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Speaker 1: Welcome to Fearing Greed Q and A, where we ask

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Speaker 1: answer questions about business, investing, economics, politics, and more. I'm

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Speaker 1: Sean Aylmer. Global markets have been well volatile, to say

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Speaker 1: the least, with big swings day to day and a

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Speaker 1: growing gap between winners and losers across sectors. In that

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Speaker 1: kind of environment, some investors are turning towards what might

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Speaker 1: be called boring stocks companies with steady earnings, strong cash flow,

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Speaker 1: reliable dividends. Sounds very old fashioned, really. Josh Gilbert, market

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Speaker 1: analyst at e Toro, has taken a look at two

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Speaker 1: of the so called boring stocks on Wall Street, Coca Colra,

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Speaker 1: McDonald's not that I think I'd like to think of

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Speaker 1: themselves as boring. Remember this is general information only. You

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Speaker 1: should always seek advice tailor to your circumstances before making

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Speaker 1: investment decisions. Josh, welcome back to Fear and Greed Q

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Speaker 1: and A.

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Speaker 2: GREA to be back, How are you guys?

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Speaker 1: Very well? Now? Just at top level? How tough is

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Speaker 1: the market at the moment for investors?

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Speaker 2: Very tough.

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Speaker 3: There's no way to sugarcoat it, right, This is a

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Speaker 3: really challenging environment. We are seeing markets driven right now

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Speaker 3: by headlines, and that is creating plenty of uncertainty, and

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Speaker 3: markets hate uncertainty. So what we're really seeing is, as

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Speaker 3: I say, those headlines change day to day, and that

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Speaker 3: makes it really difficult to judge where markets are going.

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Speaker 3: And I think, you know, we look to experts, you know,

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Speaker 3: hopefully in this sort of environment, like myself, to sort

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Speaker 3: of say, okay, how long is this going to last?

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Speaker 2: And no one knows.

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Speaker 3: And I think that's the biggest thing anyone tells you

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Speaker 3: that does is ultimately guessing, and that's creating a really

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Speaker 3: difficult period for investors. Whether you've been an investor for

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Speaker 3: six months, a year, ten, seeing your portfolio in the

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Speaker 3: red that we're seeing at the moment, it's always uncomfortable.

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Speaker 3: I think we need to remember in times like these

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Speaker 3: that markets don't always go up unfortunately.

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Speaker 1: Okay, before we get to cocaine McDonald's, is it the

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Speaker 1: case where you have a strategy and you stick to them,

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Speaker 1: or is that when you have so much flux in

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Speaker 1: the market, you auter that strategy for one of a

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Speaker 1: bit of term.

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Speaker 2: Look.

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Speaker 3: I think in this environment we would certainly say, you know,

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Speaker 3: don't go making any rash decisions I think the worst

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Speaker 3: time to make investment decisions is when fear it's at

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Speaker 3: its at its highest, and I think we're in and

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Speaker 3: around that point at the moment. And I think what

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Speaker 3: we see in markets is a lot of relief rallies

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Speaker 3: in periods like this, and they're perfect examples of why

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Speaker 3: stepping to sidelines can can cost you. So look, I

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Speaker 3: think it's very key to stick to a strategy, but

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Speaker 3: I think about being nimble. There's no reason why we

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Speaker 3: can't sort of sell assets and move into other assets

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Speaker 3: if we see, you know, possible. But I think the

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Speaker 3: key thing here is that if you have a long

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Speaker 3: term goal on, you know, some of the stocks that

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Speaker 3: you own, you know, don't just sell at this point

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Speaker 3: in time, given the conflict that we're seeing, you know,

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Speaker 3: unless the fundamental basis of that stock has ultimately changed

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Speaker 3: and we believe that, you know, at the end of

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Speaker 3: the day, the investment case for equities hasn't sort of

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Speaker 3: been written off here, it's just changed slightly.

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Speaker 1: Let's too about Coca Cola been around forever, resilient, why

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Speaker 1: I mean a boring stock, And I'm sure Coke would

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Speaker 1: hate that idea that it's the boring stock, But what

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Speaker 1: about it is reliable is steady?

