Written by Sam Kovacs

Unveiling the Dividend Aristocrats

One of the curious wonders of Dividend Aristocrats is their adherence to rewarding shareholders with increasing dividends over extensive periods. It’s an easy and reliable way to identify stocks with a commendable track record in providing value to their investors.

However, the nomenclature “aristocrats” and its brethren like dividend champions and superheroes may raise an eyebrow or two. It somehow undermines the essence of detachment an investor should maintain from their stock holdings. Stocks are not akin to sports teams – while you can blindly support the Knicks, a rational approach to stocks is viewing them as a means to a financial end, not an end in itself.

It’s crucial to grasp this concept to make “Buy Low, Sell High” a plausible reality. But for dividend investors, there’s an extra twist to this age-old adage – “Buy Low, Sell High, Get Paid To Wait.” This mantra resonates deep – in a market of stocks, the timing shifts, and some stocks inevitably emerge as bargains while others stand as overly priced contenders.

“Buy Low, Sell High, Get Paid To Wait” – this philosophy is ingrained in our ethos. It allows us to curate a collection of high-quality businesses that can potentially enrich investors. When we invest in the best stocks at their nadir, sell them at their zenith, and funnel the proceeds into stocks with greater potential, we pave the way for amplified income and capital gains.

So, how does this work?

If you invest in a stock at $100 yielding 4%, you rake in $4 annually in dividends. If the stock doubles and you trade it for $200, reinvest that sum at 4% and your annual dividends soar to $8 – a twofold surge in income.

This tactic not only propels income but can also bolster capital gains, albeit not always immediately or in a linear manner.

By parting with overvalued stocks and acquiring undervalued ones, we trade assets priced beyond their intrinsic value for those undervalued – a shrewd move that can potentially fuel gains.

Exemplifying “Buy Low, Sell High, Get Paid To Wait”

Let’s spotlight a tangible demonstration of this strategy, based on trades from our High Yield model portfolio – one of three model portfolios in our service.

Our portfolio history with Exxon (XOM), a dividend aristocrat, reflects our calculated approach.

Starting our XOM expedition in January 2021 at $54, we fortified our position in March and August 2021 at $57 and $58, respectively.

Our subsequent exit from the XOM position unfolded in four increments:

• 12% of the position at $80 in March 2022.
• 22% of the position at $99 in June 2022.
• 17% of the position at $110 in November 2022.
• 51% of the position at $110 in January 2023.

Gradually accumulating and exiting our position allowed us to savor more of the upside.

Exiting XOM at an average cost of $105, we missed its height at $120, but near enough for a commendable outcome.

Regrettably, XOM’s progress plateaued at $100 post our exit in June 2022.

At that time, XOM’s yield was approximately 3.5%.

Simultaneously, we secured shares in Simon Property Group (SPG) at $109, unaware of its lucrative prospects until the final quarter of 2023, when REITs burgeoned.

Since June 2022, SPG surged by 35% while XOM remained stagnant, underscoring the potency of “Sell High” as a dividend investor.

Occasionally, this strategy doesn’t unfold as seamlessly, and we retain a portion of the position even if the price falls below our “sell above price” – and that’s acceptable.

In the same model portfolio, we accumulated investments in Chevron (CVX) over the past months. Amid volatility, the discipline of “Buy Low, Sell High, Get Paid To Wait” is a tried and tested method to navigate the unpredictable market currents.