Welcome back everyone. In this episode of the drills
will Carlson show. We have two companies that I'm
going to be going over there. Dividend-paying companies and
they're ones that I think are particularly goodbyes in this
market. Now, I also have some other news
we're going to be getting to Jeremy.
Siegel is holding strong to the FED pivot.
I want to hear him explain, why he thinks the FED is going to
Pivot. We also have some more weird and
disturbing news that faces of celebrities are being deep
faked, and they're being put on different actors in commercials.
Now, I on to go through and give my reaction to this and explain
why this is especially concerning.
So we have a lot of fun things to go over in this episode.
Let's go ahead and jump in with my portfolio.
Will start off with a quick portfolio update.
This is the passive income account, it's my dividend growth
portfolio. Focused on those compounding
companies. The focus here is on buying very
high quality companies at a reasonable or even preferably
cheap price that is the perfect combination high quality
companies at a cheap price. Now, I've been trying to do this
Over the past year and I think I built up a pretty strong
portfolio. And what I want to do in this
episode is highlight two companies.
In particular that have held up really well.
During this downturn, one of them is a company that I hold in
my portfolio and one of them is not.
Let's start off with the one that I currently hold.
It's in the real estate category and the company's Vici, this is
a big holding of mine. In fact, it was one of my
largest bets last year. I really started piling money
into this company because I thought it was a high-quality
one that paid a high yield. I thought it had good moat.
I really like the leadership. In fact, I even interviewed the
CEO of the company. I found them to be very
knowledgeable about the business.
There's overall a lot of qualities I liked about Vici but
even knowing this is a good company.
And even with the initial research I did on it, I've
actually been surprised by the relative substantial out
performance of this company. Let me give you an example here.
Vici currently is down zero percent year-to-date.
So it's had a little bit of volatility and went from Dollars
at the beginning of the year down to 27 all the way up to 35.
And now it's back to $30. So it's basically flat on the
year with a little bit of volatility, but of course, this
is outperformed, the S&P 500 and the QQQ.
That's pretty impressive. A company that can outperform
the major indices during a bear Market.
I think is something notable but that's still not the most
impressive part of this performance.
The most impressive part is how good the performance of view she
has been relative to its own peers.
Other real estate companies that are also high quality.
We have realty income Court, a dividend investors favorite
that's been paying dividends for decades.
This company is currently down 17 percent this year, we have
Simon Property the mall. Read this company's down 36
percent. Year-to-date, we have medical
properties, trust a hospital Reit.
This one is currently down, 56 percent.
Year-to-date, we have digital Realty.
This one is a data center read. This one's down 44 percent.
Year-to-date we have American Tower Corp.
This is a big Telecom read. This one is currently down 35
percent. Year-to-date in fact even if we
just bring up v&q, the entire real estate index, it's down 32
percent year-to-date lower than the S&P 500 and the QQQ.
So real estate as a whole is performing worse than the actual
market and VG currently isn't down at all and I find this
interesting why is Vici holding up?
So well looking back at the management of the company.
It turns out that they made some pretty good decisions early on
with protecting Vici against Inflation and Ed Pitonyak.
Highlighted that in his interview with me back in
December of last year we do somewhat uniquely as a cripple.
Every we do have a critical mass of our rent, roll with Lisa's
that involve inflation protection for us.
As a landlord, notice how you uses the word uniquely, not
every single re is doing this, in fact, most streets aren't
doing this. They aren't really prepared for
record. High inflation, interest rates
going up cost of capital right. I think most of them made no
preparation beforehand and that's why VG's unique.
So as an example with Caesars, we have to Lisa's, we have, what
we call, our Las Vegas Master Lease and then our regional
property Master Lease, our Las Vegas Master.
Lease has a, what we call a CPI kicker in that the rent
escalates every year at a minimum of 2 percent or CPI,
okay? Right.
And the hire of I should say. So are our rent on our Las Vegas
Master Lease actually escalated nearly 5%.