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Speaker 3: Well, I think firstly, we all know it, right, every

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Speaker 3: It's one of the most recognizable brands in the world,

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Speaker 3: and it's a company that has been through it all right.

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Speaker 3: It's been around for decades, it has gone through recessions, pandemics,

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Speaker 3: it's been through plenty of geopolitical crisises over the years

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Speaker 3: as well. And I think basically it has products that

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Speaker 3: we purchase no matter at what's going on in the world.

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Speaker 3: It's one of those items that we turn to. We

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Speaker 3: see it as a staple, right. You're not going to

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Speaker 3: walk down, you know, into your local supermarket or whatever

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Speaker 3: that might be and not pick up a coke just

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Speaker 3: because it's something that we drink every day. It's something

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Speaker 3: that we drank sixty years ago, and it's something that

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Speaker 3: we're probably going to drink sixty years into the future, right.

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Speaker 3: And I think a big part of their business is

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Speaker 3: they've got you know, a great manna, They've got a

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Speaker 3: great business model and it just works. They've got global

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Speaker 3: scale as well when we think about its operations, but

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Speaker 3: then it also has a very local nature in terms

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Speaker 3: of its productions as well. So I think in terms

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Speaker 3: of just the business. It's just a fantastic business that

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Speaker 3: can hold up in pretty much most periods.

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Speaker 1: One of those, one of the more your more recent notes,

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Speaker 1: had some great stets on a coke. I think I'm

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Speaker 1: going to get it wrong, so you're going to have

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Speaker 1: to correct me here. But in terms of recognition, one

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Speaker 1: of the like, I think it was ninety four percent

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Speaker 1: of the global population and identified its lago literally sold

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Speaker 1: in every country on Earth except to North Korea and Cuba.

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Speaker 1: That must be a comparative advantage in these times.

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Speaker 3: Yeah, absolutely, And I think when we think about those items,

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Speaker 3: they are just staples. It's it's a product that we

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Speaker 3: know and we're always sort of going to turn to it,

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Speaker 3: whether the economy is booming, whether it's contracting. Consumers just

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Speaker 3: stick to sort of buying what they know, and that

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Speaker 3: means that demand stays relatively stable. I think the key

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Speaker 3: thing here is that we' ever going to really see

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Speaker 3: you know, Coca Cola shares double overnight. It obviously goes

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Speaker 3: through tough periods, but it's an investment that ultimately has

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Speaker 3: proven its worth over the years. And they also dominate

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Speaker 3: the soft drink market as well, so they don't just

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Speaker 3: own Coke, right, they own Sprite, they own Fanta, so

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Speaker 3: they have that competitive edge, and they own close about

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Speaker 3: fifty percent of the soft drink market. So pretty much

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Speaker 3: they continue just to keep selling their products no matter

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Speaker 3: what happens. And it's got a reliable dead of dividend

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Speaker 3: to sort of back it up at the same time.

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Speaker 1: Yeah, yeah, I mean you were saying that. It was

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Speaker 1: saying that, like with it sixty three consecutive years of

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Speaker 1: a higher dividend or something.

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Speaker 2: Yeah.

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Speaker 3: Absolutely, Yeah, so current yields around about two point seven percent.

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Speaker 3: But yeah, it's increased its dividend for sixty three years,

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Speaker 3: making it a dividend king. So the key part about

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Speaker 3: that is it's cash flow is so good no matter

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Speaker 3: what is happening in the world, every year it can

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Speaker 3: continue to pay its shareholders more for owning that stock.

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Speaker 3: So that's, you know, not something that you need to

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Speaker 3: worry about. Okay, it may not continue long into the future,

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Speaker 3: but sixty seven years of consistent growth in your dividend,

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Speaker 3: that's compounding, that's reinvesting, and it just goes to show

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Speaker 3: how stable that business is that no matter what's happened

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Speaker 3: over that period. If we looked at the chart of

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Speaker 3: Coca Cola and looked at what's happened across the world

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Speaker 3: over that sixty seven years.

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Speaker 2: There is going to be plenty of stuff that we

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Speaker 2: could put on that chart.

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Speaker 3: But the fact that those cash flows continue to grow,

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Speaker 3: continue to pay out to investors, and share price growth

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Speaker 3: has continued in that time as well. You know that

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Speaker 3: is reliable and yeah, boring, but brilliant ultimately.

