Welcome to the forum for Dividend Growth Investing discussion on Seeking Alpha. A new article is posted every two weeks as a space for sharing of ideas, discussing concepts, and digging deeper on DGI. All previous blogs are listed in chronological succession on the main chat page.
As promised and with your valued feedback, we are publishing a new version of the article with some changes to make it more engaging. The structure of the article will now include a response from one of you in the community regarding your thoughts on DGI.
If you’d like to share your DGI thoughts with us in future editions, you can email us at [email protected] and let us know. We’ll be looking at continuing to do this moving forward.
For a reminder, you can find our moderation guidelines for this space in our profile. And please share your thoughts below to continue the discussion and learning on DGI.
Community Talk – Investment Methods with jgrever621
Reader jgrever621 shared a bit about their investment tactics and approach:
“Several authors have spelled out their investment methods. Mine is simple. I seek dividend income a bit above the average, expected dividend growth, and some capital gain over time. I diversify, including tech, preferably with dividend payments. Tech is under 10% even after its rise, and REITs now exceed 1/3. I use a small part of portfolio for spec stocks (3-5%), also with dividend income as dividends usually reduce overall risk. Spec has been very helpful the last few years. My dividend income has grown rapidly the last few years; I both live off them and reinvest a portion, plus occasional recycling of a maturing investment. An examples of cycling is IRM, which ballooned to over $100 a share, which I considered well over its value, so replaced it. While dividend income growth is lumpy, since developing my program, growth has accelerated beyond 15% annually.”
Last Edition’s Featured Comment from David Crosetti:
“One of the questions, relative to the Fed lowering interest rates, should be “What’s going to happen now?” Well, for a time, it was pretty simple and smart to put cash into a laddered set of CD’s. You could get over 5% on 3-6-9-12 month CD’s and money market funds and other cash parking places presented a really nice opportunity for people to make some money while preserving capital. So, you have to ask, “Where is that money going to be headed, when rates are dropping and banks are calling in the 5.25% CD’s and ending the gravy train?” That money is going (at least the smart money) into stocks. Pay attention. Get on top of your “watch list” and pull the trigger. Remember, when interest rates are high and dropping, the stock market is where you want to put your money. This is an opportunity to grow your portfolio as money is chasing shares. Investing is all about “thinking.” Thinking “What does this mean and how can I make money?“”
So, what are you thinking in this changing rate environment? Any stocks you’re watching closely?
More on Dividend Growth Investing:
Having said that, the risk of some BDCs having to retreat from their current dividend levels is indeed material. In this context, TriplePoint Venture Growth (TPVG) and Investcorp Credit Management BDC, Inc. (ICMB) provide some valuable lessons or key takeaways that should be kept in mind for investors when reviewing their existing BDC portfolio or contemplating new investments.
On a $200,000 investment, that’s a $3,000 annual income difference. In prior articles (like this one), I used the words “cash trap” to describe this risk, as a lot of money will have to rotate out of money market funds if the Fed continues to cut rates. Although rate expectations are extremely volatile, the Fed’s own projections show a path to a 3% rate by 2027.
The Fed delivered a relatively large 50-basis-point cut on Sep. 18th, the first cut in more than four years. The trend for the interest rates is clear, at least in the short to medium term. They are going lower. The only question that remains is the pace at which they are going to go lower, which is obviously difficult to answer for anyone. The economic conditions can change, and most folks (even economists) can’t predict it accurately.
We can see that the price has fallen by a modest 4.3% on a YTD basis. Including the distributions, total return only sits at 2.6% over the same time period and this is severely underwhelming for a BDC that currently has such a high distribution rate. This underperformance can be driven by the weight on non-accruals in TRIN’s portfolio as they continue to feel the weight of increased interest rates. Nevertheless, TRIN’s underperformance makes other BDC peers a much better choice in this environment and I worry about TRIN’s ability to sustain the current distribution rate going forward. For this reason, I am downgrading my rating to a hold.
Realty Income Corporation (O) is a real estate investment trust (aka REIT) that acquires, owns, and manages freestanding commercial properties leased to clients under long-term net leases. The company’s business model can be described as “an ironclad approach to delivering predictable and reliable monthly cash flow”, that involves a highly diversified portfolio of customers, with the majority cash flow from tenants that belong to non-discretionary sectors, such as convenience stores or drug stores. As of 30 June 2024, Realty Income’s real estate portfolio consisted of $68.06 billion of real estate assets, with various property types, occupied by both investment-grade and non-investment-grade tenants, with an eye towards maintaining high occupancy and sustainable profitability.
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