It Was Never About Dividends. It Was Always About Income.

Real estate investors don't think of themselves as dividend investors. Neither do venture capitalists or business owners collecting profit distributions. But strip away the labels, and every one of them is doing the same thing: buying a stream of income and betting it grows. The wrapper is different. The logic is identical.

To prove it, Greg walks through three real investments, all made in 2013, with the same $535 million starting point: Republic Plaza (one of Denver’s premier office towers), Sysco ($SYY), and DCM’s own Model Portfolio. In year one, the building won on income. Today, thirteen years later, it's generating the least of the three, and the building itself has lost nearly half its value. The model portfolio, which started with the lowest income, now generates the most. The difference wasn't asset class. It was whether the income grew.

That compounding gap is what Greg calls the "second decade effect"—the point where a growing income stream laps a higher but stagnant one. It's also why income focus gives investors something price-chasing never can: control, predictability, and a reason to stay put when markets get uncomfortable.

Topics Covered:

[00:00] Introduction & the "income mailbox" reframe

[01:34] Why the word "dividend" misleads investors

[04:26] The foundation: every investment is a bet on cash flow

[06:09] Three investments, same $535 million starting point, 2013

[09:17] Thirteen years later: how each one performed

[13:59] The "second decade effect" — why growing income wins over time

[17:48] Two mindsets: growing income vs. speculating on price

[20:11] What the NYSE closing bell taught Greg about how investors think

[24:38] Dividends vs. buybacks: why income creates capital discipline

[28:42] Three takeaways and final thoughts

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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. 

Plus, join our market newsletter for more on dividend growth investing. 

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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 58 of the Dividend Mailbox, and today I'm going to unofficially change the name to the Income Mailbox. The reason why I am kind of putting that little twist on words is we've come to believe, and we've experienced—even somewhat personally—there are times when just the very word “dividend” tends to imply, well, I'm sacrificing growth or, you know, I'm focusing too much on income. 

People tend to look at dividends as being conservative. They're for old people, or, you know, we're sacrificing something to get that dividend. Well, in the end, it's income, and we're really going to try to drive that point home today because we're going to look at three different investments. We're going to try to compare apples to apples and really normalize them all, just to give you an idea that it's all about income. It's all about income growth and just how important sustainable income growth is. Try to get rid of the stigma that's attached to just the very word “dividend.” 

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. 

So we have observed and experienced, just through either clients in the past or the responses we get from our podcast, dividends are totally misunderstood, and dividend growth—people just, for some reason, don't make the connection. And I know why. It's because “dividend” is like a trigger everybody associates with, oh, well, okay, these are just income investments. 

Well, if you forget about the word “dividend” and look at what a dividend actually is, it's just a company paying you part of their profits back. And if those profits continue to grow, then what they are paying you chances are continues to grow too. It has to be somewhat of a growth company, or you can't have sustained dividend growth. 

What we're doing is we're just managing a business. It's about the income that these assets are producing. They are growth businesses—they're not boring stocks. So I'm going to try to set the record straight and hopefully change your perception on this. 

Where I'm going to start is, you know, pretty much every investment that's ever made is made for either current cash flow or potential cash flow. There's very few exceptions. Collectibles are one of them. Gold's one of them. You buy it because at some point you think somebody's going to pay you more, and that's where your cash flow comes. That is totally dependent on what somebody else pays you in the future. 

But in the public markets, pretty much everything is driven by either current cash flow or expected cash flow. A lot of people look at real estate, and occasionally we'll run into, well, you know, we invest in real estate, so we're not really interested in the stock market. Really, what people are doing when they invest in real estate—unless they're taking a piece of land and developing it or repurposing it—well, guess what? They're buying a dividend. 

But people don't call it dividend real estate investing. “Dividend” is nowhere to be found, but the checks show up in the mailbox. It's the exact same thing. 

So instead of just telling you, we will let you look at three real investments that were made over a decade ago and let you determine what the numbers actually say. That is, I think, going to give you a good example of just how cash flow comes into play and how it affects returns. 

We're going to start in 2013, and in 2013, you had to make a decision of one of these three alternatives, and we're going to use the example of holding them all the way to 2036. So you'll be in these a total of 23 years, but we've already got 13 years to really start to tell the story. 

But you have $535 million to spend, and you can invest it in one of three places. The first choice is you can buy, at that point, what was probably considered the premier building in downtown Denver. It's the 56-story Republic Plaza. And if you're familiar with Denver, they've had some other nice buildings go up, but it's still considered one of the best properties downtown. 

All these examples are all cash. We're not going to use debt, although real estate is usually always financed with some debt. But in 2013, the operating income for the Republic Plaza building was $27 million. So after expenses, that's basically what you received. 

$27 million on a $535 million investment is 5%. That's the return you're getting. 

