38:20

And in any given week, that's not that meaningful. But when the week coincides with all kinds of tumultuous activity and markets and people feeling destabilized and out on the golf course, people are talking, um, people tell us they feel much better and therefore they're able to stay the course and actually get the compounding outcome.

SPEAKER_03 38:41

Yeah.

SPEAKER_02 38:42

That's really insightful. Thank you for sharing. So how many positions do you hold in the portfolio? Around 30.

SPEAKER_01 38:51

So quite concentrated? It's relatively concentrated. Um, we we believe it's fully diversified for somebody to have a meaningful allocation to. It's across lots of industries, though it's not in industries that are too cyclical or very very sensitive to a price of an underlying that they can't control. Um but there's a limited amount of good ideas, and therefore we want to concentrate in our good ideas.

SPEAKER_02 39:19

Awesome. That's great for sure. And then the other thing is you pay a dividend from the fund. We do. Yeah. And how often is that paid at all?

Client Retention And Weekly Updates

SPEAKER_01 39:26

We pay it corely. We behave exactly like our companies. In fact, we look to learn something that we can apply ourselves, either as investors or as stewards of somebody's capital or in terms of client relationship from our companies. We admire them. We wouldn't own them if we didn't admire them, and therefore there's a lot to learn from them. So we do pay a dividend or a distribution. We set it at the beginning of the year. We pay four instalments, just like most of our American holdings, and then we increase that annually. And just like our companies, we've been able to grow that. Every year at a double digit rate, no exception. We've been very proud of that. Um you mention uh sort of the in instalments, the distributions, because as we mentioned the dividend yields or starting dividend yields are relatively low, most investors actually choose to reinvest that.

SPEAKER_02 40:20

Yeah.

SPEAKER_01 40:20

Because, like our companies, they're primarily reinvesting in growth. It's not a solution where you get today six, seven, eight, nine percent in income, but that doesn't grow. We are looking for the total return approach over time.

SPEAKER_02 40:33

Yeah, awesome. And then the last thing for any advisors that are listening to the platform, they tend to use investment platforms. Are you available on e platforms or just have to go direct to yourself?

SPEAKER_01 40:44

We love the direct interaction with our clients. Um, there are many advisors who work with us who tell us that our Friday communications, the dividend growth communications make their job easier.

SPEAKER_03 40:56

Yeah.

SPEAKER_01 40:56

Because it's teaching their investors to become better investors across their whole portfolio, even if only 5, 10, 15% of the allocation is to us. Um increasingly the platforms are taking an interest and we're in discussions with them, but to date our clients are direct. Yeah.

SPEAKER_02 41:14

Awesome. Um thank you for coming in. It's been a pleasure. I've enjoyed the conversation. It seems like you're on a great journey, and I'm really excited. Maybe Siena, when we're in Sydney next, we can go to was it Wing Stop? Wing Stop. Is that right? Yeah, Wing Stop. When are they opening their Melbourne store? Surely it must not be far away. I don't have a date for you. Yeah.

SPEAKER_01 41:35

Uh perhaps we try and get hold of a local franchisee, and the next time I'm in town, we can go there and compare it to Elijanna down the road.

Portfolio Size, Concentration, Distributions

SPEAKER_02 41:45

Well, the uh the Super Bowl is coming up soon. So I assume this podcast will be released before I'm a I'm a um a Buffalo Bill supporter. Okay. Because I uh one of my mates lives in Toronto, so I went to visit him and he had tickets to the Buffalo game. Fantastic. So we went and watched the Buffalo Bills play, and they're still in, so hopefully they can make the final.

SPEAKER_01 42:06

Do you follow the NFL? I I do a little bit. Uh we're a big sports fan, and actually every letter that we write, and we do that twice a year, we always weave in a sports-related uh dynamic. We often talk about the batsmen, because usually, you know, the summer letter at the end of Jan, beginning of Feb coincides uh with the cricket or sometimes the tennis. Or, for example, this time last year, because the tennis is starting now, uh, we wrote about Pete Sampras, who at the time of his career was the most successful in terms of Grand Slam wins, he has since obviously been surpassed by Feder and Adal Djokovic, etc. But in his book, he wrote about needing to beat two competitors in the game. One is the man opposite on the other side of the net hitting the ball back at you, and the other one is the man in your head. And unless you could beat the man in your head, you weren't going to beat the man. It's irrelevant what happened to the man on the other side of the net. And we lean very heavily into psychology because while we think our underlying are wonderful, and there are other assets out there that are wonderful, the data suggests that most people are unable to stay the course and actually get the compounding. All the compounding happens in the outer years, and so it's important to make sure that you meet the dual requirements of what to own and how to be an owner of it. Yeah. That's what we're trying to solve.

SPEAKER_02 43:38

Yeah. And it's it's it's important that you know you talk about you know the dividend growth every year, even if the client might see the share price go down. They know if they're able to grow their dividends, it's only a matter of time before that share price reflects the earnings or the dividend growth.

SPEAKER_01 43:56

If you see a dividend rise at a fast rate for a long time, it's telling you it's like a secret language of what's going on in the underlying the share price will eventually respond. Awesome. Well, thank you for coming in. It's been a pleasure, Jonathan.

Platforms, Advisors, And Communications

SPEAKER_02 44:10

We got there in the end. There was a few times we were meant to catch up last year. We didn't get there. So uh it's been a pleasure and uh all the best on your journey with the growth of the business. Thank you very much. Thanks for listening this week. Stay tuned for our next episode and keep up to date with us by following the Finance Friends podcast on Instagram and TikTok. Plus, connect with us and our guests over on our LinkedIn page, all linked in the show notes.

Note: Use Previous Chapter For Overlap

SPEAKER_00 44:40

Disclaimer. This podcast exists for informational and entertainment purposes only. The personal opinions of the speaker and guests do not represent the view of any other party. If this recording contains reference to financial products, that reference does not constitute advice nor recommendations and may not be relied upon.