Durable Dividends

Take What The Market Gives You

Nick Ward

56 postsAugust 19, 2021

I just went through my watch list and identified all of the dividend growth stocks that were trading below my fair value estimates.

There were 23 of them.

That’s great. It means that even in a market sitting at record highs, investors in the accumulation phase of their dividend growth journey have the opportunity to buy shares of blue chip companies with attractive margins of safety attached.

Admittedly, some of these discounts were rather slim; however, as I’ve said many times, in the timeless words of Warren Buffett,

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

In short, when you’re building a dividend growth portfolio (or any portfolio, for that matter), focusing on owning the highest quality assets over the long-term is the simplest and easiest road to success.

I could throw numerous quotes that they teach on the first day of Value Investing 101 at you right now which would make a similar point.

For instance, Jack Bogle, famous investor and founder of the Vanguard Group, once wrote,

“The real money in investment will be made not out of buying and selling but of owning and holding securities.”

At this point, all of my readers know that I believe that time in the market, as opposed to timing the market, is the most important resource that investors have.

It’s this time that will allow the compounding process that dividend growth investors require to generate vast sums of money to take place and eventually flourish.

I’ve written countless words about the process of buying and holding blue chips, collecting their dividends, re-investing those dividends, and allowing our passive income streams to snowball down the path towards financial freedom.

But, the exercise that I performed today regarding my watch list reminded me of a topic that I have yet to discuss with readers here at Wide Moat Research in detail: prioritizing the combination of quality and value, over all else, including diversification, throughout the accumulation process.

Last week, I published a piece here which was focused on the importance of diversification. In that article I said that diversification was the closest thing to a free lunch that investors can find on Wall Street and therefore, I believe that maintaining a prudently diversified portfolio is an important risk management practice to adhere to. However, I want to be frank: there is no need to rush the diversification process.

Of those 23 blue chip dividend growth names that I believe to be trading below fair value, 12 of them (meaning more than half) came from just 3 sectors.

I believe that there are 5 healthcare stocks offering investors an attractive discount right now, 3 defense contractors (which fall into the industrial category), and 4 REITs.

And generally speaking, I’ve found that this is how the market works.

For whatever reason, the group-think that drives investor sentiment tends to inspire the market to ebb and flow in distinct directions, which creates buying opportunities in particular areas of the market.

Right now, healthcare, real estate, and defense appears to be out of favor (and therefore, on sale). In 6 months, the changing investment landscape could easily shift and lead to different sectors or industries becoming unloved. And, when that happens, the areas of the market that people love to hate right could morph into the next market darlings.

With that in mind, I want to say that I don’t believe that investors should focus too much on proper diversification when buying shares because if you’re someone like me who takes what the market gives you consistently over time, eventually, the fickle sentiment that creates value will provide opportunities to accumulate a wide variety of stocks.

I say this because I have people ask me – all of the time – whether or not I have an idea in a particular sector or industry that they’re interested in owning.

Some are more forceful, making it clear that they have cash burning a hole in their pocket, and yet, they only want to spend it on shares from a certain sector.

To me, that’s not the best approach to have when it comes to the market. While I think it’s great to have a plan, as far as asset allocation targets go, I don’t think it makes sense to force the issue when it comes to meeting those target weightings. Simply put, there’s never any reason to be in a hurry to hit asset allocation goals.

Haste leads to mistakes.

I’ve always found that taking what the market gives me is the best approach because when we buy cheap stocks, we not only increase our margin of safety, but also lower our yield on cost, resulting in higher passive income potential on a limited pool of investable capital.

Maintaining such a narrow field of view when it comes to equity selection so may end up in an investor chasing momentum just for the sake of diversification. And chasing momentum, regardless of the inspiration behind it, is always going to be a bad long-term habit for a dividend growth investor to develop.

This is especially the case when just starting out, but I think the logic holds true for anyone still interested in buying equities: quality should be the first priority, followed very closely by value.

Following that simple formula is likely to result in outstanding long-term returns. And, if my experience means anything, I suspect that a disciplined focus on accumulating irrationally cheap blue chips will not only lead to a sizable and fast growing stream of passive income, but also a portfolio with acceptable exposure to all targeted sectors/industries over time.

Using this strategy, it may take years for a well diversified portfolio to develop. Yet, that’s not a problem for someone who is disciplined with their cash position and ensures that they always have dry powder on hand to take advantage of the market’s weakness.

And, in the meantime, while we’re waiting around to meet our asset allocation goals, we can bide the time by counting our steady flow of dividends – because let me assure you, nothing soothes portfolio management fears like a reliably increasing passive income stream.

If you’re interested in building a reliably increasing passive income stream of your own, or you’re looking for ideas with regard to the best undervalued blue chips in the market today, come check out The Intelligent Dividend Investor.

This newsletter service includes an actively managed portfolio, real-time trade alerts, weekly portfolio updates, and a monthly newsletter centered around the dividend growth investing strategy.

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.

Amazon’s Latest Big News May Blow Your Mind

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

Take What The Market Gives You

Nick Ward

56 postsAugust 19, 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

Take What The Market Gives You

56 postsAugust 19, 2021

REIT Mutual Funds

REIT ETFs

Not All Dividends Are the Same