Option number two: you can put $535 million into Sysco, the food distributor. We've talked about it in previous podcasts, and we did the Express Mail release just a few weeks ago talking about the merger in 2013. Sysco is about $35 a share on average. That would allow you to buy 15.2 million shares. 

The dividend was $1.12—that was 3.2%—which means that at that point your income is $17 million. 

So just to review so far, the first option is going to pay you $27 million. You own the best property in Denver. Second option, you've now got $17 million of income from Sysco, and you get to wait and see what the stock price does. 

Option number three: you have $535 million. You're going to invest it in the model portfolio. At that point, the model portfolio had a yield of 2.6%, so now your income is $13.9 million, which is the lower of all three numbers. 

All of these investments are paying you an income. So of these three choices, which one would you have wanted to put your money in in 2013 for the next 23 years? 

Okay, so now that you've picked what you're going to own, let's look at where we're at today. 

If you picked the Republic Plaza because the income was significantly higher than the other two choices—it's double the income of the model portfolio in 2013 starting out, and it was significantly higher, from $17 million to $27 million—and, you know, most people consider real estate as a good long-term hedge against inflation and a great way to build wealth. 

Well, the Republic Plaza currently is worth something less than $300 million. And this whole idea kind of came from an article in the Denver Business Journal about the debt of Republic Plaza being on the verge of potentially going non-performing, which means basically the building is distressed. 

The current operating income won't pay the debt service costs, so they're going to have to restructure it. And the current owners of the Republic Plaza building are Brookfield and MetLife. So you could say both of these are pretty deep pockets, pretty strong owners. 

Well, if you look at the current operating income, it's estimated to be $14 million. And you say, well, $14 million is not distressed. Well, debt on $300 million—if you take 6% current interest rates—that's $18 million. Last I checked, $18 million is a bigger number than $14 million. You know, they can't pay the debt right now based on the current occupancy. 

Back in 2013, it was probably in the 90 percentile, and in 2023 it was 95% occupied. So it wasn't that the building was sitting empty; it's just that the whole real estate market has really struggled. In downtown right now, it's estimated it's down somewhere around 65%. 

What you've had is the operating income has declined from $27 million down to $14 million. Well, that's called a declining dividend. 

And by the way, the problem with owning a piece of real estate—if the vacancy declines below the expenses, which a lot of the time is roughly 50% (that's a very rough number, but we're just going to use it as an example)—then you go negative. You've got to actually put money into the project. 

You never have to do that with Sysco, and you never have to do that with the model portfolio. 

So a key point to remember here is not whether it's real estate income or stock portfolio income or whether a portfolio doesn't provide an income upfront. The core lesson is how cash flow drives the value of the investment, or the future expectations of cash flow drive the value of an investment. 

And in this case, in real estate, the income was cut, so it had a dramatic impact on the value of that building. 

So now we're going to go to Sysco. Based on your $535 million investment in 2013, it currently has a stock value—not counting the dividends you received—of roughly $1.1 billion. You basically have doubled your money on just the stock price. 

Your income off of Sysco is now $32 million. It has basically doubled since 2013. Total return—it is just light-years ahead of how Republic Plaza has performed. 

The model portfolio—okay, your $535 million is now worth $1.4 billion. You currently have $43 million of income coming in. That number is bigger than the other two, and you have a diversified portfolio. 

There's always an exception. We've talked in the past about some of the ones that we've had—you know, Intel was one that cut—but you have income that's three times higher than what Republic Plaza is currently paying you. 

We've used this term—it’s been a long time—but we called it the “second decade effect.” And what that actually means is it's really easy to get seduced into thinking, wow, okay, year one, this has the highest income. 

Well, the second decade effect says that that growing dividend, by the time you get out past 10 years toward 20 years, the growing dividend far exceeds what the fixed income is going to pay you. 

Well, that's where we're at now. The model portfolio has caught up and passed the Republic Plaza building that started out much higher. 

And I'm not implying the model portfolio is the best thing ever, but I am implying that it works. As you compound and focus on the income growing over time, great things happen. 

I've got the model portfolio paying me $43 million right now. It's worth $1.4 billion. If I have a target to grow that income by 7% a year, that income in the next 10 years is going to be up to almost $90 million. I would wager that if yields stay the same, then that means it's $2.8 billion. I mean, it's that simple. 

Here's the beautiful thing about income: what if the market doesn't do anything? Well, if your income doubles, you've had all that cash flow coming out, and you've been able to reinvest that. You have a margin of safety, and you just have a lot of different choices that you can make along the way. 

And you might ask, why did I pick Sysco as one of the three choices? 

Well, because Sysco is buying a company that is owned—a majority of it is owned—by Nathan Kirsh. He's going to take some cash in exchange for selling his business, but he's also going to get roughly 64 million shares of Sysco. As of today, with a $2.16 dividend, he's going to get $138 million in checks every year. 

