Durable Dividends

Celebrate Sell-Offs and the Gifts They Provide

Nick Ward

56 postsOctober 8, 2021

This may seem like an obvious over-simplification; however, during times of stress, turbulence, and ultimately, fear in the markets, I think it’s one of the most important bits of information for dividend growth investors to remember: when share prices go down, dividends yields go up.

In other words, when sell-offs occur, whether we’re talking about a market wide crash driven by macro concerns or an individual equity plunging because of an isolated bearish incidence, income oriented investors who are willing to buy into the dip are able to lock in much higher yields than they were prior to the dip.

I point out this basic fact because I think that a focus on passive income, as opposed to share price movement, can not only save investors from falling prey to common pitfalls in the market, but it can influence them to do the right thing which will likely accelerate their journey towards financial freedom.

I’ve discussed this many times already, but it’s definitely worth saying again (especially in today’s market environment): human nature often inspires investors to do the exact opposite of what they ought to be doing in the market.

What I mean is, when things are all sunshine and rainbows in the markets, investors feel confident…greedy even, which can inspire them to ignore fundamental valuations and chase momentum higher.

This is a dangerous practice because buying shares with lofty valuations without any margin of safety attached to them increases risk. Eventually, this risk will make itself known, as the momentous bubble pops, causing share prices of irrationally overvalued assets to fall, turning greed quickly into fear and once again, oftentimes resulting in a mistake: selling into weakness.

You see, fear and greed inspire investors to buy high and sell low, when they’re paying attention to share prices.

However, if you focus on sustainable dividend yields, then fear and greed inspire you to take the correct actions: buying low and selling high (because of the inverse relationship between dividend yields and share prices).

Now, it’s incredibly important to focus on the “sustainable” aspect of the dividend yields. It doesn’t do anyone any good to fall into a yield trap and experience a dividend cut (I always say, a yield is only as good as its relative safety).

While it’s true that no dividend is ever 100% safe or guaranteed, investors can track safety metrics and predict dividend cuts/freezes with an incredibly high degree of accuracy if they know what fundamentals to pay attention to. Analyzing dividend safety is a process that takes time and energy to learn; however, for the sake of this piece, I will simply write with the fairly safe assumption that dividends being paid by blue chip companies are relatively safe (because, much more often than not, this is the case) to make my point.

Assuming that the companies that we’re looking to buy have strong fundamentals (earnings, net income, cash flows, etc) which adequately cover their dividends, then lower share prices are a gift.

Lower share prices mean that a specific pile of cash can not only buy more shares, meaning more dividend payments, but that those shares will generate higher yields, representing a double edged sword when it comes to the compounding process associated with long-term dividend re-investment.

This is why you’ll often see dividend growth investors rooting for the share prices of their holdings to drop lower, as opposed to rise…this may seem counterintuitive to many, but so long as blue chip dividend growth shares trade at irrationally undervalued levels, investors have the opportunity to accumulate shares with abnormally high yields attached and this is a wonderful thing, indeed.

I began to plan out this article when talks of the U.S. debt ceiling issue were dominating financial headlines. There were rising fears that the U.S. might default on its debts in the near-term, resulting in a sure-fire recession and a catastrophic sell-off in the markets. This fear helped to inspire a macro sell-off during the month of September (which was the worst month for the markets since March of 2020). And therefore, I wanted to write this piece, highlighting one of the basic tenets of income oriented investing (lower prices equals higher yields) to provide solace, or even hope of an accelerated retirement, to those who were anxious about these headlines.

Yesterday, we saw Republicans and Democrats in the Senate arrive at a deal which essentially kicked the debt ceiling can down the road for another several months. This lightened the mood in the markets and we saw a single day rally; however, I still think this discussion is relevant because, due to the nature of how Congress gets things done these days, it’s certainly possible that there will be another debt ceiling crisis in December as politicians attempt to make an 11th hour deal.

And, debt ceiling issues certainly aren’t the only macro concerns which can cause fear in the markets. There are a myriad of threats which could cause a market sell-off at any given point in time. Risk is something that equity investors have to become immensely familiar with. However, as we’ve seen in the past, the best-in-breed companies in the market tend to use their enormous resources and talent pools to navigate these moments well.

The Dividend Champions list is a perfect example of this. Here you’ll find hundreds of U.S. equities with 10+ year dividend increase streaks.

Obviously the past does not predict the future, but this data does go to show (affirmation bias aside) that blue chips have what it takes to weather a wide variety of storms while continuing to reward shareholders with reliably increasing passive income.

Generally speaking, these are the types of companies that I’m looking to accumulate into weakness. The comfort that comes with owning shares of proven, durable dividend growers is what allows me to confidently ignore short-term share price movement and focus my sole attention on the underlying fundamentals of the stocks that I own/follow.

You see, when your plan in retirement is to live off of the passive income that your portfolio provides, it doesn’t matter all that much what happens to the near-term value of those holdings.

Share price volatility becomes essentially meaningless once the dividend income stream that a portfolio provides covers one’s expected lifestyle expenses in retirement.

