Durable Dividends

Hold Your Horses

Nick Ward

56 postsAugust 26, 2021

For a split second last week, we began to see a bit of weakness in the markets.

The Dow Jones Industrial average fell roughly 2.4% (dropping approximately 865 points) in just a few trading sessions from August 17th-19th.

During this same period of time, the S&P 500 fell roughly 1.5% from its prior record highs.

And, due to the fact that we haven’t seen much in the way of negative volatility during the last 6 months or so, it appears that this little downdraft caught investors by surprise.

The market has made a habit of shrugging off potentially worrisome news throughout 2021. Over the last week, that trend has remained intact. Investors have largely ignored the geopolitical issues playing out in the middle east right now. The same can be said of the continued spread of the Delta variant domestically. So long as the Fed remains dovish, it appears that investors are content to push maor averages higher.

But, the volatility that we saw last week seems to have caused many investors to question whether or not it was still time to put cash to work in the markets. Heck, certain individuals that I spoke with were looking to liquidate their equity positions.

I grew up in the countryside. I still live on a small farm. Statements like that made me think, “Whoa Nelly, hold your horses!”

When I started to plan this piece, I had no idea that the market would quickly bounce back towards record highs (today, the S&P 500 hit its 51st record high of 2021, alone).

Initially, the fear that I saw from the investor base that I interact with on a daily basis served as the inspiration for this piece. I wanted to provide a sense of solace, making two primary points:

We were still sitting within 2% of all-time highs of the S&P 500 and therefore, this “sell-off” or “dip” that we saw last week wasn’t really much of a dip at all. Sure, seeing 300+ point down days on the Dow can be frightening, especially for people who’ve been at this for awhile and can remember when 300 point down days on the Dow meant losses of several percentage points (now, a 300 point sell-off equates to a sell-off of 0.8% or so), but in the grand scheme of things, red numbers like that in today’s market environment are certainly not something that should cause investors to run towards the hills.
Even if this sell-off turns into a more significant correction, I wanted to point out that there are still a handful of attractive investment opportunities – blue chip companies trading which offer reliable fundamental growth prospect and valuations that are well below their historical averages – which to me, represent opportunities to generate solid long-term returns, regardless of what the market is doing in the short-term from a macro perspective.

In short, once again, I wanted to take the time to highlight the timeless idea that the stock market is just that: a market of stocks.

Therefore, investors should not be paying too much attention to the macro noise and worrying (speculating) about an uncertain future, but instead, to the fundamental bargains that exist in the present.

Why? Simply put, I’ll advocate for another classic market slogan, “Time in the market is more important than timing the market.”

Even at all-time highs, even with forward price-to-earnings multiples on the major averages are elevated, even when there’s doom and gloom abound, this simple statement remains true.

Timing the market is incredibly difficult – if not impossible – to do consistently over the long-term.

Sure, it would be wonderful to perfectly time market tops and bottoms, selling high, buying back low, selling high again, and repeating this process over and over until financial freedom is reached.

But, in my experience, I’ve learned that attempting such maneuvers is a fool’s errand. What is not; however, is simply buying shares of best-in-breed companies when they’re trading with attractive margins of safety and then holding them over the long-term, through ups and downs, as their fundamentals compound over time.

Here’s another one of my favorite investing quotes, from the father of value investing himself, Benjamin Graham (I’m paraphrasing here),

“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

In other words, short-term sentiment (which is fickle and highly irrational) drives share prices. But, over the longer-term, a company’s underlying fundamentals will shine through this sentiment fog and shed true light on the company’s intrinsic value.

Turning back towards the current market conditions, even though we’ve seen bullish sentiment drive markets back towards new records, I believe that these high level messages are still useful to investors.

I’m certainly not going to sit here and say that individuals should not be looking over their holdings, pinpointing areas where profits should be taken.