But he also owns real estate. If you look at his history, he invests in real estate. So he's making one of these choices, and he's picked Sysco. 

I can tell you what he's not going to do: he's not going to sit there and wonder, do I really want this dividend from Sysco? What am I going to do with this Sysco dividend? 

No. He's thinking about how he redeploys that $138 million and creates more value with it. Maybe it's buy more Sysco. Maybe it's go over and buy more real estate. Maybe he wants to call Denewiler Capital Management and put it into the model portfolio. I'm not waiting for that moment, but you never know. 

I mean, he's going to do some version of that. He's totally focused on the income and what that means to him. 

He says, I'm going to continue to get value from my business even though I've sold it, because now I have an interest in a bigger business. The deck chairs have moved around a little bit. He's just taken the continual cash flow and continues to do what Nathan Kirsh does. Nothing has really changed for him. 

So another way to look at this and to kind of frame it—whatever your portfolio is, whatever is in it, whether it's real estate, stocks, going out doing venture capital, whatever—you’re really making one of two choices. You're either focusing on the income and growing that income, or you're speculating on price. 

You're buying something hoping it goes up and that somebody else is going to pay you more for it. They really are two different mindsets. 

Whether you consciously think about it or not, you are making a choice, and you're really going into it with one mindset or the other. 

What gets people into trouble—they think that they get a little bit of everything, but that usually never works. The beauty is, one of them you have a lot of control over; the other, you have virtually no control over. 

These are assets—whether it's a stock, a piece of real estate, a business. I mean, the stock—you own a share of an actual business. If you're going to focus on what the value of it is every other week, you're basically rolling a dice that somebody's going to pay more from one day to the next. 

Markets value stories as they evolve. As the story becomes more certain, as the cash flow becomes more predictable, the valuation actually starts to decline. 

And the simple reasoning behind that—if there's a story out there, the sky's the limit. People can come up with all kinds of different ways to evaluate, but as companies mature, most of that goes away. 

When you're focusing on the income, you're looking at something that becomes much more predictable. And over time, that does drive the bus as far as what somebody is willing to pay down the road. 

Those numbers can totally separate from the reality of the income from day to day, week to week, month to month, even sometimes year to year—but eventually, they all circle back. 

Well, a few weeks ago, I was very fortunate to have the opportunity to ring the closing bell at the New York Stock Exchange. It's really a symbolic thing. It's been going on for, I think, more than a hundred years now. It's electronic, but it's still a very ceremonial thing. 

And I have to tell you, even though trading is now electronic, you still get the feeling that there's a lot of money flowing through this place as people are looking at their monitors and just looking at stock prices. 

You're hoping that the market's going to close up when you ring the bell because it's a big deal you're there. It's exciting, and you'd much rather be part of an up day than a down day. 

But the fascinating thing is nobody cares what income those investments are paying out. Everybody's just looking at the price that day and whatever the news headline is. 

But you know what makes all the difference in the world? These are all major companies that have grown over time and that have become huge compounding wealth machines. That's really what the exchange and what the economy and what the stock market is all about. 

It has nothing to do with what the price is on any given day. What drives the Dow going from 800 to 49,000? It's the dividend that has grown from less than $1 on the S&P to now it's up to almost $80. 

That is what drives the value of an asset. It's what drives real estate. Ultimately, it's what drives virtually everything. 

But the fascinating thing is, when you're there at the New York Stock Exchange on that day, nobody cares what the income is. But long term, everybody cares. 

Using the S&P 500 and the S&P 1500, going back before 1957, that income has grown by over 6% a year for the last century. Six percent a year for a hundred years doubles every 12 years. 

Seven percent—just one additional percentage point—but remember, that is about 12–13% more in income growth a year. Then you're doubling every 10 years. 

And it's the whole concept of why the model portfolio in 2013 paid $13.9 million, but you get it out to today—which is 13 years later—and we're up to $43 million. That's actually a growth rate of 10% a year. 

But it's all about trying to find growing cash flow, and with discipline, you are going to create wealth over time. 

You're basically managing a business—whether it's a stock portfolio, a real business that you actually own or is private, or whether it's a real estate portfolio—you’re managing it, you're making choices. 

And if you don't have a dividend coming out, you're depending totally on what happens with that company, what they do with it. 

One of the problems is, if you choose to have a company manage your cash flow—which means they retain it—they're going to build the cash balance, they're going to reinvest in the business. 

But are they going out making acquisitions? Are they treating you as a shareholder, trying to create value long term and sustain your value? Or are they going out and buying other things, diluting shareholder value? 

If they have excess cash, then ultimately they're either going to pay out part of it to you, or they're going to go in and buy back their own stock to reduce the number of shares out there, which over time helps to create value. 

