Durable Dividends

Dividend Growth investing Isn’t For Everyone

Nick Ward

56 postsSeptember 16, 2021

Dividend Growth investing Isn’t For Everyone.

Now, don’t get me wrong, it can be. However, the fact of the matter is, a lot of individuals aren’t cut out for the strategy. Why? Primarily due to a lack of patience and discipline.

This article certainly isn’t to disparage anyone. Another fact is: there are many ways to achieve success in the world, financially speaking.

I’ve chosen the dividend growth path as the way that I am proceeding towards my ultimate goal of financial freedom, but I know others who’ve done extremely well for themselves with a wide variety of investing strategies (deep value, contrarian/momentum style traders, options experts, speculative growth, and even meme-stock traders).

Outside of the equity space, I know many individuals who’ve become wealthy because of investments/trades in alternative assets such as crypto, precious metals, and/or collectibles.

I know individuals who’ve centered their investment portfolio around rental properties and done quite well for themselves.

I know others with an entrepreneurial spirit who’ve done well by investing capital into start-ups and/or franchise agreements.

This list could go on and on.

I say all of this because I don’t want anyone to believe that I’m naive and/or close minded when it comes to the many successful avenues that individuals can take when it comes to generating enduring wealth.

I focus on dividend growth investing because I believe that it is the simplest, easiest, and frankly, most effective strategy for the average individual to reach financial freedom, but I’m perfectly happy to admit that it’s not the only path to take.

But, I wanted to write this article to highlight something that is very important to all investors, no matter which path they chose: get rich quick schemes don’t work.

Simply put, if it were easy to become a millionaire overnight, everyone would do it.

When it comes to capital investments, investors always face a balancing act between risk and reward.

These two things tend to be correlated and therefore, any scheme that might appease someone who is looking to turn a small cash pile into something big enough to buy a Lamborghini by the weekend likely has a very high chance of failure.

What all of the successful strategies that I noted above – with regard to generating wealth – have in common is this: patience.

It’s often said that time is an investor’s most important resource and a truer statement couldn’t be made.

Sure, it’s possible to strike it rich with a lucky bet on a crypto asset or a meme stock that shoots up 5,000% in a year, but stories like that are not the norm; they are outliers…aberrations.

I can assure you that for every millionaire minted by such speculative trades, there are copious individuals whose bets have come up empty. I think there is a place for highly speculative investments, in even the most conservatively managed portfolio, assuming that strict asset allocation thresholds are adhered to. However, it’s important to realize that the phrase “loss porn” exists for a reason.

I get it. We live in an age where instant gratification is sought after more than ever. The 7-10% returns that equity markets have generated over the long-term are not exciting. However, that’s all a matter of perspective.

If someone is able to compound their wealth at a rather conservative 7% clip, that implies that their investment will double every 10 years or so. It means that 20 years down the road, their investment will have quadrupled. 30 years down the road, they’d be looking at 8x returns. That’s not too shabby right?

Someone who compounds wealth at a 10% clip doubles their money every 7 years or so. This means that their investment will quadruple in 15 years. In 30 years, they’d be looking at 17.5x returns.

To paint this picture even more clearly, a $1,000.00 investment today, which compounds at a 10% annual rate over time, will be worth $17,500.00 in 30 years.

In short, given enough time, investors who live below their means and invest their savings regularly can return relatively small sums of money into sizable nest eggs over the long-term by investing in blue chips because of the nature of compound growth over time.

Not only does it take patience to do this, but also discipline.

Why? Because over long holding periods, assets (whether we’re talking about equities, alternative assets, real estate holdings, or collectables) will experience volatility when it comes to their valuations.

Every single day I see people who are scared of negative volatility sell out of high quality assets because they’re scared of short-term sentiment. And very few of these individuals have the ability to time the market, allowing themselves to get back in at lower prices. The sad fact is, these individuals tend to get left behind when sentiment turns bullish again, pushing the values of these assets higher.

