From Lagging to Leading: When Success Gets Complicated

Dividend Growth: The Quiet Engine of Wealth 

Dividend growth investing sounds simple, but doing it well for decades is not. That’s why we wrote Dividend Growth: The Quiet Engine of Wealth—a practical guide to building a framework you can stick with when things get uncomfortable. You can get a free copy here. 

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After a year of lagging the S&P 500, dividend investors are finally playing catch-up. Income is growing. Prices are rising. Total returns are improving.

But success brings a new challenge: what happens when valuations rise, yields fall, and future returns get harder to find?

In this episode, Greg explores the hidden downside of success in dividend growth investing. With dividend stocks outperforming early in 2026 and capital rotating out of growth and AI, he explains why rising prices create a new challenge: redeploying capital without sacrificing long-term returns. He revisits income growth vs. total return, explains why cash flow acts as the anchor in volatile markets, and walks through why sometimes the best move is to do nothing. He also contrasts chasing yield with sustainable compounding, including why shifting into Treasuries for higher income can miss the bigger picture.

The second half of the episode moves into real portfolio examples—showing what “sell,” “hold,” and “buy” look like in practice:

Why Emerson Electric ($EMR) no longer fits the model
What Clorox’s ($CLX) acquisition strategy could mean for dividend growth
How Hershey ($HSY) shows patience through commodity cycles
Why Accenture ($ACN) represents a redeployment opportunity

Long-term success isn’t about chasing what’s working today. It’s about discipline, letting income compound, and trusting that if cash flow grows, prices follow.

Topics Covered:
 
[00:11] Introduction
[03:45] Income growth vs. total return investing
[07:24] Why dividend income is the anchor
[09:52] Valuation risk and redeployment challenges
[10:22] Buffett, patience, and portfolio discipline
[11:38] Treasuries vs. dividend stocks: yield vs. growth
[13:03] Cash flow as the North Star
[15:26] Emerson Electric ($EMR): selling a winner
[20:03] Clorox ($CLX): acquisition risk and dividend sustainability
[27:40] Hershey ($HSY): commodity cycles and patience
[32:03] Accenture ($ACN): dividend growth opportunity
[35:11] Redeploying capital in rising markets
[36:07] Final takeaway: consistency and long-term compounding

Disclaimer: Past performance does not guarantee future results. This episode is for educational purposes only and is not investment advice.

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Transcript

[00:00:11] Greg Denewiler

This is Greg Denewiler, and you are listening to another episode of the Dividend Mailbox, a monthly podcast about dividend growth. Our goal is to stuff your mailbox full of dividend checks when they grow. Over time, a funny thing happens: you create wealth.

Welcome to Episode 56 of the Dividend Mailbox. Looking at the start of the year and now we're on, uh, Episode 2 for 2026, it has been a phenomenal start for us. It is a complete 180-degree turn from last year. We're doing much better than the market. We've already had multiple dividend increases, and the total return of our portfolio has played a big catch-up for what we lagged last year.

So one of the great things about being disciplined and staying with your strategy and not switching horses is when it turns, it can turn really fast. And that's sort of what we have seen in the last month and a half. But in this episode, we're gonna approach it from a little different angle, and that is sometimes success has problems of its own.

As you continue to deploy the strategies, some of these prices have moved fairly aggressively. If you're putting new money in it, the yields have declined for what you're paying for something now, and it also makes the total return looking out 10 years a little bit more challenging. So what's happened in the last five weeks has maybe nothing to do with how the year will go, but today we're gonna talk about income versus total return, cash flow, looking at it as an anchor, and just walk through some real portfolio examples that we've experienced here lately to give you an illustration of when to sell, when to hold, when to buy, and how we define success as we continue to evolve with our portfolio.

Just as a quick note before we get into this, dividend growth investing sounds simple, but doing it well over long periods of time takes discipline and patience. These episodes give you pieces of how we think about it, but if you're trying to build wealth, it helps to have a clear framework you can come back to when things get uncomfortable, which is why we wrote Dividend Growth: The Quiet Engine of Wealth. Ultimately, the real goal of it is to help you tune out the noise and make better long-term investment decisions. So if that interests you and you'd like a free copy, you can find it in the show notes or at growmydollar.com/dividend-growth-book.