Remember, no one ever went broke taking a profit and while, as a dividend growth investor, I tend to very rarely sell equities because doing so damages the strength of my passive income stream and its compounding potential, I think the act of trimming positions can be very useful to investors, especially if it helps them to remain in a rational state of mind that will allow them to better capitalize on opportunistic bargains in the future.

In other words, if having a few more dollars in your cash positions allows you to sleep easier at night, and will prohibit you from giving into fear if/when a significant sell-off occurs and becoming a forced seller into weakness, then that’s great.

Giving into fear and selling low, only later to be inspired be greed to buy back higher, is one of the most common pitfalls that investors fall into.

But, overall, I believe that investors – especially those in the accumulation phase of their dividend growth journey – can still be confident in their purchases because of the attractive opportunities that exist in certain areas of the dividend growth space.

For instance, in the healthcare space, there are a handful of blue chip companies trading with historically value valuations which offer strong forward looking growth prospects as well as dividend yields that are more than twice as high as the S&P 500’s.

Here are a couple of my favorites:

AbbVie (ABBV): trades for 9.5x 2021 EPS expectations, offers 20% bottom-line growth prospects this year and another 10% in 2022, yields 4.32%, and most recently increased its dividend by 10.2%. AbbVie’s long-term average price-to-earnings ratio is 13.3x.

Bristol-Myers Squibb (BMY): trades for 9.0x 2021 EPS expectations, offers 16% bottom-line growth prospects this year and another 8% in 2022, yields 2.90%, and most recently increased its dividend by 8.9%. Bristol-Myers’s long-term average price-to-earnings ratio is 18.8x.

I’ve seen significant weakness develop throughout the defense sector, starting in late 2020 and persisting throughout the present day, and like the healthcare stocks listed above, these companies also offer historic discounts, reliable growth prospects, strong dividends, and dividend growth prospects.

Lockheed Martin (LMT): trades for 13.4x 2021 EPS expectations, offering 9% bottom-line growth prospects this year and another 4% in 2022, yields 2.90%, and most recently increased its dividend by 8.3%. Lockheed’s long-term average price-to-earnings ratio is 17.25x.

Raytheon Technologies (RTX): trades for 21.0x 2021 EPS expectations, offering 49% bottom-line growth prospects this year and another 23% in 2022 (pointing towards a forward, 2022 P/E ratio of just 17.1x), yields 2.38%, and most recently increased its dividend by 7.4%. Lockheed’s long-term average price-to-earnings ratio is 17.1x.

And, if you’re not solely interested in dividend growth stocks, you don’t have to look further than one of the most popular tickers in the entire market, Amazon (AMZN), for an intriguing value in the growth space.

Amazon shares have lagged the broader markets in a major way during 2021, up just 1.5% year-to-date. However, the company has beaten analysts’ bottom-line expectations by a wide margin during its first and second quarter reports this year. The combination of share price stagnation and strong earnings growth has resulted in AMZN trading with historically low profit related multiples. And…it doesn’t appear as though the stock’s growth story is ending anytime soon with analysts calling for annual EPS growth in the 25-35% range during the next 3-5 years, pointing towards strong upside potential ahead.

Buying and holding high quality assets like this and holding them over the long-term is the simplest and easiest way to achieve success in the markets. To me, this is the message that investors should focus on – not on the short-term macro headwinds, fearful drops in the Dow, or the latest headline running across the screen on the network news.

By focusing on fundamentals, investors can avoid all of that noise and put themselves in a situation to succeed over the long-term.

If you’re looking for guidance when it comes to canceling out distracting noise and to focusing on what truly matters in the market, then check out The Intelligent Dividend Investor.

This newsletter service is focused 100% on generating a reliably increasing income stream, through thick and thin, regardless of which direction the market is heading.

During 2020, throughout the COVID-19 pandemic, The Intelligent Dividend Investor portfolio maintained a perfect dividend increase record. Moving forward, I have very high hopes for the portfolio as well.

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.

Never Settle for Partisanship

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

Hold Your Horses

Nick Ward

56 postsAugust 26, 2021

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Hold Your Horses

56 postsAugust 26, 2021

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