Dividends Premium: October 2024

A New Look for Income Investing

Dear New Dividends Premium Member,

Welcome to your first issue of Dividends Premium! I hope this will be the beginning of a long and mutually profitable relationship.

Each month, I’ll be delivering Dividends Premium to your inbox—and a couple weeks later the companion advisory Dividends Premium REITs, which features my databank of 70 plus individual real estate investment trusts.

In between, you and I will have the opportunity to interact directly in our Dividends Premium Banquet Hall, where you can pose questions and comments directly to me as well as chat with your fellow members. I will be sending you an invitation and directions for the Banquet Hall shortly.

First, here’s a little about your first issue of Dividends Premium. It’s in three sections.

My Market Commentary features the big picture from the point of view of dividend investing. I’m not here to overwhelm you with facts and figures, or economic theories. But I do want you to have a clear idea of what’s going on in the markets, why it’s happening, and how it’s important to the decisions we need to make.

The second piece of Dividends Premium is Investment Strategy. The focus here is a broad-based portfolio of individual stocks I’ve created that’s easy to follow, regardless of how much you intend to invest. The “Key Points and Ground Rules” for the portfolio are highlighted at the end of this report.

As you’ll see, the Portfolio you now have access to is not a new creation. Rather, it’s been battle tested, starting with its inception in September 2018. And you’ll be able to see the performance returns in every issue of Dividends Premium, for both the entire portfolio and the current individual holdings.

If you’ve been investing, you’re well aware the past six years have been anything but tranquil for the stock market, including a fierce selloff in early 2020 and the steepest interest rate increases in over 40 years. But we’ve consistently achieved our objectives of generating safe, high and growing income and reliable capital growth, while ensuring relative stability of principal. And that gives me a great deal of confidence that we’ll do the same going forward, come what may.

Every issue of Dividends Premium includes two information tables. One is the Portfolio itself, including recommended weightings and other key data points as well as my proprietary Risk Rating.

Every recommended stock has a “highest recommended entry point.” That’s the highest price I would pay for the stock under any circumstances. If the price goes above that, I’m not buying.

My other information table highlights what I call “Dream Buy Prices.” These are extremely low stock prices that have historically only been reached during real market crises. And investors who’ve managed to swallow their fears and buy at such times have ultimately been rewarded with windfall gains.

Last but not least, I highlight stock prices at which I recommend taking profits. For the first time in market history, there’s more money passively invested in Wall Street’s packaged products than is actively managed.

Wealth concentration is at an historic high in a handful of strategies. That means there’s an historically low number of actual decision makers, both human and algorithmic. And the result is far greater momentum and volatility than ever before, with higher highs and lower lows for stock prices.

There’s real danger for unprepared investors. But the stock market’s jagged ups and downs have also created unprecedented opportunities for long-term minded income investors to buy low and sell high. And that includes occasional profit taking when a recommended stock has run too far, too fast.

The third piece of Dividends Premium features the two best “fresh money” buys for the month. Most often, they’re companies already in the portfolio. But this is also where I’ll introduce new recommendations. And I expect to have several to share with you in the next few months, potentially as we swap out some of the current holdings.

Again, this is not to say I intend to frequently trade, far from it. Quite frankly, if you’re always swapping in and out of positions, you’re just not going to get much in the way of either income growth or long-term capital appreciation. But even the most long-term minded investors will do best by being nimble and willing to pare back as well as add to new positions from time to time.

This month, my two top Dividends Premium Portfolio picks are residential properties owner Mid-America Apartment Communities (NYSE: MAA) and super oil major TotalEnergies (Paris: TTE, NYSE: TTE). Both companies are highlighted in the issue below.

I’ll save my introductory comments for Dividends Premium REITs when I send it to you in the coming days, other than to say it also has a portfolio of recommendations. And I will also be featuring two best fresh money picks there each month.

In closing, I wish you a very warm welcome to Dividends Premium. And please feel free to share your thoughts with us anytime on how I can better serve you. Here’s to your wealth--RC

Dividends Premium A New Look for Income Investing

By Roger S. Conrad on October 21, 2024

On September 18, the US Federal Reserve cut the Fed Funds rate by 50 basis points. At the time, many mainstream Wall Street analysts hailed the move as a buy signal for dividend stocks. But since then, most dividend stock averages have scarcely budged.

Despite growing investor enthusiasm for nuclear power and realization electricity demand from artificial intelligence is for real, the Dow Jones Utility Average is up barely a percent. The iShares Select Dividend ETF (DVY)—used as a benchmark for many dividend-investing strategies—is barely in the black. And the S&P 500 REIT Index has slumped about -1.5%.

To be sure, broader stock averages haven’t done a whole lot better. But it is clear that—at least since the Fed cut rates—dividend stocks have returned to the underperformance of the two years leading up to April 2024, when talk of a Fed rate cut heated up.

Why the lack of enthusiasm? Mainly, investors bought the rumor this spring and summer that the Fed would be at last pivoting to cutting interest rates. And since the rate cut, they’ve sold the news.

I explored that theme in greater detail in my October 6 Substack column “Utility Stocks: Why No New All-time High?”

As of mid-April 2024, dividend stocks had underperformed for roughly two years. The steepness of Federal Reserve rate increases made dividends less attractive relative to cash alternatives like money market funds and CDs.

Worse, rising rates were a massive headwind for earnings and dividend growth headwind at all capital-intensive businesses. These are actually the vast majority of high yielding stocks—including most of the companies in our income portfolio.