Title: Don't Chase Yield – Do This Instead
Show: Dividend Stockpile (host Jeremy)
Guest: Chris D'Agnes — co-portfolio manager, Equity Income strategy, Hamlin Capital Management (hamlincm.com)
Date: 2026-08-10
URL: https://youtu.be/ERS_aA66BcA
Length: 31:42
Note: YouTube auto-transcript. Fillers (um/uh) and stutters removed; wording otherwise verbatim. Auto-caption garbles: "Diagnus" = D'Agnes; "Kagra" = Conagra; "Paychecks" = Paychex; "Faxet"/"facts that" = FactSet; "Thompson Reuters" = Thomson Reuters; "slumberge" = Schlumberger (SLB); "heamelcm.com"/"Hamilton Capital Management" = Hamlin Capital Management (hamlincm.com). ">>" marks a speaker change.

(00:00) Hey everybody, welcome back to Dividend Stockpile. So today we're going to continue our income investor education series and we're going to be talking about the power of dividend growth investing and how to create a sustainable dividend growth investing portfolio. So to help with this discussion, I'm joined again by Chris Diagnus, co-portfolio manager of the equity income strategy over at Hamlin Capital Management.
(00:22)  So Chris, welcome back to the channel. >> Thanks Jeremy. Great to be back here. Thanks for having me. Love the work you do. >> I appreciate that. Yeah, very nice to have you back on. You have a wealth of knowledge when it comes to dividend growth investing and portfolio management. So I wanted to have you back on the channel to kind of talk through what it takes to be a dividend growth investor and how someone can really look into creating that sustainable portfolio that we're all looking for.
(00:47)  So with that, for people who might have missed us last time, can you give a little bit of background on yourself as well as Hamlin? >> Great. Sure. So yeah, Hamlin Capital Management, a very traditional investment advisory firm based in Midtown Manhattan. We are celebrating our 25th year since our inception in 2001.
(01:10)  Ironically, I also joined the firm in 2001. We are income specialists is how we think of ourselves. We do two things here. We have a high yield municipal bond strategy and a dividend equity strategy, equity income. Those are the only two things we've ever done. We have around 10 billion in total assets, half assets in each of those strategies.
(01:34)  I myself have as I said been here since 01, been specifically and solely on the equity portfolio really since 2006. So about 20 years now of managing, co-managing a dividend portfolio. >> Awesome. 25 years in investing professionally and dividend growth investing is why I want to have you on the channel because you have the expertise, you have the history, you have the experience of, you know, different market cycles and what it really takes to build out a strong income portfolio strategy.
(02:03)  Just for full disclosure, I do invest through your company. So if you're anyone who's worried about that, just put it out there. And it's done really great. I'm a happy shareholder, but I just want to put that out there. So, I guess with all that, you know, you've been focused on dividend growth strategies for 25 years now.
(02:19)  So, what is it about dividend growth that you find so powerful for investors? >> Yeah, it's really twofold. You know, people like to talk about the income and the power of compounding that income and sure that makes sense and that is a powerful thing over time. But there's two other really important aspects.
(02:42)  One from the company's point of view. The other from the shareholders point of view. From the company's point of view, paying out a dividend, that's an obligation that they want to maintain. It's a commitment that they've made. And so we think companies that have that commitment, well, they operate the business with a lot of discipline.
(03:03)  They put a lot of thought into their decisions, how they're allocating capital, what companies they might want to buy or sell, what they're investing in. So from that perspective, we think the dividend functions as a governor on the capital allocation process, that it imposes discipline and companies make smarter decisions.
(03:20)  They're sort of forced into that. So that's the one aspect. The second aspect is from the investor standpoint. And it's not just that compounding income I was talking about. It's the fact that you want to receive that income. So, you're going to hold on. You're going to hold the shares. You're forced to be a long-term investor.
(03:39)  And long-term investors have a great benefit of time. They make fewer mistakes by selling at the wrong time. And timing is very hard. Certainly, one of the lessons I've learned in my career is how difficult it is to time the market and to time a stock. I often joke with my team, in fact, you could tell me what a company is going to say in their own earnings report.
(04:07)  I'm not sure I'll know what the stock's going to do. >> There's all these other factors involved in that. So, but if you're holding for the long term because you want to receive that income, you're forced to be patient. You're forced to be a long-term shareholder and you make fewer mistakes personally.