With that, let's get into the episode.

For those of you who listen on at least a somewhat regular basis, and especially in the last few episodes, you are quite aware that the S&P 500 had a great year last year. It was up almost 18%. The dividend space was up anywhere from the mid to higher single digits. It lagged pretty substantially last year.

As we have stated in the past, part of our mandate is income. However, total return is, in the end, extremely important. Last year our income was up 8.7%. In the S&P 500, that dividend grew by 5.5%. So from an income growth standpoint, and part of what this whole podcast is about, we're gonna define that as success.

You know, the total return—totally different picture—and like pretty much all the dividend indexes, we were up single digits. But the fact that our income had been growing pretty much exactly as we had hoped, in fact doing a little bit better, and it was doing better than the S&P 500, that's how you get these big gaps that close fast as we move into this year.

It's like the whole world changed. All of a sudden, growth became a big question mark. What's gonna happen with AI? Is it overbuilt? Too much money got going into it? Can it continue to perform? Questions started to arise, and the S&P 500 for the month of January was up 1.45%, which I tell you on an annualized basis is actually still pretty good. I mean, it's more than 12% a year, so that is still attractive.

But guess what changed? And it changed dramatically. The dividend space has kind of taken off, and money that has come out of tech has gone into the dividend space. S&P Global tracks a whole page full of different indexes, and they have about five different dividend-oriented indexes that they track.

And the S&P High Yield Dividend Aristocrats was 6.8% last month for January. U.S. Select Dividend was 6.6%. Dividend Aristocrats was 5.7%. Low Volatility High Dividend was 5.25%. And if you look at last year, all of those dividend indexes lagged considerably.

In our model portfolio, which for those of you who don't listen all the time, I will just quickly remind everyone, this is a live portfolio. It has been going since August 2010. For the month of January, it was up 8.2%. Year to date, it's up about 14%, so even the last week has been very good to us.

Really what's happened is we've played catch-up. In fact, we've had such a strong year that on a long-term basis, on our overall portfolio, it's almost caught up in total return for the last 15 years to what the S&P 500 is doing.

And you know, here's one of the big keys. So we lagged the market last year, but the income did not. And guess what? None of that income money was taken away from us. In fact, we've had three companies that have increased their dividends in the last few weeks. The income growth strategy is alive and well and continues to work.

And since August of 2010, our income growth is beating what the S&P 500 has grown by, which is about 8% a year. Our income is up close to 10%, so we've actually beat our hurdle rate of 7%. That creates value over time, and they can't take that income away from you.

Can they take a stock that's gone up by 300%? Well, we've seen some of those unwind here recently as the market has really shifted. When you have a big growth stock that gives up a big chunk of growth, either it's gotta grow back into it, the market's gotta get back to a mindset that they wanna pay up for it again, or it's gonna take years for earnings over time to catch up, and then sometimes they never do.

So this is a strategy that you really have to be committed to, and you have to understand why you're doing it and what drives it, because when things change, they can change fast.

And one of the takeaways that I hope people get from this, and it really helped us last year, is you don't have to focus everything on price appreciation. If you're growing your income by 7% a year, over time good things happen to you. And then you push that out a couple of decades, it creates a lifestyle, and it's also predictable and it holds up through pretty much any market cycle. And then it just doesn't force you to worry so much about chasing whatever is currently working.

The part that most people don't talk about is the downside of success, because success creates a different kind of problem. And how we're gonna define that is when prices have moved up, and especially when they move up fast and earnings don't have a chance to maybe catch up in the last several quarters, then it feels good. But the problem you have then is when you're trying to buy something at a reasonable valuation, those opportunities begin to disappear.

And I really try hard not to overuse Warren Buffett, but you know his principles are pretty solid. One of his famous sayings is the great thing about investing is they don't call strikes. You can let the ball go by right in the middle of the strike zone 20 times. All you have to do is hit one of them.

