A Lady, A Legend, and a Lesson in Yield

Let me introduce y’all to one of my favourite dividend investors, Geraldine Weiss.

The hardcore members of our little dividend community have likely heard of her, but I’m going to assume that most of you have no idea who I’m talking about.

I’m a little jealous of everyone in that second group, to be honest. Because you get to learn about her for the first time, and she is simply a delight.

Before we get started, this week on the DIY Wealth Canada Podcast, Bob and I discuss our favourite Canadian dividend stocks. You can listen to the episode on Spotify or watch it on YouTube.

A legend is born

Geraldine was born in 1926 to Sylvia and Alvin Schmulowitz, a homemaker and real estate agent in San Francisco. She attended the University of California, Berkeley and graduated with a degree in finance. She studied finance because of the influence of Benjamin Graham.

She settled in as a homemaker after marrying her husband, a naval officer, sometime in the late-1940s. Her young family and frequent moves for her husband’s career kept Weiss busy, but eventually her family grew older and they settled down in San Diego.

With her children older and the family no longer in a state of constant flux, she started taking investing much more seriously in the early-1960s. She read everything she could get her hands on and started taking additional courses in economics. Once she felt her education was worthy, she began looking for a job at local brokerages — with very little success. Nobody believed she could be a successful broker. Job offers did come in, but they were for secretary positions. Weiss stuck to her guns and decided she’d need to do something different to get past the sexism of the day.

She and her broker, Fred Whitmore, decided to partner up and start an investing newsletter. Investment Quality Trends debuted in 1966, and she bought Whitmore out a year later.

But before she did, she learned an interesting lesson. She and Whitmore would send out identical newsletters, but with half signed with her name and half signed with Whitmore’s. The letters with Whitmore’s signature got responses, while the ones with her signature did not.

And so, once Whitmore was out of the picture, she simply signed her letters as G. Weiss. She kept up the deception until 1977 when she started appearing on the talk show Wall Street Week. By then the newsletter was a screaming success, and the TV appearances just accelerated things.

Weiss continued to run Investment Quality Trends until 2002, when she passed it onto Kelley Wright. She lived another 20 years, passing away in 2022 at the age of 96.

Now let’s focus on the ridiculously easy lesson she taught me, and a bunch of other dividend investors.

Dividends don’t lie

Geraldine Weiss loved dividends so much she eventually earned the nickname “The Grande Dame of Dividends.”

In a 2014 interview with the Globe and Mail, Weiss said “I look at dividends… as the only true measure of value in the stock market” and “the only thing we can really count on is the dividend.”

She authored two books with dividends as a main theme, too. The first, Dividends Don’t Lie, came out in 1988. The second, which was co-authored by her son Gregory, was called The Dividend Connection. It came out in 1995.

You can learn more about Weiss’s methodology by reading one or both books (I own both, and they’re highly recommended), but let me simplify it for the purposes of today’s newsletter.

Essentially, Weiss believed in a company’s dividend yield as a proxy of value. If a company was offering a much higher yield than normal, then it was usually a good buy. And if a company’s yield was much lower than normal, then the opposite would be true. It’s likely overvalued and is due for a pullback.

To help with this theory, Weiss created charts for the historical price-to-dividend ratios for as many blue chip stocks as she could. What she found is that, for the most part, companies would behave in fairly similar patterns. Most of the time shares would trade in a typical range and dividend yields would be about the same. She also found that stocks that sold off often ended up copying old patterns, and an astute investor could identify those buying opportunities.

We’ll note that Weiss uses the price-to-dividend ratio, but I like to use the inverse of that, which is dividend yield.

The dividend yield theory gets crapped on an awful lot because of its simplicity. It couldn’t possibly tell us much of anything, the naysayers say, because the dividend is just one data point. It doesn’t get deep into the weeds. And what you typically find in your research is that there's usually a very good reason why the dividend yield is high. That reason can eventually lead to dividend cuts.

But those who poo-poo on Weiss’s theory are missing an important point. She doesn’t say that folks should simply buy a stock with a high dividend yield. She wants you to investigate basically sound companies that are temporarily out of favour. This means examining a company’s balance sheet, looking at its future prospects, and judging whether today’s problems are just temporary — or permanent.

Saying all that, Weiss valued simplicity. She believed that companies with decades of success behind them didn’t typically lose those great qualities forever. And so she’d invest with those qualities in mind.

Weiss’s returns

Weiss’s investment philosophy was ridiculously simple. Besides the dividend yield theory, she didn’t have much else she looked for.

She mostly focused her time on about 100-150 solid, blue chip, dividend-paying U.S. stocks, and studied them intently. She stated she’s rather know one part of the market fairly well, rather than having a surface level knowledge of everything.

And so she recommended a reader’s portfolio never surpass 15-20 stocks. Anything after that would just be too much to keep an eye on. To assist readers in keeping their portfolios simple, Investment Quality Trends published Weiss’s Lucky 13 list, which highlighted the blue chip stocks she felt were the best value in the market.

According to Hulbert Financial Digest — which tracks the returns of various financial newsletters — for the 30 years from 1986 through 2016, Investment Quality Trends delivered returns of approximately 11% per year. That outperformed the S&P 500 by about 1% per year. It was an excellent result.

Plus, Weiss’s strategy outperformed while keeping volatility low, a combination many of you consider to be something of a holy grail.

It still works in today’s markets

In a 2016 Marketwatch article, Investment Quality Trends’s current editor Kelley Wright shared six stocks that the service considered top buys. These companies were vetted using the usual criteria, and naturally at the time they were offering dividend yields much higher than their long-term averages.

This is a terrific opportunity to see how Geraldine’s Weiss’s strategy performs today, in a market where folks are increasingly becoming dividend agnostic.

IQT recommended the following stocks:

• American Express (NYSE:AXP)

• AT&T (NYSE:T)

• John Deere (NYSE:DE)

• Coca-Coca (NYSE:KO)

• IBM (NYSE:IBM)

• Walmart (NYSE:WMT)

The results speak for themselves. Weiss’s strategy continues to outperform, even to this day.

Some might argue the sample size is too small, and some might say the service got lucky. Say whatever you want. In my world, this is proof such a strategy can still be effective today.

The bottom line

Geraldine Weiss is a terrific role model, and not just from an investing perspective. She fought sexism to even get into the financial industry, and then helped thousands of investors once she was able to break that glass ceiling. She’s a testament to the wisdom of listening to diverse voices.

The dividend yield theory is a simple strategy, but oh so powerful when you look at results. Beating the S&P 500 over the long-term is a great record, and it’s even more impressive once we factor in the lower volatility.

I incorporated Weiss’s research into my own investing process, and suggest y’all do too. I think it’ll quite literally increase your dividend income.