(04:25)  You don't sell when things get tough necessarily. And that's a very common thing for an investor to do. So those are some of the really, you know, powerful aspects of dividend investing, dividend growth investing. >> Absolutely. Really appreciate that. And yeah, just having the consistency and the stability of staying in the market during the ups and downs that dividend investing kind of not forces you to, but it reinforces the need to stay longterm really will help you long run. I think there's stats
(04:53) there's no 20-year period in the S&P 500 that you've lost money if you had it in a broad-based, you know, index. So the longer you're able to stay invested the better your total returns are going to be. On top of that you have the dividends, your dividend growth, all that stuff that's compounding during that time.
(05:10)  It's like a double benefit in my view especially in the down market. So over those 20-year periods there could be a 10 or 15 year period >> of no returns. Mhm. >> And of course, we all forget that now because the stock market is having one of the great 10 to 15 year periods post the global financial crisis. We're at this really elevated level of annualized 10-year compounded returns from the S&P.
(05:38)  But for the first 13 or 14 years of my career, because I came in at the internet .com peak, for the first 13 years, the stock market did nothing. It was dead flat, >> but >> so you had to withdraw that drawdown to eventually make it back up. But if you were invested in a dividend portfolio, you were being paid on the darkest of days >> and you get to buy stocks when they were the cheapest.
(06:08)  That's pretty powerful. >> Absolutely. So, you know, if you have a dividend company is paying you every quarter, if the stock price has gone down, when that dividend comes out and you reinvest it, you're buying at a low price. And so, over time, that allows just this springboard type of thing.
(06:23)  Once the market does come back, you've accumulated all these shares while the market's been down that you can just ride that back up. So, I was investing, you know, since 1999 myself. So, I definitely went through all these periods. To your point, pretty much all the first 10 years or 11 years of the 2000s, the market went nowhere.
(06:38)  But if you're dividend investing and you're reinvesting as you went, you made a lot of money in the long term because you were able to buy in when the prices were low. So just another benefit of focusing on an income portfolio that will eventually produce, you know, capital gains over time, which is obviously really important as well, the total returns.
(06:57)  So we talked about kind of the history of, you know, dividends and how it can be beneficial. So but let's talk about kind of where we're at right now. How is dividend growth investing going in 2026 compared to the overall market right now? >> Well, you know, the interesting thing is there's actually no perfect benchmark for dividend investing or dividend growth investing, but you know, I look at a handful, 5 to 10 dividend ETFs.
(07:25)  Some are dividend growth focused, some are more yield focused. Most are a hybrid, and that's what we are. We're a hybrid. We try to maximize yield with dividend growth so you're getting paid something. We try to double the S&P yield and have dividend growth exceed the rate of inflation. We think those two ingredients make some sense.
(07:45)  Now if you look at just a, you know, general group of dividend ETFs this year, they're beating the S&P >> you know pretty significantly. Now it's a function of two things. One is that value is outperforming growth this year. And dividend strategies tend to be more correlated with value. Companies that are paying dividends, they have to have certain metrics and a lot of them are very similar to what value style companies would have.
(08:20)  And to be able to pay out. You're not reinvesting everything to try to grow the business which a lot of the low payout, no dividend growth stocks have, right? So value outperforming, that's certainly been a tailwind for dividend strategies this year. The other thing that's happening just generally in the market is just a general condition of the market is as you well know the market had become extremely concentrated in a handful of companies, the mag 7, and they're not doing well this year. They're not necessarily keeping up
(08:51) now. They've had a wonderful run. So the returns have been incredible. But this year not so much. And they made up 30 35% of the S&P 500 which people refer to essentially as the stock market. So what I'm saying is equal weight is outperforming value weight this year and it's by a pretty wide margin so far year to date.
(09:17)  So you know just given that backdrop and that perspective, the other thing is energy has been a really strong sector. I would say dividend strategies they can concentrate and weight themselves a little more to certain sectors that offer more yield. Energy historically one of those sectors. Energy is the top performing sector on the year given what's happened with oil prices and the war in Iran.
(09:39)  And that's been a great big benefit. So I think just in general it's been a pretty good year for dividend strategies. Now the S&P was hard to beat the three years prior, 23 24 25. So some of that is a little bit of mean reversion and owed to the rest of the market which, you know, earnings have been fine.