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Speaker 1: So let's take us to McDonald's and I don't know

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Speaker 1: whether that's boring or I'm not sure that it's a

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Speaker 1: staple either, but maybe McDonald's is a staple. Why do

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Speaker 1: you like McDonald's.

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Speaker 3: Well, I think again, I would consider it something maybe

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Speaker 3: as a staple.

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Speaker 2: Again, yes, it's.

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Speaker 3: It is discretionary in a sense, right because you don't

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Speaker 3: have to buy it, but you know, wherever you go

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Speaker 3: in the world, similar to Coco, like it's a brand

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Speaker 3: that you know, the Golden arches, we all know it.

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Speaker 3: It's a you know again, if we have one of

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Speaker 3: those logo competitions, it would be the first one that.

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Speaker 2: Somebody could name.

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Speaker 3: So again, just like Coke, whether you know, we've had

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Speaker 3: geoplistical uncertainty, whether it's rising inflation fears, whether it's you know, pandemics,

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Speaker 3: let's say, right, you get that predictability with the business,

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Speaker 3: and we continue to turn to it, you know, whether

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Speaker 3: it's a just a quick, easy meal, we turn to it.

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Speaker 3: So again it's it's resilient. And I think what's different

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Speaker 3: about McDonald's that most people don't particularly know is that

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Speaker 3: they don't make its money necessarily from you know, big

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Speaker 3: max and fries. About ninety five percent of its locations

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Speaker 3: are actually run by franchisees, so that day to day business,

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Speaker 3: you know, really is making money from rents and fees

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Speaker 3: and those types of things rather than how many sort

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Speaker 3: of burghers and fries they sell.

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Speaker 1: Is it a real estate business to some extent.

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Speaker 2: I think you could probably consider it that.

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Speaker 3: Yeah. They have I think over forty billion dollars in

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Speaker 3: land and property on its books, and they've continued to

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Speaker 3: grow stores. And I think if we look similar to

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Speaker 3: coc Coda about when we're talking about growing that dividend

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Speaker 3: and continuing to see growth, they've grown stores every year

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Speaker 3: since two thousand and seven. So every single year, McDonald's

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Speaker 3: continue to open news stores regardless of what's happening in

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Speaker 3: the world. So that's what sort of keeps it insulated

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Speaker 3: from you know, everything that goes on, you know in

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Speaker 3: the world, because when you're seeing consumer discretionary stocks come

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Speaker 3: under pressure, whether that's higher fuel costs, whether that's people

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Speaker 3: pulling back on certain items, they have that pricing power.

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Speaker 3: They've got a value proposition that keeps customers ultimately coming

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Speaker 3: through the door no matter what happens. They've got you know,

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Speaker 3: happy meals, they have value options, so you keep those

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Speaker 3: budget conscious consumers engaged.

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Speaker 2: Right.

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Speaker 3: Yes, we're seeing here in Australia petrol price is absolutely

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Speaker 3: going through the roof and unfortunately consumers really going through it.

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Speaker 3: But is that going to stop you from buying a

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Speaker 3: two dollar cheese burger from mc donald's. It's probably not

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Speaker 3: because it's convenient.

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Speaker 1: Right, Yeah. Yeah, I mean in your night that you

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Speaker 1: put out recently seventy million servings a day, is that right?

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Speaker 1: I thinking're ight there? Yeah, yeah, God in French fries

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Speaker 1: being the number one item.

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Speaker 3: Yeah, it's huge, right, And that just goes to show

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Speaker 3: why they can continue to grow their their presence, right

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Speaker 3: while they can keep opening more stores. And I think

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Speaker 3: how that translates into the business itself is margins are

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Speaker 3: at forty five percent.

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Speaker 2: Right, those are tech like numbers.

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Speaker 3: Right. If we think about the restaurant industry, often those

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Speaker 3: margins are around sort of ten percent because, as I

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Speaker 3: said earlier, five percent margins operated margins. Yeah, so, and

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Speaker 3: that's because most of the revenue is coming from those

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Speaker 3: franchise fees and rent rather than selling of the food directly.