Oh well as effective as of November 1st, next year our
regional Master Lease will will go to the higher of 1.5% or CPI
uncapped. So if you take 40% of our rent
roll we have uncapped inflation protection built into Lisa's
that is Very unique among triple never eats only w.p.
Carey, that's part of multiple that rates really has that kind
of inflation protection and no Ed mentions that w.p.
Carey is the only other read to have some level of inflation
protection. When we bring up this stock,
w.p. Carey, you can see that it is
performing much better than other comparable REITs.
And again, this is probably because of their inflation
protection. This is a very present thing for
management to think of ahead of time.
Remember that a couple years ago, inflation protection was
kind of like Maybe good to have, but not really necessary.
A few years ago, central banks were worried about deflation
inflation wasn't even something in their minds.
It wasn't even something really conceivable but the management
of Vici were very wise and protecting a lot of the rents of
their company from inflation. When we look at the actual
breakdown of inflation protection right now. 47 percent
of each. He's portfolio is inflation
protected. And then moving on to 2023, they
estimate that I'll move on to 53%.
So if inflation does Persist a greater portion of VG's
portfolio actually becomes inflation-protected overtime
going on to twenty twenty six, twenty thirty two, and all the
way into 2035. By that point, ninety six
percent of the portfolio is inflation protected.
But the most important thing for investors right now, in this
decade is that 47% currently is and that's 47 percent more than
most real estate. Companies, most of them do not
have any meaningful inflation protection and that's crushing.
Them right now, here's another table that I think better
illustrates how this actually affects Vici off to the left.
We have a column of CPI growth. This is inflation.
So it gives us a range of hypothetical inflation.
Then off to the right, we have V, TS FF, o growth ffo growth is
basically like their free cash flow.
That is their funds that they get from their operations of
their company. As you can see the lower the
inflation, the lower VG's rents. So the rents actually adjust to
inflation. It's not Perfect one to one but
it's enough to really help investors out.
For example, even if inflation stayed as high as 7.5% VG's fo
growth goes from 2.6 percent all the way up to six point one.
So they offset the effects of inflation, to a huge extent.
And the problem with most real estate companies right now, is
they simply do not have this ability.
So really when I try to dig down and find out the reason this
company is performing so much better relative to the broader
market and Even other real estate companies.
I really think it's that rent escalation.
I think that's the key thing that Vici did that in hindsight
was very wise to do. And a lot of other real estate
companies. They're simply not in the same
situation and they can't go back in time and change the contracts
that they've made. In my opinion, the reason I
highlight this company is one of the best dividend companies is.
I think this relative outperformance will continue
into the future. Now, I want to highlight another
dividend-paying company that I believe will outperform that I
don't currently own. The company's UnitedHealth Group
it's a health insurance company. When I look at the compound or
checklist and I try to see what companies really fit in to all
of this, very strict criteria, United Healthcare is one of the
ones that I really think checks all of the boxes strong
franchise durability does this company have brand power
UnitedHealth Group is one of the most recognized health insurance
brands in the world. So in terms of brand value, it
probably has the most brand value in its category that it
competes in. Number two, does a company earn
high returns on Capital employed Returns on Capital employed are
one of the key metrics that investors like Carrie Smith.
Look at it basically means how effective this company is.
When it reinvest back into its business, in this case,
UnitedHealth Group gets around 18% Roc, e, and this has been
very consistent for the past decade, almost 17 to 18% year
after year. After year, this isn't the
highest are oce in the market. So there's companies that have
higher Returns on Capital employed, but there's very few
Companies that have this level of consistency and 18% is high
enough. It's good enough.
Moving on to number three, does UnitedHealth Group have
recurring Revenue? Do they make money from a large
group of people from repeatable and predictable transactions.
The answer to this question is obviously yes.
UnitedHealth Group has millions of customers repeatedly, every
month, paying them money for health insurance.
This about his recurring as it can get.
This may as well be a massive subscription company for
something that's session. Airy you can see the growth over
time, it's almost perfectly consistent.