From our standpoint, here's the mindset sometimes: the best move is to do nothing. And in our case, one of the challenges can be, okay, so the market's moved up. The income growth is still there because price in and of itself doesn't affect that. But total return, if we pay too much, you've used part of your income to offset where the stock price has not moved as much or actually has gone down.

So it's just a matter of being patient and waiting. That's part of the discipline of this whole strategy, which really brings to the point, okay, exactly how do you wanna define success?

If all we cared about was income, well, if we liquidated the entire portfolio and bought 10-year Treasuries and we got 4% for the next 10 years, I can actually take all the risk out and I can get this income up right now. But here is the problem. Number one, 4% on your Treasury yield—it's not gonna move. It's not going up. It's not going down.

But the bigger issue is we have no real assurance or predictability that we're gonna get the total return and the total income that we want over time because if rates were to take a big dive down, then you potentially have a bigger problem.

For us, that's not success because we're not buying this stuff just to get a dividend. We're buying it to get a total return. And total return—a big piece of it—is driven by what you pay and then ultimately what you potentially are gonna sell it for.

So when you are looking at cash flow, that kind of becomes your North Star. If the cash flow continues to come in, again, we feel cash flow solves all issues or all challenges eventually.

And I just finished reading a book, Money Changes Everything: How Finance Made Civilization Possible. It's a fascinating book if you're interested in the history of finance. One of the theories is that actually language was developed to record financial transactions.

And one of the things that comes up in this book, there was a company in, I believe it was 1158, that was started. Several investors came together. They built a mill on a river in Europe. What did they do? They distributed the profits out to the different stakeholders, i.e., basically it was a dividend. Dividends actually go back hundreds of years, so they've been around for a long time.

And in the end, what does everybody want? At some point, even if you own the hottest growth stock, at some point that company has to show that they have the ability to generate cash flow, or what's it worth?

There are a few things like gold and art and collector cars. But as a rule, most assets—and especially a company—nobody collects a company because it has a great name or it's in a certain location. The bottom line is everybody thinks at some point they can monetize that asset. In the end, it's all about cash flow.

And in the last month, what's happened is the market has been less concerned with growth, and they go back to the old reliable: cash flow.

So now we're gonna continue on and move into the parts that'll kind of illustrate success and its challenges. And what I'm going to do is look at something that was sold, something we hold, something that we are buying, and how does that fit in with how we define success?

I will start with one that was a success, and we sold it last year. We sold it in May of 2025. It was Emerson Electric. It was one of our first dividend growth investments in our portfolio. We did earn about a double on it over the time that we held it. We sold it at about $120. And as of now, Emerson Electric actually hit a high just in the last several days in the high 150 area, which is considerably higher than our 120.

So you would say, hmm, well, that decision didn't work out so well. Can you say this was success? Should we have held on? Is there regret here?

Well, here's where I'm gonna go back to. If you're looking at total return and you're looking at what your end game is that you're trying to achieve, we want that growing income stream. They were really slow to do anything with dividends. They were only doing a half a penny or a penny a quarter for the last several years. They did start to pick up a little bit. Their dividend bumped 5% last year.

But when we sold the stock, the yield on it had dropped below 2%, and we were not seeing a whole lot of clarity.

Right now, it's got a dividend yield of a little over 1.5%. Their earnings in the last 12 months actually declined slightly. Revenue is just barely up from last year. You go back to 2019, revenue is actually down slightly.

Operating margin actually has improved, but if you don't remember the story, Emerson has gone through a pretty major transition here in the last several years. They've sold off some more core manufacturing-type things and gone into more data collection, more software-type businesses, and therefore margins have improved.

However, the flip side to that, and the downside of acquisitions—which we don't like as a rule—if you look at return on invested capital, back in December of ’19 it was 15%. Historically, it has been above 10% for the most part, and that was one of the reasons why we originally owned it. It was a very well-managed, profitable company.