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Speaker 2: So yeah, again when we.

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Speaker 3: Talk about it being a real estate business, is very

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Speaker 3: similar to that. But like we were talking about Coke again,

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Speaker 3: raise its dividend for sort of fifty years, so it

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Speaker 3: doesn't have a huge yeld. We're talking about two point

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Speaker 3: three percent, not going to grow the headlines, but again,

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Speaker 3: strong cash flow, a track record that very few companies

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Speaker 3: can match, maybe similar to that of Coca Cola. But

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Speaker 3: you've got longtime growth, you've got a huge you know

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Speaker 3: growth in terms of yield as well. They've delivered annualized

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Speaker 3: returns of fifteen percent over the past twenty years averaged. Right,

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Speaker 3: So that just goes to show that this is a

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Speaker 3: business that's still going to be here into the future.

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Speaker 3: We ate McDonald's twenty years ago, we eat McDonald's now,

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Speaker 3: and I think our children, you know, everyone's you know, grandchildren.

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Speaker 3: I think we're going to continue to keep eating McDonald's.

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Speaker 3: And that's what makes these businesses so great. They're not

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Speaker 3: going to disappear overnight.

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Speaker 1: So sort of the moral of the story here, you know,

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Speaker 1: kind of look for stable businesses, look for dividend growth.

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Speaker 1: I'm putting words into your mouth. I'm going to turn

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Speaker 1: it over to you, Josh. Yeah.

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Speaker 3: I think I think the important thing is what we're

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Speaker 3: looking at is these two businesses is they've got brand,

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Speaker 3: they're well known, and we're going to buy them regardless

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Speaker 3: of what's happening. They've got pricing power which protects them.

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Speaker 3: They sell products regardless of what's going on. And this year,

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Speaker 3: you know, they're outperforming markets. So again they're not brilliant,

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Speaker 3: but you know they're never going to be you know,

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Speaker 3: your you're in videos, you're never going to be your metas.

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Speaker 3: But in a market like this, I mean, I think

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Speaker 3: the big thing here is right is that as an investor,

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Speaker 3: you always want to look for that next big growth

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Speaker 3: engine of what's going on in the market.

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Speaker 2: And when things go up, do.

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Speaker 3: We really probably want to own McDonald's, Do we probably

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Speaker 3: really want to own Coca Cola? It's hard to say

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Speaker 3: because you want to go and look for your own

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Speaker 3: video that can you know, go up one thousand percent.

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Speaker 3: But when you're in a period like this, this is

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Speaker 3: why diversification happens so much, because these are the stocks

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Speaker 3: that are rising during this period. Coca Cola shares up

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Speaker 3: ten percent year today and that makes, you know, diversification

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Speaker 3: so important. And that's why we talk about diversification so much.

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Speaker 3: And I think if we think about their dividends, the

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Speaker 3: reason we look at dividends is because and how long

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Speaker 3: they've raised their dividend four It shows stable cash flows,

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Speaker 3: It shows stable revenues, and that they can continue to

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Speaker 3: deliver for investors no matter what, and that's what we

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Speaker 3: look for. You don't want someone who can pay dividend

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Speaker 3: and then you pull it back after three years when

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Speaker 3: things get tough.

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Speaker 2: For that great.

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Speaker 3: Example, we look at Pilbara Minerals paid their first ever

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Speaker 3: dividend lithium prices fail, then had to pull back on

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Speaker 3: that dividend straight away. That's unreliable cash flow and an

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Speaker 3: unreliable business that you're not sure what's really going to

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Speaker 3: happen again. Huge growth potential, but at the same time,

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Speaker 3: these two businesses. You know we can rely on them.

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Speaker 3: They've got track records that speak for themselves, and that

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Speaker 3: increase in dividend just goes to show that.

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Speaker 1: Josh, thanks for talking to Fear and Green.

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Speaker 2: Thanks so much for having me.

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Speaker 1: That was Josh Gilbert, market analyst at ETRO. Remember this

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Speaker 1: is general information only. You should always seek advice to

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Speaker 1: tailor to your circumstances before making in business decisions. I'm

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Speaker 1: Chanail Matt and this is fearing greed Q and a