12% Dividend Yield, 80% EBIT Margins, Durable Business, 7x Earnings

Today’s Stock:

• 12% dividend yield

• 80% EBIT margins

• 7x earnings

• Ample net cash

• Significant land value

• Committed to returning bulk of earnings to shareholders.

Grandma’s Portfolio

There’s this idea I play with. I call it “Grandma’s Portfolio”.

Grandma wants stable cash flow over the long term. Her money-making days are in the past. Grandma doesn’t need speculative growth investments. She needs steady cash flow hitting the mailbox every quarter. Just enough for cable and bingo.

My grandma portfolio needs some juice, though.

I want stable cash flow that exceeds the index.

I don’t want some piddly-ass 4% return from Treasuries.

There are probably one or two opportunities a year to buy sustainable, cash flowing, unlevered assets that can provide a strong dividend (which I’ll define as 10%+) for years to come.

If an investor could buy a handful of these assets, in uncorrelated industries, you could earn a nice dividend yield AND grow your capital base.

My grandma stocks tend to have similar characteristics. They are usually unknown businesses with weird capital/tax structures. They tend to be small - under $500MM market cap. Because of their size and lack of attention, these securities are usually illiquid.

Grandma stocks exist in some weird, no-man’s land corner of the market. They’re not owned by institutions. They don’t check the box for index inclusion. They’re scarcely discussed on the internet. And forget about CNBC.

But they pay the bills.

Today’s grandma stock has been “paying the bills” and paying its shareholders for more than 100 years. And I think it’ll continue for decades to come.