But you get to 12/24, it had dropped to 5.5%. If you get to last year through December ’25, it was up to the big number of 6.5%.

So what you've got—this is a typical thing that you should pay attention to—these acquisitions, a lot of times they can improve earnings, they can improve margins depending on businesses that they're moving out of and into, but it usually comes at the cost of the shareholders in return on capital because they have to buy these earnings streams. And if they have any kind of a favorable outlook, they're not cheap.

It shows up in return on invested capital. The earnings that they have have not matched how much capital they put into these new businesses.

So it tends to imply that this company is gonna take a while to improve the return on their assets, and it's a red flag that they're gonna have sustainable dividend growth of any significance because part of what they have to do is pay down debt to where it earns its cost of capital or better long term.

I'm not saying it can't, but it's hard to generate shareholder wealth. So that's Emerson. It's potentially set up to be a disappointment here at some point, and I have no regrets of selling this thing because it really doesn't fit our model anymore. We can't really see where we're gonna be able to double our money on this thing in the next 10 years, and that's part of how we decide what success looks like and what we're after.

The next one I'm going to go over—and we're kind of going up the scale here from more problems to less problems to what we think is good—we're gonna hit Clorox.

We've talked about Clorox several times in the past, and you can go back to past podcasts if you wanna listen to it in much more detail. It's another great illustration of be careful with success, what you ask for, because management has done a great job long term.

This thing was a real wealth-creating machine up until they hit 2020. The short version is the business just spiked because guess what? Everybody wanted everything clean, so their business just went through the roof.

They had problems managing that growth, and then once that whole story died down, they're stuck with all this residual inventory, et cetera, et cetera.

It was a great story when we first went into it. We were looking to somewhat reversion to the mean. But here we go. We are now five-plus years past 2020, and we actually thought about selling it a few weeks ago.

Their earnings in 2025 were 6.12. You go back to 2019, even before 2020, they were 6.36. So over that six-year period, earnings have not grown.

In the end, you gotta have a growth company to have a growth dividend story, and they seem to be struggling with it.

Revenue in 2025 was 6.7 billion. In 2024 it was slightly over 7 billion. In 2019 it was 6.1 billion. So this company hasn't grown a whole lot.

Their operating margins right now are 16.6%. In 2019 they were just under 18%, so they've declined a little bit.

There's a 4.1% dividend yield right now because they have bumped the dividend, and the stock has come down. So 4% is a pretty attractive dividend, and it is a very established brand business.

Our view is if you have a higher dividend yield, you don't have to have quite as much growth to still get the compounding return that we want of 7% long term.

But the dividend in 12/19 was $1.06. Right now it's $1.24. So the growth has slowed down considerably.

We bought this as a reversion to the mean. It's struggled. And what do you do with it? This is where it starts to get more complicated.

In 2025, their return on invested capital was 24%. In 2019 it was 24%. Same number. The profitability of the business and their asset base is pretty good.

One could potentially argue that, okay, the core business is still very profitable. Can they get this thing back growing again? And it's paying me 4% while I wait. Give them the benefit of the doubt.

Well, what happens? A lot of times companies go out and try and acquire growth. Lo and behold, they announced just a month or so ago that they're buying a private company called Gojo, probably potentially known for their hand-cleaning Purell product that they're kind of famous for.

They're buying a similar business to what they have. They're paying 1.9 billion after the tax benefits.

According to their press release, they have about 800 million in sales. They do not tell you what the profitability of it is, but they think that for the next three years it's probably kind of a 5% annual growth rate, which is a little better than what Clorox has been doing.

So we can do a little back-of-the-envelope here and say, well, really the star performer in this segment is Procter & Gamble. Their net income is 19% of revenue. If Gojo actually earned 19% of their 800 million in revenue, that's $152 million of net income. Divide that by what they're paying, 1.9 billion—that's an 8% yield is what they bought it at.

You know, that's okay. Not great, but it's reasonable. Gives them something to do and something to work with. And if they get 5% growth out of it, it helps the business a little bit.

