Durable Dividends

Finding Solace With Fundamental Support Levels

Nick Ward

56 postsApril 10, 2022

This week in one of my YouTube videos, I highlighted Bristol-Myers Squibb’s (BMY) breakout to all-time highs. BMY shares have been in the doghouse for years, having traded with what I believed to be absurdly low valuations (relative to their growth) and it’s great to see the market finally showing this beaten down blue chip some love.

In that video, I touched upon the broader rally that I’m seeing in the healthcare sector on a year-to-date basis. While it’s true that the overall market has bounced in recent weeks with just about every industry/sector trending higher on the tails of the Fed’s announcement (it looks like the market was very pleased with a 25 basis point raise announcement as opposed to the 50 bps raise that some feared), the healthcare names – and especially, the blue chip bio-pharma stocks – have been performing well throughout the entire year.

Why is this? Well, because we’re still in a risk-off period.

Historically, healthcare stocks have served as defensive investments for many of the same reason that consumer staples tend to perform well during bear market periods…in short, consumers will buy the products that healthcare names sell, whether we’re talking about Tylenol for a headache or an immuno-oncology cocktail for cancer, when they need them, regardless of the broader economic conditions.

And yet, in recent years, the market has largely overlooked the healthcare/bio-pharma space, because of fears surrounding the pandemic (yes, certain vaccine makers have benefitted from COVID-19 in a major way; however, many bio-pharma and medical device stocks have seen their growth slow in recent years because of the many elective procedures that have been postponed because of the pandemic).

I’ve pointed out the irrational nature of this underperformance many times in recent years because while the share prices of many blue chip healthcare stocks languished, their underlying fundamentals continued to climb.

Anytime I see a divergence between share price performance and the performance of underlying fundamentals, I start to get excited. These are the opportunities that an inefficient market creates for investors who are willing to go against the grain.

I suspect that the built up demand for some of these treatments and procedures is factoring into the strength that healthcare has seen in 2022; however, even without this sort of artificially created growth tailwind in place, I believe it’s totally logical and rational for many of the healthcare stocks on my watch list to move higher because of the simple fact that they were irrationally cheap coming into the year.

Therefore, not only are bio-pharma stocks benefitting from the macro shift towards defensive investments and the reliable fundamental growth that typically comes along with that, but also, multiple expansion via mean reversion (which can be a very powerful force in the market).

As many of you know, I believe that the market is often irrational in the short-term, allowing emotions (largely fear and greed) to drive the collective consciousness of traders who tend to form an unruly herd that chases momentum, regardless if there is sound reason to do so or not.

But, I also firmly believe that over longer periods of time, the market is efficient. Eventually, the herd comes to its senses, realizes its follies, and corrects its mistakes. And, when this happens, stocks that have been irrationally beaten down experience a coiled string effect, resulting in strong rallies as the multiples attached to their cash flows rise back up to the levels where they should have been all along.

With this idea in mind, I wanted to highlight how investors can use things like fundamental support levels to provide peace of mind when buying into weakness.

The past cannot be used as an accurate predictor of the future. There are entirely too many variables at play in any given point in time for historical data and support levels to serve as fool-proof risk reduction tools. But, when we’re talking about mature blue chips with established and stable and reliable cash flows and earnings growth prospects, I believe that historical data and pricing levels can and should help value investors arrive at their target price points for potential investments.

Sticking to the bio-pharma theme, I’ll use F.A.S.T. Graphs to illustrate how investors can use fundamental support levels to attempt to time bottoms and put themselves in situations where the risk/reward scenario attached to an investment is weighted in their favor.

I’ll use one of my favorite bio-pharma stocks: Amgen (AMGN).

Amgen is a name that I’ve owned for years. Not only have I owned the stock for quite some time, but I’ve maintained a “full” position in AMGN shares as well, showing the confidence that I have in this company, and ultimately, its dividend growth prospects, moving forward.

Amgen is a wonderful dividend growth stock with a 3%+ yield, a 12-year annual dividend growth streak, and 5 and 10-year dividend growth rates of 12.0% and 28.8%, respectively.

AMGN’s most recent dividend increase came in at 10.2%.

As you can see, the company’s dividend growth trajectory is slowing; however, I’m never going to be upset about a 3% yield which is producing double digit dividend growth.

As AMGN’s dividend continues to mature, I wouldn’t be surprised to see its annual dividend growth settle into the high single digits, but once again, that is totally acceptable to me at this yield level (6-9% annual dividend increases still go a long way towards protecting – and expanding – the purchasing power of my passive income stream from being eroded away by inflation during normal inflation environments).

But, this article isn’t about dividend growth…it’s about finding solace with fundamental support levels.

Looking at the F.A.S.T. Graph below, you’ll see several lines of different colors. The black line represents AMGN’s historical share price. The blue line represents AMGN’s historical average price-to-earnings ratio. And, the pink line represents a custom price-to-earnings threshold which I have added.

As you can see, the black line (AMGN’s share price) has bounced off of the pink line (the 12x price-to-earnings multiple) at a very reliable rate throughout the last decade.

Source: F.A.S.T. Graphs

Since Amgen hit that ~12x threshold in late 2021, the shares have rallied approximately 26%, from the low $200 area to the $252 area where they trade today.

This isn’t to say that AMGN will always bounce off of the 12x support level, but when I see a decade’s worth of data that shows a clearly defined trend, I do factor it into my portfolio management decision-making.

AMGN’s valuation has recently crossed up above the blue line, meaning that shares now trade at a premium to their 10-year historical average. With that in mind, I don’t believe AMGN offers an attractive risk/reward scenario in the present (from a valuation perspective); however, investors who were brave enough to buy the stock into weakness several months ago when its P/E ratio dipped well below its historical average have done quite well for themselves now that we’ve seen mean reversion result in a strong double digit rally.

This is just one example of a strong fundamental support level that I track and use to accumulate stocks. There are many well established patterns like this in the market. Using strong fundamental support alongside dividend safety metrics is my favorite way to maintain a contrarian mindset and accumulate shares of wonderful companies that the proverbial herd have cast aside.

Safe and reliable growing dividends allow me to be patient while I wait for mean reversion to occur (it’s always easy to be patient if I’m being paid as I wait). And, with that in mind, I believe the combination of contrarian/value investments principles and dividend growth stocks are a match made in heaven.

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.

Disclosure: Of the stocks discussed in this article, Nicholas Ward is long BMY and AMGN.

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.

What goes up Musk come down?

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

Finding Solace With Fundamental Support Levels

Nick Ward

56 postsApril 10, 2022

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

Finding Solace With Fundamental Support Levels

56 postsApril 10, 2022

REIT Mutual Funds

REIT ETFs

Not All Dividends Are the Same