Being able to ignore short-term volatility and instead, focus solely on the fundamental data that points towards dividend safety and security is probably the most attractive aspect of the dividend growth investing strategy to me.

No one can know what the market will do in the short-term. It’s moves are largely irrational, based more upon speculation than actual results. And therefore, attempting to predict what the market will do in the short-term is a fool’s errand.

Frankly, I cannot imagine what the level of anxiety that investors who rely wholly on buying and selling equities to support themselves during turbulent times, as opposed to simply collecting their dividends, must feel. Thankfully, I’ll never have to know because of my focus on passive income. This is why I find myself celebrating when blue chips dip. As I said before, these opportunities are gifts for the income oriented investor and gifts are a part of any good celebration.

Nick Ward

56 posts

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Nicholas Ward is a research analyst who currently writes for Seeking Alpha, The Dividend Kings, iREIT, and Forbes Real Estate Investor. Before that, he was Founder and Editor-in-Chief of The Dividend Growth Club, as well as the Income Minded Millennial. Nicholas has also contributed to Sure Dividend, Investing Daily, and The Street, where he covered stocks in Jim Cramer's Action Alerts PLUS Portfolio.

Nicholas holds a bachelor of arts from The University of Virginia, where he studied English and studio art. Prior to transitioning into the financial industry, he managed a vineyard in the foothills of the Blue Ridge Mountains.

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REIT Mutual Fund	Symbol
Alpine Realty Income and Growth Fund	AIGYX, AIAGX
American Century Real Estate Fund	REAIX, REACX, AREEX, AREWX, ARYCX, AREDX
Real Estate Securities Fund	MRESX
AR Capital Real Estate Income Fund	ARIAX, ARICX, ARIPX
AssetMark Real Estate Securities Fund	AFREX
Aston/Harrison Street Real Estate Fund	AARIX, ARFCX
Baron Real Estate Fund	BREIX, BREFX
BlackRock Real Estate Securities	BIREX, BAREX, BCREX
Brookfield U.S. Listed Real Estate Fund	BRUAX, BRUCX, BRUIX, BRUYX
CGM Realty Fund	CGMRX
West Loop Realty Fund	REIIX, REIAX, REICX
Cohen & Steers Institutional Realty Shares	CSRIX
Cohen & Steers Realty Income Fund	CSEIX, CSDIX, CSBIX, CSCIX
Cohen & Steers Realty Shares	CSRSX
Columbia Real Estate Equity Fund	CREAX, CREIX, CRRVX, CRERX, CREEX, CRRFX, CREWX, CRECX, CREBX
Compass EMP REC Enhanced Volatility Weighted Fund	CWRAX, CWRIX, CWRTX, CWRCX
Davis Real Estate Fund	RPFRX, DREYX, DRECX, DREBX
Delaware Real Estate Investment Trust Portfolio II	DPRTX, DPRBX
Delaware Real Estate Investment Trust Portfolio	DPREX, DPRSX, DPRRX, DPRCX
DFA Real Estate Securities Portfolio	DFREX
Dunham Real Estate Stock Fund	DAREX, DNREX, DCREX
DWS RREEF Real Estate Securities Fund	RRRRX, RRREX, RRRAX, RRRSX, RRRBX, RRRCX
DWS RREEF Real Estate Securities Income Fund	REFAX, REFCX, REFIX, REFSX
Eaton Vance Real Estate Fund	EAREX, EIREX
EII Realty Securities Fund	EIIRX
Fidelity Advisor Real Estate Fund	FHEIX, FHEAX, FHETX, FHECX, FHEBX
Fidelity Advisor Real Estate Income Fund	FRIRX, FRIQX, FRINX, FRIOX
Fidelity Real Estate Income Fund	FRIFX
Fidelity Real Estate Investment Portfolio	FRESX
Fidelity Spartan Real Estate Index Fund	FSRNX, FRXIX, FSRVX
Fidelity Series Real Estate Equity Fund	FREDX, FREFX
Fidelity Series Real Estate Income Fund	FSREX, FSRWX
Forward Real Estate Long/Short Fund	KSRYX, FRLSX, FFSRX, KSRAX, KSRCX, KSRBX
Forward Real Estate Fund	FPREX, FFREX, KREAX, KRECX
Forward Select Income Fund	KIFYX, FSIMX, FFSLX, KIFAX, KIFBX, KIFCX
Franklin Real Estate Securities Fund	FREEX, FRLAX, FRRSX, FSERX
GMO Real Estate Fund	GMORX
Goldman Sachs Real Estate Securities Fund	GREIX, GRETX, GREAX, GRESX, GRERX, GREBX, GRECX
Great-West Real Estate Fund	MXREX
Heitman REIT Fund	OARTX, OBRTX
ING Real Estate Fund	CRARX, IREWX, IDROX, CLARX, CRWRX, CRCRX, CRBCX
INVESCO Real Estate Fund	REINX, IARFX, IARIX, IARYX, IARAX, IARRX, IARCX, AARBX
Ivy Real Estate Securities Fund	IRSAX, IREIX, IRSYX, IRSRX, IREEX, IRSCX, IRSBX
John Hancock Real Estate Securities Fund	JIREX
Johnson Realty Fund	JRLTX
J.P.Morgan Realty Income Fund	URTLX, JRIRX, URTAX, URTBX, URTCX
J.P. Morgan Security Capital U.S. Core Real Estate Securities Fund	CEEAX, CEERX, CEEFX, CEESX, CEECX
J.P. Morgan U.S. Real Estate Fund	SUSIX
Lazard U.S. Realty Equity Portfolio	LREIX, LREOX
Lazard U.S. Realty Income Portfolio	LRIIX, LRIOX
Manning & Napier Real Estate Series	MNRIX, MNREX
Morgan Stanley Institutional U.S. Real Estate Portfolio	MSUSX, MUSDX, MSULX, MURSX
Natixis AEW Real Estate Fund	NRFAX, NRFYX, NRFBX, NRFCX, NRFNX
Neuberger Berman Real Estate Fund	NBRIX, NBRFX, NREAX, NRERX, NRECX, NRREX
Nuveen Real Estate Securities Fund	FREAX, FARCX, FRSSX, FREBX, FRLCX, FREGX
Oppenheimer Real Estate Fund	OREAX, OREIX, OREYX, ORENX, OREBX, ORECX
PHOCAS Real Estate Fund	PHREX
PIMCO RealEstateRealReturn Strategy Fund	PRRSX, PETPX, PETAX, PETDX, PETCX, PETBX
Pioneer Real Estate Shares	PWREX, PYREX, PCREX, PBREX
Principal Real Estate Securities Fund	PIREX, PIRPX, PREPX, PRETX, PREJX, PRRAX, PRERX, PRENX, PRAEX, PRCEX, PRLEX
ProFunds Real Estate UltraSector ProFund	REPIX
Prudential Select Real Estate Fund	SREAX
Prudential U.S. Real Estate Fund	PJEAX, PJEZX, PJECX, PJEBX
REMS Real Estate Income 50/50 Portfolio	RREIX
REMS Real Estate Value-Opportunity Fund	HLRRX, HLPPX
Rydex Real Estate Fund	RYREX, RYHRX, RYCRX
SA Real Estate Securities Fund	SAREX
SEI Institutional Mgd Real Estate Fund	SETAX, SEIRX
Spirit of America Real Estate Income & Growth Fund	SOAAX
SSgA Clarion Real Estate Fund	SSREX
Stratton Real Estate Fund	STMDX
T.Rowe Price Real Estate Fund	TRREX, PAREX
TIAA-CREF Real Estate Securities Fund	TIREX, TRRPX, TRRSX, TCREX
Vanguard REIT Index Fund	VGSNX, VGRSX, VGSLX, VGSIX
Virtus Real Estate Securities Fund	PHRAX, PHRIX, PHRCX, PHRBX