But what if it's like Colgate-Palmolive? Their net income is 11%. If they earn 11% of 800 million, now it's 88 million. That's a 4.6% yield on what they paid for it. That is not so attractive.

And they're gonna have to finance this transaction with more debt because they don't have near enough cash to pay 1.9 billion. At the end of 2025, they had 2.8 billion in debt.

Right now they have times interest earned of 10 times. If they drop down to four to eight times, which is quite likely going to happen after this acquisition—just speculating here—then they go down to BBB credit.

BBB credit right now runs at about a 5% yield. So right there, unless they're really gonna count on saving synergy and what they can do with that business, it's kind of a break-even on what the debt is going to cost them and potentially what they paid for Gojo.

So that's kind of the red flag. If they go through with this acquisition, if they're gonna be focused on paying down debt and we don't see any real clarity as to how this thing potentially is gonna raise the dividend going forward, it's gonna be really small bumps for a while.

When they announced this acquisition, it was kind of a letdown from our standpoint, but investing is far from a perfect science.

At the time, the stock was around 105. Lo and behold, it hits 125 today. The stock has done really well in the last few weeks. Part of that, I think, is just because the whole dividend space has been on fire.

But kind of watching this one, Clorox has been a very dependable, predictable business up until 2020 really kind of messed with them because they were the very definition of the beneficiary of all the stuff that went on in 2020.

But it left some residual problems that they continue to work through. They've never really been tested until the last several years.

So now you've got management that's looking for growth, and you gotta be careful with the things they do.

Now I'm gonna move on to a better story. Our friend Hershey. Hershey's been doing really well. The stock is up to around $230. We bought it considerably lower than this. It had more than a 3% dividend yield when we purchased it.

Now, because the stock's up, the yield's down to 2.5%. For anybody that's buying it today, personally, at this price I wouldn't go into it. But it's one we're definitely gonna hold because it's a dividend growth story.

And there again, we did a whole podcast on it. Cocoa prices went through the roof about two years ago. I mean, we're talking like up three to four times what they normally have traded at.

So part of the story of why we bought it was, well, there's an old saying with commodities: the best cure for high prices is high prices. Because when you have really high prices, then producers tend to start coming in and planting more, or you'll get potentially more cocoa farmers.

The cocoa story is a little more complicated because it's kind of a niche crop, and it's restricted to just certain areas. But that was our general thesis, that hey, cocoa's probably gonna come down. And lo and behold, it did finally start to come down.

If you look at December of 2025, earnings were $4.36. A year ago in 2024 they were 10.93. So a big decline.

And if you go back to 2019, I always like to use before-2020 numbers because 2020 screwed everything up, either good or bad, they were 5.49. So earnings are still down a little bit from six years ago. They're down a lot from 2024.

I have to tell you my observation of that. The fact that they were profitable, and profitable to a reasonable degree in the kind of environment they've been through, I think tells you how strong Hershey management is.

Part of that came through hedging of cocoa, but I think it's a real testament to how well the company is run.

And what you've got is a situation, as cocoa continues to come down, a real chance for some excellent earnings recovery.

If you look at revenue, even though the cost of chocolate went up, revenue was 11.7 billion last year. The year before, 11.2 billion. Back in 2019, it was 8 billion. So they've been able to continue to grow revenue even though they raised prices.

Operating income—that story is probably somewhat obvious—they had a 22% operating margin back in 2024. Last year it was 16%. In 2019 it was 21%.

Return on invested capital—they usually are up around 20%. In 2024 it was 22%. In 2025 it was 8.5%.

So as cocoa comes down, it just seems like Hershey's in a great position.

And the dividend—a year ago it was $1.37. Currently it's $1.45. In 2020 it was 77 cents. So it's been a great dividend story, and they have been committed to dividend growth, even with the challenge they've had in the business in the last few years.

This one we're hanging on to because even though we're not real excited about putting new money in it at the moment, we are confident we're gonna get the dividend growth.

So therefore, this one we just pretty much sit back, and right now it's on autopilot. If anything, if the stock moves up very much more, we may start to look at paring a little of it back, but we're not at that point yet.