(09:59)  It's just that P/Es had not gone up as much as they did for a lot of that tech sector. >> Yeah certainly makes sense. And you know they call it the market broadening. You know it's not just the top names that are actually producing returns as all the rest of them or the 493 as people call it. You know the rest of the S&P 500 is starting to catch up.
(10:15)  Certain sectors are definitely doing pretty well. Certain companies are doing well as I saw a post on X the other day that Coca-Cola is at an all-time high. Caterpillar's had a really good year. To your point, a lot of the energy companies, the oil companies like Exxon and Chevron and things like that are having really good years.
(10:31)  So, it's not just the tech. And so, a lot of the companies who pay dividends or been dividend growers over time are finally starting to get, you know, some attention. So, it's really nice to see. I know my portfolio has been having a pretty good year when it comes to, you know, my dividend focus. So, you know, things are looking good, but to your point, it's been a struggle compared to the overall market the last couple years for sure.
(10:51) >> Yeah. >> So when you guys obviously I know you guys have, you know, certain companies in your portfolio and, you know, you have your strategies and whatever, but what are some of the main things you look for when it comes to finding a good dividend growth investment? >> Yeah, you know, never underestimate the importance of the balance sheet.
(11:14)  It's easy to want to immediately focus on cash flow and returns, profitability metrics, margins, things like that. But the balance sheet is so important and you know over my career one thing that I have certainly realized is just more and more how important that is. It just gives you flexibility and companies are going to go through cycles and companies and sectors and industries are going to get disrupted and you know they need to figure out how to continue as a going concern and fight that disruption and maybe fight back
(11:52) a little bit. If you're highly levered when that happens you lose a lot of flexibility. So I think having a strong balance sheet, not being overlevered, very important to focus on. Dividend coverage is very important too. So specifically, you know, free cash flow. Dividends are paid with cash, not with earnings.
(12:15)  So you want to make sure there's enough cash. You want to make sure that, you know, capex spend is reasonable. So operating cash, less capital expenditure. What is actually left? You want to think about the working capital swings when you're analyzing that cash flow statement. All of that is very important.
(12:35)  Make sure that dividend is still well covered. You want to make sure a company doesn't outgrow its earnings and cash flow growth. And this is another, you know, sort of important thing when thinking about yield traps and value traps and things like that. Companies go through cycles. And that means they go through upcycles too.
(12:58)  And in that upcycle, it's very easy for a company and a management team to start to think this is the new normal, this level of growth, these margins. We saw a lot of that in the pandemic and in COVID. I'm thinking about a company like UPS, >> you know, UPS obviously big dividend yield, right? That company had a boom in shipment and volumes during COVID, well, you know, they started to think that that was a more normal level of business and they bumped their dividend a significant amount, 40 50% in one year.
(13:43) >> And why is that yield so high right now? Well it's high because nobody believes it's sustainable at this point, right? Earnings have now compressed to a more normal level. They had to deal with a lot of things that maybe they didn't expect and how hard the union negotiation was going to be. They just didn't give themselves the room to be able to continue dividend growth and now dividend is barely growing and you're trying to maintain your dividend aristocrat status with, you know, little token increases. So that's
(14:14) another thing, you know, that's important is just making sure that the company is making the right capital allocation decisions. That they're not outgrowing, you know, dividend growth is amazing, but you want to keep it within reason. You want it to be something you can pay in 10 years, assuming an appropriate earnings growth rate over that period.
(14:33)  So, these are all, you know, important things to consider in terms of just a sustainable dividend strategy. But I would say that balance sheet's important. You know, we've seen a lot of yield traps over the last couple years. There's been a lot of dividend cutting activity. Some big names recently, right? Whirlpool, >> Kagra, you know, these are some big yields that were not sustainable and the market has gotten efficient and smarter over time and it knows when a dividend is not sustainable and that's when you see the yield really
(15:00) start to get into the, you know, 5, 6, 7% range. >> Absolutely. Yeah. It's really important to keep a watch on that because even though the market's not 100% efficient, it definitely does pick out, you know, the areas of trouble. So, if you do start seeing a company that normally pays 3 or 4% but now is in the five or six 7% and the company isn't growing that fast, you have to start wondering what the market is thinking and really take that to heart.
