Durable Dividends

Despite Market Volatility, Dividends Continue To Grow

Nick Ward

56 postsJanuary 30, 2022

Last week we saw some pretty amazing volatility in the markets. On Monday, the Dow Jones Industrial average was down more than 1,100 points at one point in time, and then closed the trading day in positive territory. That was the most violent intraday swing; however, the volatility continued throughout the week, clearly signaling that there was a strong game of tug-of-war going on between the bulls and the bears here with the S&P 500 hovering right around the correction territory threshold (down 10% from its highs). Several times throughout the week, the S&P dipped below that threshold, meaning that he did officially hit correction territory for the first time in a while. The Nasdaq has been hurt even worse throughout the recent sell-off, hitting lows that represented a discount of approximately 18% off of its recent highs. On an individual stock basis, I’m seeing attractive margins of safety form, especially when it comes to blue chip stocks that haven’t been cheap in some time. Without a doubt, this is an interesting time to follow the markets. For someone like me who loves value, it’s an intriguing time to follow the markets. However, I also realize that wild volatility (especially to the downside) is likely scary to many investors who have seen their portfolio balances shrink significantly in recent weeks and therefore, I wanted to pen this piece, highlighting dividend growth, which can serve as a peaceful anchor and provide safe harbor, helping to protect investors’ psyche during stormy periods of volatility in the market.

When discussing the benefits of the dividend growth strategy, I often say that sell-offs in the market should be celebrated because lower share prices allow investors to accumulate dividend growth stocks with higher yields on cost…in other words, market weakness allows income oriented investors to bolster their passive income streams.

More passive income in the present means that dividend growth investors have more dry powder to put to use when they re-invest their dividends and therefore, prolonged weakness in the market provides a wonderful opportunity to accelerate the compounding process that the dividend growth strategy is famous for.

While dividend re-investment is a core principle of the strategy, the fact is, over the long-term, the more influential aspect of the compounding process associated with the dividend growth strategy is the organic dividend increases that the dividend growth stocks themselves provide.

Every time I see a strong dividend increase, a smile spreads across my face.

When discussing dividend growth, I like to highlight the famous Warren Buffett quote, “If you don’t find a way to make money while you sleep, you will work until you die.”

It provides great solace to me to know that my dividend growth stocks are working 24/7…365 for me. They pay me a portion of the cash flows that they generate in the form of a dividend. And what’s more, the reliably increasing nature of these dividends tends to provide annual raises (in the form of organic dividend growth) that are much higher than any pay increase that could be reasonably expected in the workplace.

Therefore, during times of strong market volatility…when I’m looking for bright spots in the market…I like to focus on dividend increases.

Short-term market movement is often irrational. It’s driven by fear and greed. Generally speaking, the sentiment that moves markets in the short-term is like a pendulum…fair value is typically hanging right in the middle of the bob’s path, but because of irrational momentum, the bob tends to swing too far in either direction (bullish or bearish). This irrational (and therefore inefficient) nature of the market can certainly be stressful. But, the beautiful thing about dividend increases is that they are typically based upon the underlying fundamentals that a company produces and therefore, they’re more objective in nature (and therefore, more predictable).

Predictability provides peace of mind. And this week, while most investors were focused on the massive volatility that we saw in the markets, I was pleased to count more than 20 dividend increase announcements…helping me to stay calm, make solid, rational decisions, knowing that the sky was indeed, not falling.

Several of my favorite companies (both stocks that I own, or stocks that I’d love to own assuming I ever have the opportunity to accumulate shares with an attractive margin of safety attached) raised their dividends this week.

For instance, Comcast (CMCSA) provided its shareholders with an 8% dividend increase, raising its quarterly payment from $0.25/share to $0.27/share. This marked the 15th consecutive annual increase for Comcast. The stock’s 5-year dividend growth rate now sits at 12.7%. And, even with this nearly double digit raise in place, looking at CMCSA’s forward 2022 earnings-per-share estimates, its dividend appears to be quite safe (and ready for more future growth) due to a forward EPS payout ratio of just 29%.

