Podcast 278 - MODIGLIANI WAS WRONG ABOUT DIVIDEND STOCKS

Welcome to Safe Dividend Investing’s Podcast # 278 on June 6th of 2026.

In this week's podcast I review the foolishness of blindly entrusting your retirement income to an investment advisor. It is your retirement not the investment advisor's.. 

Since you, not the investment advisor is responsible for your retirement's, you can not naively assume that enough money will be there to maintain the life style you have enjoyed over the decades before retired. You must have a clear picture of what you are invested in and why you are invested in it. Make sure your investments are safe and generating far better investment growth in your portfolio's value.

Follow my successful self-directed investment journey after my investment advisor lost $300,000 of my life saving over  20 years ago. All the free information I needed to make good investment decisions is immediately accessible on many good investment data websites. 

My objective is to show investors how to find and select the the stocks of financially strong companies with long histories of ever increasing shares price and ever growing high dividends. The kind of dependable, growing stocks that they will want to hold for a lifetime. 

IAN .

Ian Duncan MacDonald
Author and Commercial Risk Consultant,
President of  Informus Inc
                              2 Vista Humber Drive
                               Toronto, Ontario
                                Canada, M9P 3R7
                                 Toronto Telephone - 416-245-4994
                                   imacd@informus.ca

Transcript

Podcast 278

Safe Dividend Investing

Greetings to investors all around the world. Welcome to Safe Dividend Investing’s Podcast #278, recorded on June 6 of 2026. My name is Ian Duncan MacDonald. I am the author of seven investment books. 

To learn more about how you can learn more about my investment books, visit www.amazon.com’s and do a search for "Ian Duncan MacDonald books”. At Amazon you can find sample chapters and reviews by investors who have benefited from the seven books. 

More than twenty years ago I began a journey to achieving financial independence. I learned a lot along the way that will save you time and increase your wealth. For me now, It  is now a matter of watching my portfolio constantly increasing in value while delivering an ever-rising dividend income that keeps me well ahead of inflation

 Thirty years ago, when I handed my life savings to an investment advisor, I did not realize that I was jeopardizing my retirement income. The advisor put all my savings into mutual funds. 

Within three years those supposedly safe mutual funds had lost $300,000. I was now worried as to how I could possibly survive when I retired. That investment advisor had assured me that the portfolio would grow and when I retired all I had to do was deduct 4% of the portfolio’s value each year to live comfortably on. He assured me that the money would last until I was 90. Being in my fifties, I thought reaching 90 was an impossibly long time. Now after twenty-one years of retirement, it no longer seems impossible.

Looking back at that portfolio of mutual funds I now realize that I had made a mistake. I had blindly accepted what another person had planned for my retirement income without verifying the logic of the proposal. 

Without doing any research I had foolishly agreed to the mutual funds. I had no idea whether the mutual funds he had chosen were good or bad or what stocks were held in the fund or how that fund had performed over time. I did not even understand how much the investment advisor would be taking from my portfolio each year for his services or how much those who managed the fund managers were taking. When I asked him about his compensation. he had replied that it “would be so little I would not even notice. Incredibly, I accepted that response.

 In my decades of running business operations, I never experienced a $300,000 loss. Was a mutual fund any different than any other commercial risk that I would normally have researched before committing money to it. I had been trained to look closely at such things as: how quickly a customer was able to pay other supplier’s invoices; whether the company had ever been placed with a collection agency for chronic slow payment; whether the company’s assets were all secured loans held by a bank that could liquidate the company for nonpayment and whether the company was involved in litigation that could lead to bankruptcy.

Those, without my experience might have shrugged their shoulders and written off this $300,000 mutual fund loss to experience. They might have thought through some miracle the money would mysteriously reappear. 

What this loss did for me was wake me up. It reminded me that I, not the investment advisor, was responsible for my retirement. 

I fired that investment advisor, took back all the money that was left and I set out to learn how to become a successful self-directed investor. Now, I was only going to rely on my own thorough research and make my own investment decisions. I now recognized that investing in stocks was just another form of commercial risk and I understood commercial risk.

I read many investment books, searched through websites for safe investment practices and made many experimental investments to test out what I was learning. What amazed me was the amount and the depth of free, factual, audited, relevant information available on the public companies traded on every stock exchange. My background had included building commercial risk information systems screening millions of businesses for banks, insurance companies and trade suppliers. Finding useful information on private companies is difficult and time consuming.

In North America the number of stocks being traded is reported to around 14,500. I quickly learned that determining risk on any stock was fast, easy and simple. I did see a need for scoring system like I had created in scoring private companies. I wanted it to help me sort out the strongest stocks that would generate the best reliable, high dividend income. 