(15:25)  When it comes to dividend coverage, that's definitely one of my big things I look for as well. I know it's not always possible, but I like two times coverage. So, they have cash flows two times a dividend. That's a pretty good starting point when it comes to seeing if something's sustainable. Obviously, certain sectors of the economy operating a little bit different, but generally speaking, that's what I look for.
(15:43)  Also, really low debt to equity and things like that. To your point, keeping the debt manageable is also really important when it comes to the individual securities that I pick. You kind of mentioned a couple companies who might be struggling, but are there certain sectors in general that you're either really interested in or you're trying to stay away from at this point due to valuation or fundamentals or anything like that? >> Yeah.
(16:07)  Well, there's actually a lot to look at because as we just said earlier, the, you know, dividend space, the value space hasn't necessarily kept up with the S&P over time. Last couple years at least, it's been a tougher backdrop. So, there's a lot of stocks that haven't done as much or they're not up as much. They're still reasonably valued.
(16:25)  We keep seeing these sort of groups of stocks right now of what we call fallen angels. These are companies that have historically pretty good track records, but for whatever reason, there's some headwind they're facing and investors don't have patience, especially right now if you're not related to the AI and data center buildout.
(16:47)  They don't have patience for that, you know, any sort of issue in a company that is not AI related. So they're just selling it off so hard. And we're seeing a lot of that where companies are just getting sold off for not a great reason. You know earnings estimates are barely coming down or something and stocks down 10 15 20%.
(17:08)  Some of these fallen angel stocks down 30 40%. These are good companies. There's a lot of that. There's some of that within healthcare. There's some of that within consumer discretionary. Some of that within materials. There's a lot of areas there. And then there's sort of the AI disruption stocks. These are, well, software is the obvious example, but there's others where, you know, is the proliferation of AI going to change the business model in some way.
(17:32) >> Mhm. >> So we're seeing that too. Certainly within software, within business services, names like Paychecks and Faxet and Thompson Reuters have all been hit really hard. Some pretty good dividend growers in there. So that's an area of real interest right now.
(17:50)  Just general industry I would say, you know, talked a little bit about energy. It's still the cheapest sector. It did not have a particularly good couple years coming into this year and then of course, you know, it takes a war and closing the Strait of Hormuz where 20% of oil around the world goes through and we suddenly all remember the importance of the crude oil industry and energy in general, right, energy becoming more and more important. We have not spent a lot of dollars finding oil and gas over the last couple years.
(18:26) There's been other priorities as a society, but we actually still need it. We still need it quite a bit. And, you know, westernizing countries run on oil and gas. The data center buildout to power it. It's going to take a lot of natural gas. >> So you know, it's still very important. It's the cheapest sector.
(18:48)  The energy sector trades at something like 13 times earnings. And I think it's cheap because, you know, investors think at some point the war is going to maybe come to an end of some sort. We don't know. You would think before the midterms there, we try to get this completed, but I don't know. And, you know, once that happens, oil comes back to wherever it started the war, 50 60 bucks.
(19:12)  And I'm not sure it's going to be that easy actually, and so I think some of that is in these stocks. And I think as we start to, you know, realize that we've really drawn down strategic petroleum reserves around the world, inventories are down, oil on the water is down. The countries need to rebuild.
(19:35)  They can't rely on US shale anymore, and they're going to need their own reserves, and they don't want to rely on other countries as much just given some of the geopolitical risks. You know, that could be very interesting for the energy sector. It could be interesting for a company like SLB >> the old slumberge, right, 2 and a
(19:53) .5% sort of yield right now. It's going to be a very important company going forward for countries all over the world including countries in the Middle East where they do a lot of business, or, you know, Venezuela who's trying to come back online and they're going to need SLB and Chevron to bring their oil back on.
(20:14)  So, I still think that that's a pretty interesting sector, you know, just one that we're still taking a hard look at, overweight. So yeah, I'd say, you know, I'd say energy is interesting. >> Yeah, absolutely. And even if the war ends, it's still going to take months, if not years, to get everything back to normal when it comes to the flow around the world.