The only variance is actually when they've done deals and
bought companies are sold companies.
It's not really what their Core Business.
Number four days, UnitedHealth Group have minimal financial
leverage, this is also easy to look at.
We can bring up the balance sheet of the company.
Basically all we're trying to find out here, is this company
going to go bankrupt? If we get into a recession, we
don't want over lever companies. In this case, UnitedHealth Group
has around 17 billion dollars of net debt.
Last year, they Had ibadah of 26 billion.
So another not over levered. They could pay off all of their
outstanding debt with their cash and less than one year's worth
of income. Number five is the company low
cyclicality, this one's a little bit more tricky to determine
basically what we're trying to do is find companies where their
overall economics of their business are somewhat
predictable. Generally speaking, the less
volatile and more predictable. The earnings per share are the
lower cyclic ality the business. In this case we have a little
bit of cyclic ality and 2007, the earnings dropped around 25%
but that's about in range with the rest of the broader markets.
I think this is a lower cyclicality company and then
finally number six does the company return Capital?
Do they pay a dividend or do they do Buybacks in terms of
dividend payments? This company is one of the best
and most reliable. Their dividend has literally
only gone up and they've compounded it over the past 10
years at 22%. That is very fast dividend
growth, that is amongst the top tear even last year.
They raised their dividend 14% And they're doing that while
maintaining a low payout ratio of 30 percent.
So they have a lot of flexibility to be able to raise
their dividend further in the future.
They're not only paying a dividend.
They're also returning Capital through share BuyBacks.
They only seem to buy back a little bit but it's still
meaningful last year they bought back Point, 85 percent of their
shares outstanding. So this company is a compounder
it checks all of the boxes here in terms of valuation.
I also think even despite its eight percent rise while we have
addict. Lining Market.
I still think this company is undervalued.
They've been growing their earnings 18% for the past five
years, even last year, they grew at 19 percent.
So they have very fast earnings growth and with return on
Capital employed of 18. This company should be trading
around a 27 PE ratio. So I think that UnitedHealth
Group overall is a high-quality compounding company that even
despite its good run-up. I think it's relatively
underpriced. Now, having said that I don't
currently on the company but it is one that I'd be willing to
invest in the future. Now, currently with my
Portfolio. I continue to reinvest in the
companies that I have over the past couple of months I've
basically taken it easy. Continue the dollar cost average
in every single week with new deposits and I just sit back and
reinvest my dividends beat. You just paid almost a five
hundred dollar dividend. I get them from Nike and Pepsi
and dominoes, and tiro price and seh.
Di, and Texas Roadhouse is now paying a decent sized dividend.
It's $183 from that company, but so on and so forth.
All of this money gets paid to me.
I reinvest it and the loop continues Even if this bear
market last for another six months, that's just another six
months, I'll be able to use all that dividend income to
compound. My share count, grow my passive
income and grow my stake in these companies.
So, I'm completely fine waiting this out.
But there is someone else that thinks this bear Market may end
sooner. His name's Jeremy Siegel and
he's been one of the few bullish ones predicting that the FED is
going to Pivot far sooner than most people are predicting.
Here is his latest comments on it.
But as a statement by the FED that they say, The progress,
right? And at some point can afford to
pause and see if that progress really makes it that's, that's,
that's what the market is. Looking for this, the, the what
scares the market, the most is the Fed is going to stay this
tight through 2023. Which I absolutely think would
be really disastrous disagree with Larry that we have to be as
high as he thinks we have to get because I really think that That
tremendous progress has already been made against inflation and
we're way on the downside even though the statistics won't show
it for for quite a while. So, I think that the FED is, you
know, I wouldn't be surprising to you do percent fed funds rate
by the end of 2020 32 percent by the end of next year, is way
ahead of the feds predictions. They're putting that all the way
out to 2026 and he's saying by 2023.
So Jeremy Siegel has a very contrarian view here that
inflation is going to. Down much sooner than expected.
