Dividend Champions List

Conservative Investors Can Still Beat the Market

Nick Ward

56 postsJuly 20, 2021

As a rather conservative investor, capital preservation is one of my highest priorities in the market. Sure, I want to get rich like the next guy; however, I’m not willing to take outsized risks to do so. Thankfully, with the dividend growth investing strategy, I don’t believe huge risk taking is necessary to generate significant wealth over the long-term.

Rather than rely on speculation and short-term share price movements, I rely on the slow and steady fundamental growth of the blue chip companies I own to result in a reliably growing and compounding passive income stream.

With regard to the idea of capital preservation playing an important role in my portfolio management process, I’ll highlight some of my favorite quotes from Howard Marks, who is, in my opinion, one of the very best investors in the world today.

Marks is the co-founder and co-chairman of OakTree Capital Management. His resume is incredibly impressive, as are his educational achievements. Marks is not only a wonderful investor, but one of my favorite financial writers as well. In today’s article, I wanted to highlight some of my favorite quotes from his book, The Most Important Thing, in which he discusses the balancing act of risk and reward in depth.

One of the most influential things he wrote was,

“The possibility of permanent loss is the risk I worry about.”

This really stuck in my mind, and it makes total sense. The fact is, I’m investing my hard earned money into the market so that my passive income stream will surpass my active income stream and free up my time to pursue other, less profitable passions. Therefore, the idea of losing that money in the market is gut wrenching. Not only would permanent losses mean that I wasted my time (working), but it would also mean that I have set myself back in terms of my personal retirement timetable.

I acknowledge that I could take on more risk with more speculative investments in the high growth or deep value areas of the market in the pursuit of an even earlier retirement, but I’ve grown comfortable focusing instead on fair valued (or better) blue chips because in my opinion, these investments involve the smallest chance of permanent loss of capital.

It’s not as if owning blue chips can’t generate immense amounts of money over the long-term. Obviously there is survivorship bias in play here, but go ask anyone who’s owned shares of stocks like PepsiCo (PEP) or Johnson and Johnson (JNJ) for a couple of decades how they’re doing financially, and I have a feeling that they’re going to be pleased with their performance.

With regard to risk/reward, Marks said,

“Risk control is the best route to loss avoidance. Risk avoidance, on the other hand, is likely to lead to return avoidance as well.”

This gets back to my decision to own blue chip DGI stocks in the first place.

I acknowledge that all equities are risk assets, yet for me to be able to live comfortably in retirement (I hope to retire early.Therefore, I’m going to need to rely on the compounding associated with dividend growth to protect my passive income stream from being eroded away by inflation during the decades I hope not to work) I need to take on a certain degree of risk.

When it comes to managing the risks associated with equities, I use not only quality – which to me, boils down to predictability, accountability, and reliability when it comes to fundamental growth (namely regarding earnings-per-share and free cash flows) – but also valuation to do so.

Marks touched upon this in his book, saying, “The best defense against loss is thorough, insightful analysis and insistence on what Warren Buffett calls “margin for error”.

Not only am I a big Marks fan, but I’m a big fan of Warren Buffett as well. I cut my teeth as an investor by reading his annual letters to Berkshire Hathaway shareholders. These free resources available on Berkshire’s website are essentially a master class in value investing and I recommend that anyone interested in pursuing the dividend growth path go and read them.

It’s Mr. Buffett who has taught me that instead of focusing on the best values in the market, I should be content with accumulating shares of the highest quality companies in the market (he didn’t always feel this way, but over time, his partner, Charlie Munger, showed him the light), with his quote:

“It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Why is this? Because oftentimes, stocks that are incredibly cheap are priced that way for good reason. Value traps can lead to permanent loss of capital and rather than placing risky bets on contrarian turnaround stories, I’ve learned that it’s best to simply partner with proven winners in the market.

In a perfect world, I would absolutely love to have my cake and eat it too with regard to having the opportunity to buy the highest quality companies in the market with very steep discounts associated with them. However, the problem is, the market rarely allows the bluest of the blue chips to sell off because I’m not the only investor out there who seeks to own low risk, low beta, high quality assets that provide reliable dividend income.

Generally speaking, when macro sell-offs occur in the markets, the best-in-breed dividend growth stocks are some of the last equities to experience significant weakness. And, while it’s certainly possible to make an absolute fortune buying them during those instances, because of the rarity of such events, I prefer to simply focus on time in the market, as opposed to attempting to time the market.

Because of the reliable fundamental growth that blue chip dividend growth companies produce over time, their dividend payments and share prices tend to move higher over time as well.

With that being said, I’m pleased to pay fair value for shares of blue chips because this implies that over time, I will benefit from the fundamental growth that the companies produce.

If I were to overpay for shares, then I would not reap the same rewards, because I would be fighting against mean reversion and multiple contraction. This is why I believe it is paramount not to knowingly overpay for equities, regardless of their quality.

However, I’m also very vigilant, tracking the market on a daily basis, looking for opportunities to buy blue chips at a discount – and generally speaking, if you’re patient and disciplined, opportunities to do so arise fairly often.

By buying shares of blue chip dividend growth stocks when they’re cheap, I achieve two very important things.

First of all, I reduce the risk of capital loss associated with the investment because of things like mean reversion and multiple expansion over time.

And secondly, and probably more importantly, when buying beaten down stocks I’m able to lock what I like to call “accidentally high yields” – in other words, yields which have been driven to surprisingly high levels due to irrational share price movement – and these high yields mean that my limited amount of investable capital is able to generate more passive income.

This means that with a little bit of hard work, I can take steps to accelerate my journey towards retirement, without taking on unnecessary risks.

Lastly, I’ll leave you with this quote from Marks’ book, “A diversified portfolio of investments, each of which is unlikely to produce significant loss, is a good start toward investment success.”

That statement succinctly sums up my strategy of accumulating a diversified collection of blue chip dividend growth stocks, holding them over the long-term, re-investing their dividends, and allowing my wealth to compound, slowly but surely, over time.

With all of this being said, it’s important to note that the road to riches doesn’t have to be a tricky, complicated, or confusing one.

All an investor has to do is focus on quality, identify value, and be disciplined enough not to chase momentum higher, above fair value range, and/or avoid greedily sacrificing quality standards for potential value traps when accumulating shares.

This is the exact strategy I’ve put in place at The Intelligent Dividend Investor. And, to say that the IDI portfolio has generated “a good start towards investment success” is probably an understatement.

Our holdings have beaten the market by a wide margin and throughout the COVID-19 pandemic, the IDI portfolio maintained a perfect dividend increase record. This service goes to show that a simple, easy, and stress free investing style can lead to financial freedom. If this is something you’re interested in learning more about, please come join us!

Disclosure: Nicholas Ward is long PEP and JNJ.

Nick Ward

56 posts

View all my Posts

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.

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

Conservative Investors Can Still Beat the Market

Nick Ward

56 postsJuly 20, 2021

Featured Articles

The Great Housing Market Migration Is VERY Interesting

Let Dividends Help You Deal With Disappointment In The Stock Market

Amazon Wants to Ask What Ails You

Wall Street’s Workforce Crisis Should Be Taken Seriously

Santa Claus Has Left the Building

Conservative Investors Can Still Beat the Market

56 postsJuly 20, 2021

REIT Mutual Funds

REIT ETFs

Not All Dividends Are the Same