(20:35)  Plus, if there's any damage to any of the equipment or manufacturing hubs due to the war, it's going to take years for those to be redeveloped and online. So, even if the war ends, it's not like oil is immediately going to, you know, be readily available everywhere. So, it's definitely something to consider. Just myself personally I'm looking at the business services sector that you had mentioned, things like S&P Global and Moody's and facts that, Accenture, you know, all the business services that people are afraid that AI is going to
(21:04) you know disrupt. I think there's a lot more to it than that. I think it's going to take a lot more for AI to really, you know, hit them and realistically those companies are going to be utilizing AI to make their processes better and so I think that's an overlooked sector. I think it's been beaten down a little too. So that's where I'm focused on right now.
(21:24)  But oil makes a lot of sense. >> The other thing I'd mention is that, you know, one thing sort of dividend strategies have going for them right now is that they're not very correlated to the AI and the data center buildout. There weren't a ton of dividend paying stocks necessarily in that universe.
(21:45)  So they missed out on some of that. Some of the dividend ETFs were able to get their hands on Seagate or Qualcomm for a little bit. We own Broadcom, which we've owned for years, but it >> when we bought that in 2019, it was a 4% yielding tech stock, and the words AI never came out of their mouth just yet.
(22:05) >> And so, you know, there are now a lot of dividend strategies that are just not exposed, and so showing very little correlation to the S&P. Energy happens to currently be negatively correlated to the S&P. It is one of the only sectors negatively correlated. There's five of the 10 GICS sectors or 11 GICS sectors right now that have a zero or negative correlation over the last five or six months.
(22:37)  So, you know, that benefits folks like us, dividend strategies, when we start to see these more wild swings around concerns over the AI build out, and you're seeing Nvidia and others really tap the capital markets, Meta raising a lot more debt. That's not something they used to have to deal with.
(23:00)  They had enormous amounts of free cash flow and everyone felt a lot more comfortable. There's a lot of free cash flow. At some point you thought they could pay a dividend. Well, now suddenly that free cash flow is all getting used in capex and, you know, building into data center and into that whole complex.
(23:15) That's not something, you know, dividend investors are that tied to. I will say it's starting to change a little bit. So in terms of, you know, exposure there, you know, we are starting to see the tentacles of AI enter more and more company discussions. >> Yeah. Necessarily makes sense because one they can utilize and two if, you know, if that's where the growth is over the next five or 10 years they definitely need to be involved just to continue operations.
(23:43)  I think I saw an article the other day that Google, this is their first quarter to have negative cash flow, you know, because they're spending so much on that data center build out and the AI that they actually have negative free cash flow for this quarter which is the first time that's ever happened. So along with Meta kind of to your point, you know, will they be able to sustain their dividend? Will they be able to grow their dividend if they continue all this capex that they've been doing? So we talked a lot about, you know, some of the things to look out for when it comes
(24:06) to like high debt and, you know, things like that. But what do you think people are making the most mistakes about when it comes to dividend growth investing? Is it ignoring valuation? Is it chasing all the high yielders? What are you seeing out there? What would you warn people about? >> Yeah.
(24:23)  Generally, historically, yield chasing is something that is probably most common. And there was a time where you could be a little bit more blind about buying higher yield. And we used to have more cycles. It seems like, you know, we would have bull and bear markets. And so, you'd have these cycles.
(24:52)  And you can use that yield a little bit as a timing tool and yields would go up and you could, you know, if it was a good business you could buy it and eventually the yield would compress again, and we haven't seen that as much lately. There's been a lot of industries that have been sort of, you know, disrupted and things have been more challenging.
(25:10)  You asked earlier, I didn't really answer it, but what are you avoiding? You know, staples, CPG has been a tough area. Consumer products type companies, very tough area. And we're starting to see dividend cutting activity there. And these high yields that some of these great American companies now offer, you would think so attractive, right? But I just mentioned Kagra just cut its dividend.
(25:32) >> You know, is General Mills and Campbell, are they next? These, you know, that would be incredible. They, many of them are aristocrats. They've been growing their dividends forever and you would never think, you know, it could come to that. So yeah, so I think yield chasing probably most common. You know, another thing we all struggle with and some of our biggest mistakes over time just generally as investors is selling something too soon.
(26:05) >> It's not buying something that went down. You can, you know, you can avoid a real problem there by having some sort of risk control and a stop-loss. We happen to use one. It's owning something that does really well and you sell it and then it does incredibly well for the next 5 or 10 years.
