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Over the past couple of weeks, I’ve been reading What I Learned About Investing From Darwin by Pulak Prasad, and let me tell you—it’s easily one of the best books I’ve read all year (check out my full book notes).

The premise of the book is actually pretty unique: each chapter draws a parallel between long-term investing and evolutionary biology, which ties back to an idea we’ve discussed before—investing is a multidisciplinary activity. You can learn a lot about investing by studying subjects outside of just finance and accounting, and this book is a great example of that in action.

One chapter in the book that really stood out to me covers a common challenge that every investor faces: how to narrow down your universe of potential investments to focus on only the best ones.

Wouldn’t it be awesome if there were a single, overarching metric that could serve as a litmus test for great businesses—one that captures a company’s most important qualities? After all, this is how it works in the wild.

In nature, selecting for a singular trait can influence a species’ other characteristics. A famous example of this is the Silver Fox experiment, where breeding foxes for one key trait—tameness—also altered their physical and behavioral traits over time.

Prasad argues that the same principle can apply to investing: by focusing on one key metric, you can filter out subpar investments and hone in on the cream of the crop. For him, that metric is Return on Capital Employed (ROCE), which measures how efficiently a business generates profits from the capital it uses.

Why ROCE? There are several reasons:

It’s measurable. Prasad believes any good investment criteria should be objective and easy to calculate. ROCE is both of those things, as it’s a straightforward metric that leaves no room for subjective interpretation or guesswork.

It screens for strong economics. Companies with consistently low ROCE tend to have poor economics—maybe they lack pricing power or maybe they’re too capital-intensive, for example. By focusing on businesses with consistently high ROCE, you immediately shrink your investable universe to only those with a strong economic foundation.

It reflects disciplined management. Sustaining high ROCE over time isn’t easy. It requires disciplined capital allocation and reasonable decision-making, so it’s a good way to gauge the quality of a company’s management team.

It’s a clear sign of a competitive advantage. Businesses with high ROCE tend to have some sort of moat, whether through pricing power, network effects, economies of scale, or other things of a similar nature that keep them firing on all cylinders.

So those are a few reasons why Prasad finds ROCE to be all-compassing. With all of that said, how high is “high” when it comes to ROCE? What sort of numbers should you be looking for?

Prasad suggests looking for an average of at least 20% over the last five years (though the longer, the better), and here are a handful of dividend-paying companies that meet that threshold:

Automatic Data Processing (ADP): 31.35%
Altria Group (MO): 26.55%
Old Dominion Freight Line (ODFL): 23.55%
Williams-Sonoma (WSM): 24.73%
Yum! Brands (YUM): 36.09%

Of course, Prasad’s approach to finding high-quality businesses is just one of countless methods to the madness.

As I like to say, there’s more than one way to skin the cat, and now I’d love to hear from you: How do you determine whether a business is high-quality? Write to me here and let me know.

And click here if you want to learn about 4 more dividend payers that I think are incredibly high-quality.

Dividend Investing Democratized

Join thousands of savvy investors in the pursuit of early retirement. Get Retire With Ryne delivered straight to your inbox every week as you build your perpetually growing, cash-flowing dividend stock portfolio.

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Plus, it’s one of the only portfolio trackers out there designed specifically for dividend investors.

The layout is clean and intuitive, offering charts, graphs, and other features you didn’t even know you needed but now can’t live without—like the event calendar, portfolio backtest tool, and the dip finder tool (this has been a game changer).

I’ve been using Snowball for a while now, and it's the most in-depth portfolio tracker I’ve ever used (you can see it in action here). I highly recommend it to any dividend investor looking for maximum functionality and data for tracking their portfolio.

Right now, Snowball Analytics is offering a 14-day FREE trial so you can try it out risk-free. The best part is, if you end up loving it (which, as you'll find out, is not hard to do), you can save 10% on your subscription when you use code “rynewilliams” upon signing up.

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IN MY PORTFOLIO 📈

*Portfolio performance provided by* ***Snowball Analytics***

PURCHASES

SCHD - 3.95 shares @ $25.31
VOO - 0.02 shares @ $554.55
YOU - 7 shares @ $25.67

DIVIDENDS

V - $14.01

Weekly Total: $14.01

Monthly Total: $14.01

Annual Total: $2,547.17

ICYMI 🎥

Our Investing Goals For 2025 | Ep. 1

The first episode of The Deep End is officially live! Ari and I will post these weekly on the new channel from here on out.

WATCH THE VIDEO

CAREFULLY CURATED 🔍

📺 Lanny's November Income - Lanny from the Dividend Diplomats is one of my dividend-investing heroes. His dividend income always blows me away, and his update for November was no exception.

🎧 The Dividend Collectuh - This was a great conversation on the Dapper Dividends podcast between Russ and Travis, better known as "The Dividend Collectuh" on Seeking Alpha. As someone who’s been following Travis's work and reading his articles for a long time, it was really cool to hear him chat with Russ.

📚 A Clear Picture - If you want the full picture on Clear Secure (YOU), my top dividend stock to buy in December, this MIT Technology Review article is worth reading. It does a great job of covering the company's pros and cons in a balanced and detailed way.

SINCE YOU ASKED 💬

"I currently have a Robinhood account and was wondering if you suggest using a different platform like Schwab or Fidelity. Or does it matter?"

- @zionkelly5694 | YouTube

In many ways, the brokerage you use comes down to a matter of personal preference.

Part of me thinks you should just go with the one that offers the interface and user experience you like best. At the end of the day, they all do the same thing—they’re just a medium to buy and sell stocks. So if you feel comfortable using Robinhood, then you’re probably fine just sticking with that.

On the other hand, another part of me thinks that the brokerage you choose is about more than just the interface.

For example, customer service is also a big deal, and this is where the legacy brokerages like Schwab or Fidelity really stand out. In my experience with Schwab, it’s been incredibly easy to get someone on the phone if I ever have an issue. I rarely ever have to call them, but when I do, it’s comforting to know they’re there and easy to get ahold of.

One thing to keep in mind with some of the newer brokerages like Robinhood is that their flashy interface is designed to make trading feel exciting—and that’s by design. Robinhood makes money from every transaction on its platform, so the more you trade, the more they profit.

Features like confetti animations when you buy a stock are designed to trigger something in your brain’s reward system. You might not even notice it, but subconsciously, it gives you a little dopamine hit.

Now while that makes investing more exciting, it can also lead to impulsive decisions that aren’t great for your portfolio. Platforms like Schwab and Fidelity don’t have that same level of excitement, but honestly, that’s probably a good thing.

Investing should be fun, but it should also be boring. And when it comes to the brokerage you use, you’re probably better off with one that doesn’t make you want to open it every ten minutes.

Have a question? Ask me here to see it featured in an upcoming newsletter.