REIT ETF	Symbol
Flex Shares	ASET
Wisdom Tree Global Ex-US	DRW
S&P 500 Equal Weight	EWRE
iShares FTSE Industrial/Office	FNIO
MSCI Real Estate Index	FREL
S&P REIT Index	FRI
First Trust S&P REIT	FRI
iShares Real Estate 50	FTY
Flexshares Global	GQRE
iShares Cohen & Streers	ICF
iShares International Developed RE	IFGL
iShares US RE	IYR
Premium Yield Equity REIT	KBWY
ETRACS Monthly Pay 2x Leverage	MORL
Market Vector Mortgage	MORT
iShares Global REIT	REET
iShares FTSE Mortgage	REM
iShares Residential	REZ
IQ US Real Estate Small Cap	ROOF
iShares FTSE NAREIT Retail	RTL
DOW Jones Global RE	RWO
SPDR Dow Jones	RWR
Schwab US REIT	SCHH
Super Dividend REIT	SRET
ProShares Ultra RE	URE
Vanguard REIT	VNQ
Vanguard Global ex-US	VNQI
iShares International Developed	WPS
Wilshire US REIT	WREI
Pacer Benchmark Data & Infrastructure RE	SRVR
Pacer Benchmark Industrial RE	INDS
Pacer Benchmark Retail RE	RTL
Hoya Capital Housing	HOMZ
NetLease Corporate RE	NETL

REIT Name	Ticker	Annual Increases/yr
Federal Realty	FRT	51
Universal Health Realty	UHT	33
National Retail Properties	NNN	29
Realty Income	O	27
Tanger Outlets	SKT	26
Urstadt Biddle	UBA	25
Essex Property Trust	ESS	25
W.P.Carey	WPC	22
National Health Investors	NHI	17
Equity Lifestyle	ELS	15
Digital Realty	DLR	15

Celebrate Sell-Offs and the Gifts They Provide

Nick Ward

56 postsOctober 8, 2021

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Celebrate Sell-Offs and the Gifts They Provide

56 postsOctober 8, 2021

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