The last one I'm gonna touch on—this is probably the favorite pick at the moment—but it's always dangerous to say something is your favorite pick because inevitably it either doesn't work, or what do you know that the market doesn't know, and et cetera, et cetera.

Best pick does not mean you go out and sell everything and put it all into that. But it would have to be right now Accenture.

The reason why we like it: dividend yield is about 3%, which is our sweet spot. They've been growing it at 10% a year. The return on invested capital is 20% currently. Operating margins have been steady. The dividend payout ratio is 50%, but they have very little debt, so there's not too much risk to that.

Earnings are currently $12. The estimates are $16 in two and a half years.

If you've got 50% of $16 in two and a half years, that's an $8 dividend, which is up from 6.52 right now, and that is your 7% dividend growth.

This used to be a pretty high-growth company. It used to trade at a P/E above 30. It is now below 21.

One of the things that's happened—this is an AI story—you should go back and look at our past podcast. We think AI is gonna help them.

We'll just use Clorox as an example. They can have some employees look at AI and how they can use it in manufacturing, but they've got distribution, they've got marketing, sales, they've got inventory control.

Accenture is one of the few companies, especially on a global basis, that can go into Clorox and take all these different divisions, put them all as one unit, use the different databases, mine them for useful information out of each of the divisions.

It's gonna be pretty rare that you're gonna have an employee of Clorox that's gonna be able to put that complicated of a puzzle together. That is gonna be Accenture's sweet spot.

So we think AI can even be, at some point, a big positive for them. And right now the market's not sure what to think of it. And when there is uncertainty, stocks tend to go down, and that's what's happened to Accenture.

For us, it's not too hard to connect the dots to a 10-year number that should at least be a double from here.

We feel relatively good that we're gonna get the dividend growth. We're gonna get the total return growth. We don't have to have P/E expansion, but it's cheap enough that that's gonna be possible.

So therefore, in our mind, you can continue to buy Accenture. And the lower it goes, the more we'll add to it.

So with all that, the point of this podcast is sometimes success can, in one manner, become your enemy because it gets harder to redeploy the capital. However, you gotta be patient.

And I will say this: in the end, it gives you more options when you have higher prices because you can start to take something off that has done well, that has a much lower yield, and turn around.

It's what we did with Emerson Electric. You turn around and buy Accenture, you basically take your income up 50% in one shot.

And then Accenture—they grew the dividend 10% last year. It's got the dividend growth story. Emerson Electric has not.

So with that, I would like to go back to what does success look like?

And right now you could say, well, we should be jumping up and down and having parties. But I will tell you, for us, ultimately we want that growing income stream.

We had it last year, so we had a pretty strong version of success, but it wasn't the total package, which is total return.

But you have to have a belief system and you have to have patience because you're gonna have times when the market is just not where you want it to be, and they're not really looking at where you think value is. They're somewhere else. And that's exactly what happened to us.

It's the challenge for every investor, depending on what they're trying to achieve, to maintain your discipline and not get sidetracked.

It would have been real easy last year to say, let's put a little more growth in here. Fortunately, we stuck to our discipline.

And this is usually true for whether you're a tech investor, a growth investor, value, dividend growth, high dividend—no matter what you're doing, probably the biggest key to long-term success is staying consistent.

Because when you switch horses—you go from growth to value or go to dividend yield now because it's doing well—that tends to lead to problems.

The beautiful thing about cash flow and a growing income stream that you get paid is that sooner or later the market usually rewards you for it.

We may, over time, beat the S&P 500. We may lag it a little bit. We may match it. But we just assume with that growing cash flow, prices will take care of themselves.

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If you have any questions or anything to add to today's episode, please email ethan@growmydollar.com
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Past performance does not guarantee future results. Every investor should consider whether an investment strategy is right for them and all the risk involved. Stocks, including dividend stocks, are volatile and can lose money. Denewiler Capital Management may or may not have positions in the publicly traded companies mentioned herein.