Canadian National Railway (CNI), a company that I don’t own, but would absolutely love to, increased its quarterly dividend by 19% this week, from C$0.6150 to C$0.7325/share. CNI’s management was quick to note that this marks the 26th consecutive annual increase for the company. And even after this strong double digit dividend growth, CNI looks primed to provide even more compounding in the future with a forward payout ratio (based upon recently provided 2022 full-year EPS guidance) of just 47.7%.

Another railroad stock (which I also don’t own, but would love to), Norfolk Southern (NSC), announced a strong double digit dividend increase this week. NSC raised its quarterly payment from $1.09/share to $1.24/share, representing a 13.8% increase. This raise pushes NCS’s annual dividend increase streak up to 6 years. The company has a 5-year dividend growth rate of 12%. And, it appears that double digit growth is likely to continue here, being that the company’s forward payout ratio remains low, at just 36.2%. Analysts are calling for NSC to generate EPS growth of 14% in 2022, potentially laying the groundwork for another strong raise in 2023.

Kimberly-Clark (KMB), a consumer staple that I own, announced a 1.8% dividend increase this week, increasing its quarterly dividend from $1.14/share to $1.16/share. Admittedly, a 1.8% increase is rather low, but KMB is all about slow and steady growth. This company has now increased its annual dividend for 50 consecutive years. Supply chain issues and inflation concerns are hurting KMB’s margins in the short-term, but it’s great to see this management team continue to reward shareholders with annual raises. KMB’s 5-year dividend growth rate is approximately 4.4%.

Another dividend champion, Archer Daniels Midland (ADM) provided its shareholders with a raise this week. ADM raised its quarterly dividend from $0.37/share to $0.40/share, representing year-over-year growth of 8.1%. After this raise, DM’s forward EPS payout ratio sits at 32.5%, showing the conservative nature of this management team (which is what has allowed it to generate a 47-year dividend increase streak). ADM’s 5-year dividend growth rate is 4.3%. If you subscribe to the manta that slow and steady wins the race, this company is a perfect example of the type of stock that leads to long-term success. I don’t own ADM. Like most defense stocks, they tend to trade with a high valuation premium attached (in large part, because of their reliable dividends). However, at the right price, I’d love to add ADM to my portfolio.

Lastly, I’ll highlight Chevron (CVX), the big integrated oil play, which provided its shareholders with a 6% raise this week, raising its quarterly payment from $1.34/share to $1.42/share. I’ve largely avoided the energy space in my personal portfolio because of concerns of secular growth headwinds; however, Chevron continues to prove me wrong, increasing its annual dividend growth streak to 35 years with this raise. CVX’s forward EPS payout ratio now sits at 58.4%. CVX’s 5-year dividend growth rate is 4.4%. This recent raise was above the company’s longer-term historical averages (in terms of dividend increases), showing that its management team remains confident on its forward cash flow and earnings growth prospects.

I could go on and on with this list because there were so many increases announced this week. However, the fact is, whether I own the companies providing the increases or not, I’m always pleased to see them, because it means that at a high level, the dividend growth strategy overall continues to work.

For the investors who are disciplined and patient enough to ignore the short-term volatility in the market, hold onto their blue chips, and continue to re-invest their reliably growing dividends, these recent raises show that the compounding process associated with dividend growth investing continues to occur, regardless of what the broader market is signaling.

Disclosure: Of the stocks mentioned in this article, Nicholas Ward is long CMCSA and KMB.

This article is intended to provide information to interested parties. As we have no knowledge of individual circumstances, goals and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended. It does not guarantee that securities mentioned in this newsletter will produce profits or that they will equal past performance. Additionally, we are not an investment advisor and do not offer securities or tax advice. Although all content is derived from data believed to be reliable, accuracy cannot be guaranteed. Nicholas Ward, contributors and staff members of Wide Moat Research may hold positions in some or all of the stocks listed.

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.

Commenting on Friday’s Close and What to Expect This Week

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

Despite Market Volatility, Dividends Continue To Grow

Nick Ward

56 postsJanuary 30, 2022

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