I built that stock scoring software for myself. In building it I quickly learned that several hundred strong stocks existed that had consistently paid annual dividend yields of between 5% and 10% for decades. This was a Eureka moment for me. If I were to invest equally in 20 of these companies and if one of them totally failed, I would lose 5% of the value of one stock in a portfolio 20 stocks. However, there would be no noticeable dollar loss in the value of the total portfolio because the 5% dividends realized from the other 19 stocks in this diverse portfolio would easily cover the loss of that one failed stock.

I also saw looking at their share price histories that these 20 financially strong stocks did not quit growing after I bought them. On average their share prices were growing each year by about 10%. It was also evident that as their share price grew many were increasing their dividend payouts each year. They appeared to do this to maintain a consistent dividend yield percent. It was also noted that increases in the annual dividend payouts were usually much greater than 10% increase in the share price. 

How could I go wrong. I quickly invested all my life savings in 20 strong, carefully chosen, high dividend stocks. It took me only a few hours to sort out my 20 stocks from the14,500 available by using my bank’s free stock selectors. I created this portfolio over 20 years ago. I still own many of the stocks. Of course, their share prices are several multiples higher now as are the dividend payouts. 

Initially when I built this portfolio, I was still employed. I proceeded to invest all the monthly and quarterly dividend payouts into these 20 stocks. This quickly grew the portfolio. 

Even during the 2008 and 2020 market crashes when the stock values dipped temporarily, the dividend income payouts did not shrink. What had changed was how much speculators would pay for the stocks, not the profits from which dividends are paid.

Thus, you can imagine my reaction when I recently came upon an investment guru who wrote “dividends are irrelevant” He reached this conclusion because in the 1950s an economist Frando Mondigliani won the Nobel Prize” for the Modigliani -Miller Dividend Irrelevance Theorem. According to this theorem, to survive in retirement all you need to do is to sell off enough shares of your stock each year to finance your living expenses. While the number of shares you owned would decline, Modigliani wrote that the stock’s rising share price would cover the value of the shares you had removed. 

What he was not considering in his theorem was the impact of stock market crashes on prices and the modern ploy by business executives of taking money from the company profits and using it to buy back shares in their company at a higher price than the then current share price. This buyback action would artificially increase the price of the shares because speculators were deceived into thinking the company’s fortunes must be improving.

 The executives were manipulating the share price so they could receive a benefit from their annual stock option bonuses. These are only paid if the share price rises. If the shares do not increase, instead of receiving thousands of dollars in tax-free money, they receive nothing. Always look for the incentive to explain behavior. 

The hundreds of thousands of stockholders in major companies, who are the owners of the company, are never asked by the company’s directors whether they would like to put option money in the executives’ pockets or receive dividends to put in shareholder’s pockets.

 I do not buy the argument that hundreds of thousands of shareholders voted to add directors to the board to act in the shareholders’ best interests. One of the key tasks of a company’s chief executive is to make sure only those who will do his bidding ever get a seat on the board. The election of directors is a bit of a farce. Common ordinary shareholders of large public companies who own a few thousand shares are rarely, if ever represented.

In the public companies I worked for, every year at budget time I had to fight for money for my operations. The money from profits that I wanted to spend to make competitive improvements in the operation was never enough. I do not buy the argument that companies buy their own shares from their profits because they could find no better investments. 

Those executives receiving stock options do their best to convince shareholders that a buyback is in the shareholder’s best interest. They would not want the shareholders to dwell on the fact that buybacks were seen as a form of illegal stock price manipulation from the 1930s to the 1980s. Since Modigliani’s theorem was released in the fifties, I doubt it would now get the Nobel prize for economics in the 21st century?

Can you predict how much a share in a billion-dollar Artificial Intelligence company is going to be worth in 20 years when you retire? If you can’t, why are you investing in them? Is it because everyone else is investing in them? Is that a good reason?

No one can accurately predict future share prices. According to what I have read, over time 90% of speculators lost money because 99% of most stocks are not worth buying. Why speculate on future share prices if you do not need to when you can generate a safe generous retirement income from 20 financially strong companies with long histories of paying high dividends. 

Many banks have free stock research data that self-directed investors can easily use. The following are the eleven criteria I use to find strong high dividend stocks. (My books provide details on each of these criteria):

(1)   Current Share Price

(2)   Stock Price 4 years ago

(3)   Comparison of Current Price and 4 year price

(4)   Stock’s Book Value

(5)   Comparison of Book Value and Current Price

(6)   Number of Investment Analysts recommending a Buy

(7)   Number of Investment Analysts recommending a Strong Buy

(8)   The Dividend Yield Percent

(9)   The Company’s Operating Margin

(10)                   The Number of Shares Traded Today

(11)                   The Price to Earnings Ratio

To make life easier and simpler your objective is to own stock that you will want to hold for the rest of your life. 

That’s all for this week, folks.