And over the long-term, that’s the clear direction that most high quality assets head.

With regard to dividend growth stocks in particular, this lack of discipline which leads to selling low and buying high really hurts the compounding process. And this is why I say that most investors are best off simply ignoring short-term share price volatility and instead, focusing on the more tangible nature of dividend growth.

To me, this strategy is so successful because success is clearly tracked and measured by the growing size of one’s passive income stream.

Markets have experienced negative volatility in recent weeks. Certain areas of the market that I’m heavily invested in, such as the healthcare sector, have been crushed. Several blue chip bio-pharma names that I own are down double digits during the last month. However, this doesn’t bother me.

Why? Because short-term share price movement is not my concern. I can’t control market volatility. But, what I can control is whether or not I put myself in a situation to continue to compound my wealth (and more importantly, my passive income stream) by staying long blue chip stocks with strong fundamentals, talented management teams, and long-term histories of generosity towards shareholders.

Instead of focusing on the red numbers that I see on my brokerage pages during market sell-off in recent weeks, I’ve taken solace in the numerous dividend increase announcements that my portfolio holdings have provided.

This week alone, Microsoft (MSFT) announced a 10.9% dividend increase (alongside a $60 billion buyback authorization), Philip Morris announced a 4.2% dividend increase (which is fantastic for a high yielding stock), and Texas Instruments announced a 12.7% dividend increase.

Each of these companies has experienced negative volatility over the years. There are always bears on Wall Street and I’m sure a quick Google search would provide a slew of negative opinions expressing why I should sell my positions in all three of these names. However, it’s easy for me to ignore sentiment driven noise and instead, focus on long-term ownership (which allows me to benefit from the strong compounding that these equities provide) because of their reliably increasing dividends.

Philip Morris is a relatively new position for me (I initiated exposure in May of 2021) and I’m only up a few percentage points on the investment. However, both Microsoft and Texas Instruments are longer-term investments and as of today, I’m sitting on respective gains of 439% and 107%.

With dividends factored into the equation, my total return figures associated with those stocks are even higher. And these triple digit gains wouldn’t have been possible with both patience and discipline.

The reason that I harp on the dividend growth investing strategy so adamantly is because of the psychological support system that a dividend income stream provides.

Human beings are prone to giving into emotion. We’re prone to irrational behavior, driven largely by either fear or greed. And, these typical emotional responses tend to lead to mistakes in the market.

Many individuals simply aren’t able to overcome this aspect of their human nature. Many individuals don’t have the intestinal fortitude to hold risk assets through volatility. Many individuals aren’t able to set aside greed and view the world through a realistic lens (when it comes to compounding wealth). And frankly, that’s why so many individuals fail in the stock market.

It’s impossible to know exactly what a stock is worth at any given point in time. Who’s to say what the right multiples are to be placed on things like sales, earnings, or cash flows? Furthermore, equity prices are largely based upon estimations of future cash flows, which are inherently speculative in the first place.

With all of that in mind, it’s easy to question whether or not an investment’s risk/reward profile is attractive. However, these questions are what tend to get us in trouble.

The good news is, the dividend growth strategy provides a safety net, or a restraint, or an anchor (whichever metaphor that you prefer) which can protect us from our worst irrational impulses via the tangible nature of our passive income streams.

It’s easy to rest easy and avoid impulsive mistakes when I see my dividends constantly being increased because it’s clear that I’m taking positive steps towards my ultimate goals. These dividend increases quench my thirst for instant gratification; they quell financial fears and provide hope of a brighter financial future.

Therefore, while the strategy may not be for everyone (primarily those who’re unable to manage expectations), this style, more so than any other that I’m aware of, has qualities in place that can help investors overcome the biggest hurdle in between their current financial situation and eventual financial freedom: themselves.

Disclosure: Nicholas Ward is long MSFT, PM, and TXN.

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.

Is It Time for Transparency?

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

Dividend Growth investing Isn’t For Everyone

Nick Ward

56 postsSeptember 16, 2021

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