(26:25)  That has happened also. So, you know, generally, let those winners run. You know, if nothing's changed. There have been times where years ago we were just almost too focused on valuation. Make no mistake, valuation is very important. It's a big part of how we invest. And we make decisions on it.
(26:50)  However, things can become overvalued and stay overvalued for a decade. And that might be because the business is getting stronger and stronger >> and it may not deserve the PE it had for the last 5 years and may be in a different bucket going forward and it's worth respecting that. So, yield trap, selling too soon, those are, you know, just obvious things to call out.
(27:12) >> Yeah, that certainly makes sense. I've definitely had a couple where I sold way too early and, you know, missed out on, you know, substantial gains going forward. So, that's definitely one of the hardest things, is to decide when to sell because you might have some emotional reason for selling today but if you were to hold on maybe the business would turn around or continue to grow.
(27:33)  So that's definitely one of my big struggles. And the other thing that we're seeing a lot of right now, and obviously I've had them on the channel as well, is these income ETFs, these higher yielding option-based income ETFs. Do you have any insights on that or any opinions on, you know, what people should be looking out for on those or are they a good thing? >> Yeah, we don't, you know, we don't do any of that on our end.
(27:57) It's a little more financial engineering. There's more factors to think about, right, with, if you're doing a call option overlay or something like that. Factors in terms of volatility and the importance of volatility to maximize your income. Factors like tax and maybe being less tax advantageous versus a common stock dividend which is 20%, you know, at the high-end dividend tax rate.
(28:28) >> So we would consider ourselves more tax advantaged, and then just the simple, you know, stocks go up over time. >> Let's not make it too complicated. They go up over time three out of four years or four out of five years, call out your time period. Then they go down but then they go back up >> and sometimes they go up really fast.
(28:49) >> Yeah. >> And we just generally, let's maximize our returns here. The dividend itself functions as a buffer on volatility. We don't need more of that. We would like to see our dividend per share grow over time. That has a lot of utility for an investor especially retired investors, our clients who are aging and expenses go up every year and it's a nice feeling to have their portfolio working hard for them and getting a raise every year.
(29:19)  Our dividends are growing high single digits the last couple years, a little over 6% so far this year year to date. So to experience the full benefit of the dividend per share growth and the overall equity market upside, I think lends itself a little bit more to the dividend style, dividend growth strategy. >> Yeah, it certainly makes sense.
(29:39)  Going back to the options based income ETFs, a lot of them are covered calls, so it does cap your upside. So to your point, if the market takes off or a particular stock takes off, you're not going to be able to take advantage of it. And you don't get any dividend growth when it comes to covered call ETFs. They're usually a static payout.
(29:54)  And so you don't get that raise over time that a dividend growth investment would potentially offer you. So definitely, I have both, obviously, I'm going to be quite transparent. I have both types. I have lots of dividend growth companies, dividend growth ETFs, but I also do the options based ETFs. But I find a balance between the two.
(30:11) But you definitely have to make sure it fits your risk tolerance, your needs, your future needs, things like that. So, as we wrap up, I want to give a chance for you to kind of talk about your business a little bit and how people might be able to work with you if they'd like to. >> Yeah, thanks for that.
(30:25)  So, you could just go to our website and see how to access us there. www.heamelcm.com. It's Hamilton Capital Management. And, as I said, we have our two strategies. We have the high yield muni strategy on the bond side. We have the dividend equity strategy on the equity side. Both have a 25-year track record.
(30:49)  Now, on the equity income side, we have separately managed accounts and a publicly available mutual fund. >> Awesome. Yeah, I really appreciate that. I mean, 25 plus years of doing this. You guys are definitely good at your craft. You've shown the track record to do it and, you know, obviously you're dedicated to this dividend growth strategy.
(31:07)  So, definitely worth taking a look at Hamlin's website to see if it's what you're looking for. But I really appreciate you coming on, kind of giving us an insight into dividends and how it can be so beneficial to a long-term investor. So, I really appreciate you coming on. >> Thanks, Jeremy.
(31:22)  Thanks for having me. >> Thanks for watching. While you're here, check out this next video to learn more about dividends, income investing, and option selling. Make sure you subscribe, click the like button. It really does help. Thanks.