If that were to be the case, it would change the equity markets
to a huge extent. We've only had six months of
tightening started in March at all of a sudden, because core
rates are not going down. People are saying, oh, the feds
not working. It has to keep on hiking.
There are lots of there are long and variable legs in it.
Look at the exposure money started in 2020, and it didn't
influence. We wouldn't get a lot of
inflation to 321 but I find myself agreeing with Jeremy
Siegel here. I think that in general
investors are very impatient. I was expecting inflation to
come down by the end of this year, which I still think
there's a chance it will. But it is being more stubborn.
It's taking longer than expected investors.
Want the federal funds rate to take action and work right away
and Jeremy's basically saying it'll work it'll just take an
extra year it'll happen in 2023. Keep in mind all of this is
speculation of how this will eventually turn out.
Nobody really knows the answer. That's why it's so important to
have a portfolio. That's geared towards any
eventuality. Whether we have stagflation,
High, inflation or low inflation.
We need to be prepared for any of those outcomes.
Now, moving on, I want to jump into a story that I think is
somewhat disturbing. This is a new trend.
It's been happening for a couple years now, but with the
Improvement in artificial intelligence and in technology
and photo and video Imaging. Deep fakes are becoming more and
more popular from The Wall Street Journal.
They say, deep fakes of celebrities have begun.
Gun appearing in ads with or without their permission last
year. A Russian Telecom company.
Put Bruce, Willis has faced in an ad without his permission.
Yeah, that's not Bruce Willis. That is someone else with Bruce
Willis is face on him. Now, as bad as that Russian ad
is, here's one that's far more disturbing.
This is a real estate. Add from a real estate startup
company hears Margot Robbie in a bubble bath to explain basically
Oh hello, it's your favorite chick bro.
Elon are disrupting bubble baths.
Now in this one, the face Imaging doesn't look amazing.
The voices are so off. You can tell right away, it's
not really Elon Musk but it's still disturbing nonetheless.
And again this is for a real estate company.
Kind of like a reggae is disrupting investment startup
bottles Breguet. You say, isn't that the music
that you listen to with Joe Rogan smoking?
A massive spliff it is. But it's So way to democratize,
who can invest in an exciting new startups from the ground up,
this ad continues on for another couple of minutes, but you get
the point. Now, you can see where this
technology might be potentially dangerous and problematic, it
has an upside authorized deep. Fakes could allow marketers to
feature huge stars and ads without requiring them to
actually appear on set or before cameras.
So, basically, there's licensing opportunities here.
A celebrity could just give a license agreement of Of
authorized use of a deep fake, make some money without actually
having to do any additional work.
That's the upside, the downside is that a lot of groups are
going to be using this unauthorized.
Celebrities could struggle to contain a proliferation of
unauthorized digital reproductions of themselves and
the manipulation of their brand and reputation.
There's a chance that celebrities, or anybody that's
even notable, could have their reputation destroyed by someone,
that's not even them. And that is a pretty substantial
downside. In this case, I actually think
the Site is much greater than the upside potential.
They want to say that we're having a hard enough time with
fake information. Now we have deep fakes which are
looking ever more convincing and they are looking ever more.
Convincing, those two from those major advertisements weren't
even the best ones online. Some of these deep fakes are
looking pretty convincing. I'm going to show you some
magic. It's the real thing.
I mean, It's all the real. I mean we can still tell the
difference, right? This isn't really Tom Cruise.
You can tell that this really isn't Tom Cruise.
Right? Well maybe but maybe not you
have to admit. This is starting to look pretty
convincing now I don't know exactly how this is going to
play out over the next year but my prediction is we're going to
see this as a growing problem. I think over the next year we're
going to see a lot of lawsuits from celebrities that aren't
happy with their image being used by random advertisements,
especially when the Fidelity of real and fake gets better and
better. Were actually convinces people,
that it's real. So so, we'll see how this plays
out now, that's going to be all for this episode.
Thank you for joining and I'll see you in the next one.