But again, buybacks are all about how effectively management allocates their capital. They're making a choice of, no, we're going to turn around and buy our own stock, and we think that's better than what you can do with the money. That's a version of what they are saying. 

And a lot of companies, in our personal opinion, don't use very much discipline in buybacks. 

But there's an article out by Ritholtz—again, he's an NYU professor—and I love reading this stuff. I don't agree with everything, but, you know, nobody agrees with everybody all the time. 

He personally prefers that a company buys back stock instead of paying out a dividend. He makes the point that there can be several fallacies with that theory. 

It's where companies continue to grow the dividend just to keep growing it, even though they have to use sometimes financial leverage. Or in the case of AT&T a few decades ago, they were making acquisitions because they wanted to try to maintain the dividend and grow it. Well, that came back to haunt them, and they eventually had to take a big cut. 

Then when you look at a company, it may pay a dividend just because the rest of the industry pays a dividend. And part of the problem is companies that continue to raise dividends—if their earnings growth doesn't, in time, support that growth—it starts to get them into trouble, potentially leading them into bad asset allocation. 

All those are very valid points, and in general, I would say it's true. But what we—what our whole podcast is really about—is trying to find that segment within the dividend population that can continue to maintain the growth. 

If it's not there, either we don't invest in it to begin with, or we move the money and continually look for the ones that do have sustainable growth. That's really what our whole mantra is and where our whole focus is. 

So I think it's possible to execute a strategy that will help defend you against some of those challenges. 

The one thing, though, that I will say from a standpoint of pushing back a little bit is there's two sides to the coin, where it helps provide discipline to companies. Because companies that have cash and have great cash flow tend to want to go out and spend it. If some of it they're giving back to you, that helps cool that a little bit. 

Not always, but that's what we perceive our job is. It's finding the ones that have the discipline. 

But it's not easy because every situation is a little different, so there's no simple formula. 

With Republic Plaza, the real challenge there is when whoever bought that building and put debt on it and valued it in 2013, it was financed based on a valuation of $535 million, and they looked at the current operating income generated by the rents. 

And then this whole thing was financed based on ultra-low interest rates. That really—just common sense said—at some point those interest rates were going to back up. 

And what you really had to have were rents that continue to go higher, but it's Denver, Colorado, and it can't support $75 a square foot. 

It's sustainability and looking at what it takes—that's what really produces the total return over time. And that's where the Republic Plaza— that whole scenario—kind of fell apart. 

So as we conclude, we want to go back and just look at really three questions, and these are what we tried to get at in this podcast. 

The first one is, okay, the model portfolio came out way ahead at the end. Is it because we're brilliant? No. It's simple—we executed the sustainable dividend growth, and we grew it at 10% a year. 

Over time, 10% for some people is not enough. It's a boring number, but 10%, when you compound it over 13 years, it starts to become real money. 

The second one is really just looking at—this is not about dividends, it's about income that these investments are providing. And whether it's a building, whether it's an individual business, whether it's a public stock portfolio, don't frame it as a dividend and that it's only for old people. 

The third point is, look, this comes down to a simple— from a standpoint of dividends, buybacks, or whether a company just goes out, reinvests in their own business, or buys something else—it's whether you want to deploy the capital or whether you want management to do it. 

And that's another great example of why it pays to really look at them and to try to figure out what's sustainable. Don't just look at what the dividend yield is and what it's been the last year or five years. It's all about tomorrow. 

And Republic Plaza can really teach you that lesson. 

The reason why we have gravitated so heavily toward treating our portfolio as a growing income stream is it really helps when the market has volatility. What we've seen in the last few months—it gives us a little bit more confidence. 

What's this thing going to be worth in a year? What's it going to be worth in a decade? 

It's when things get tough is where the real money is made. It would have been easy to say, I want to sit out and wait and see what's going on with the war. Well, guess what? The war is not over yet. There continues to be a lot of uncertainty, but lo and behold, the market's recovered 10% and back to where it was before this started. 

And if you're fortunate enough to have time, or your portfolio is large enough, and these numbers start to get into the six digits, seven digits, or more—even as that income gets over $50,000, starts to move up toward $100,000—having that income stream come in, looking out and saying, hmm, what else do I want to do? What makes sense? 

Being patient, having some ideas—it really is sort of like running a small business, and it really gets kind of fun as you can turn around and reinvest, and the numbers just keep growing. 

There's a famous saying: when's the best day to plant a tree? Well, it's 20 years ago. The second-best day is today. 

It's all about—you've got to get it started, and then over time, you end up with a big tree. 

If you enjoyed today's podcast, please leave us a review and subscribe. If you would like more information regarding dividend growth or our investment strategy, please visit growmydollar.com. There you'll find previous episodes and also our monthly newsletter. 

If you have any questions or anything to add to today's episode, please email ethan@growmydollar.com. 

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.