Durable Dividends

Don’t Wreck Your Retirement By Focusing Too Much On The Past

Nick Ward

56 postsMay 25, 2021

It’s rare that you’ll hear me say disparaging things about the dividend growth investing strategy.

This strategy not only allows me to sleep peacefully at night, but it has also proven itself more than capable of generating significant wealth over time.

As I’ve said many times before, I believe wholeheartedly in dividend growth’s ability to allow me to enjoy a comfortable retirement on an accelerated time table. What’s not to like about being paid handsomely to own the best companies in the world?

Well, one issue that I commonly see within the dividend growth community is the propensity for DGI investors to focus too much on the past.

The strategy itself can perpetuate this sort of backwards looking tendency, due to our focus on things like historical dividend growth streaks, trailing twelve month payout ratios, and yield on cost.

While it’s true that both of these metrics may help to determine fair value and dividend safety, the fact is, the total returns and dividend growth that investors generate into the future is wholly determined by future cash flows.

Backwards looking metrics can be useful when it comes to peace of mind and therefore, avoiding the common pitfall of selling high quality assets because of irrational fear, so they’re certainly not all bad.

But, a long dividend increase streak doesn’t mean a company won’t cut its dividend in the future (just last week we saw dividend aristocrat AT&T (T), a blue chip name with a 30+ year dividend increase streak, announce a significant cut).

A low trailing twelve month payout ratio means very little if a company’s bottom-line growth is about to fall off of a cliff.

Also, yield on cost is a fairly meaningless metric in terms of the actual income that your portfolio generates in the present (which is based entirely on present-time yield) and any investment decisions that you might be making in an effort to bolster your future dividend income stream. For instance, even if you’ve made a wonderful investment which has led to a yield on cost on Company X of 20%, if company X is yielding 2% in the present and you sell those shares and use the proceeds to buy shares Company Y with a yield of 3%, you’re increasing your passive income stream by 50%, even though your yield on cost with the new investment is 17% lower.

When it comes to managing money while looking backwards, I like to compare it to driving a car.

We’re all on the journey towards financial freedom… and only paying attention to what’s behind us increases the likelihood that we hit an obstacle ahead of us and derail our journey in a potentially significant way.

Not only can looking backwards lead to mistakes in the future (such as investing in a company with poor growth prospects due to an irrational focus on an illustrious past), but it can also blind us from potentially attractive opportunities that could serve as detours, and even major short-cuts, along that path towards retirement.

This is especially the case right now, because of the damage the COVID-19 pandemic has done to the earnings-per-share results of many blue chip (and even best-in-breed) companies that operate in industries that were totally disruptive by regulation regarding social distancing.

Frankly, during a once-in-a-century biological event, I think ignoring twelve months of results, and instead focusing on forward earnings for 2021, even 2022, can make a lot of sense.

While we’re not completely out of the COVID-19 woods; but, I believe that we’re in the final innings of this pandemic and every day we’re inching closer and closer to a time when society returns to a more normal operating environment.

Sure, the “new normal” may not look the same as the “old normal”, but management teams and analysts are factoring this into their estimates as best as they can.

No one has a working crystal ball; however, it’s certainly possible to use data from the past and the present to identify investable trends moving into the future.

So long as economies are open and businesses are allowed to compete freely (without the extra burden of social distancing regulation), then I suspect that we’ll begin to see fundamental results that are reminiscent of the pre-pandemic era.

I know this sort of speculative practice goes against the conservative mindset of many income oriented investors who’ve found their way into the dividend growth investing community, but the fact is, the market largely bases its pricing off of the expectations of future cash flows, and that is exactly what dividend growth investors should be doing as well.

I’m certainly not saying to ignore valuation. I think historical multiples can help to determine fair value and prohibit investors from overpaying for equities. But, when it comes to the well established, well covered, mature blue chips that DGI investors typically own, I think there is a relatively low amount of speculation, and therefore, risk, involved when it comes to relying on management guidance and/or analyst consensus estimates for things like revenues, earnings, and cash flows when we’re talking about expectations a year or so out.

All equities are risk assets and therefore it’s impossible to move speculation and risk from the equation entirely. And, the farther and farther that we attempt to peer into the future, the more inaccurate our estimates will become. But, I think conservative investors can use the past, when it comes to a management team’s ability to consistently meet guidance expectations, navigate an ever evolving competitive landscape, and return adequate amounts of capital to shareholders, to bolster their conviction when it comes to identifying trends and trusting future estimates, enabling them to make decisions based upon growth prospects that they can easily stomach.

Therefore, I implore you not to run into potholes, pitfalls, or to miss a glorious opportunity because you’re driving with both eyes glued to the rear view.

Remember, to reach a comfortable retirement, we have to maintain our focus on the future. We can’t expect to receive reliably increasing dividends if we’re not focused on fundamental growth.

If you’d like a helping hand identifying the most attractive growth trends in the market, which have the potential to generate not only significant capital gains, but also reliable dividend growth, then please consider subscribing to The Intelligent Dividend Investor.

The IDI Portfolio is full of best-in-breed companies who’ve not only proven their ability to generate strong shareholder returns in the past, but have also put themselves in attractive competitive situations to continue to generate growth into the future as well.

Every single holding in the IDI portfolio not only maintained, but also increased its dividend during the 2020, showing that with the right help, it was possible to navigate the pandemic in a very profitable fashion.

I personally own shares of every single stock in the portfolio and looking ahead, and even after our market beating returns since launch, I maintain a lot of confidence in the IDI portfolio’s total return and dividend growth potential moving forward.

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.

Leisure Travel Is Picking Up (but Don’t Bet on the Business Side Yet)

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

Don’t Wreck Your Retirement By Focusing Too Much On The Past

Nick Ward

56 postsMay 25, 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

Don’t Wreck Your Retirement By Focusing Too Much On The Past

56 postsMay 25, 2021

REIT Mutual Funds

REIT ETFs

Not All Dividends Are the Same