Interview With Portfolio Manager And Dividend Book Author Tim McIntosh
I recently had the pleasure of interviewing Tim McIntosh. Tim has been managing money since 1999, is a Certified Financial Planner, has authored a handful of investing books, and has studied many different historical periods of the market.
He embraces an investment strategy focused on capital preservation and consistent dividend growth. His focus shares many traits with how I go about managing our Conservative Retirees dividend portfolio.
Clint Carlson's Carlson Capital Double Black Diamond fund returned 3.34% in August net of fees. Following this performance, the fund is up 8.82% year-to-date net, according to a copy of the firm's August investor update, which ValueWalk has been able to review. On a gross basis, the Double Black Diamond fund added 4.55% in August Read More
The Snowball Effect: Using Dividend & Interest Reinvestment to Help You Retire on Time by Tim McIntosh
Here is Tim’s complete biography:
Tim McIntosh is the author of four investment books including “The Snowball Effect”, “The Sector Strategist”, “The Bear Market Survival Guide”, and a contributing author to “Comprehensive Guide to Financial Planning Strategies for Doctors and Advisors”. His new book on dividend investing is available in Kindle and hardcopy formats at his Amazon author page. He also writes daily articles for the dividend blog The Dividend Manager and serves as the Chief Investment Officer of SIPCO.
In addition to my interview with Tim below, he has generously offered to provide us with both a signed hard copy and an eBook copy of his newest five-star-rated book – The Snowball Effect: Using Dividend & Interest Reinvestment to Help You Retire on Time.
We will be holding a free raffle to give away these two copies of Tim McIntosh’s book to readers. It’s free to enter, and winners will be notified next week after the raffle takes place on Wednesday, October 12th. Join the raffle by entering your email address in the form here.
Q&A with Tim McIntosh
Here is my interview with Tim McIntosh:
What experience(s) initially turned you on to dividend growth investing over the many other investment strategies out there?
It was the internet bust that first brought my attention towards safer quality dividend stocks. It was also going through the decade of 2000-2009 as a teacher at Eckerd College, hearing my older students complaining about their retirement assets collapsing. In doing examples on the math of losing money with my students, I would always show them a $100 investment that goes down 50%, then rises 50% the next year does not get them back to even (its $75). That would always open their eyes and make them realize that one of the primary goals of investing should be to not take a large loss in any given year.
In your book, you spend some time talking about secular bear markets. Could you help dividend investors understand what exactly a secular bear market is, how prevalent they are, and their impact on the importance of dividends?
Secular bear markets are extended periods where the stock market does not advance on a price basis. They are much more common than many investors believe. The four longest periods are from 1906-1924, 1929-1954, 1966-1982, and most recently 2000-2011. The stock market actually spends more time in secular bear type markets than bull markets. Bull markets, with the exception of 1982-2000, are generally much shorter in length and less common. They provide outsized returns, but generally do so in very fast thrusts upwards. Thus an investor focusing on dividend stocks doesn’t have to count only upon bull markets but can actually earn a return during all market periods.
Most of our readers are self-directed dividend investors who control their own accounts. Over the course of your career, you have worn many different hats – portfolio manager, financial advisor, and individual investor. What are some of the costliest mistakes you have seen individual investors make, and what can they do to avoid them?
The biggest mistake is always the same. Panicking and selling at the bottom, then always buying at the top. Individual investors (and many advisors) are very poor market timers. To avoid these mistakes, keep your head on when others panic and realize that lower prices are actually “good” for dividend investors because they can actually buy more shares of stock and reap higher dividend payments each year.
You published another book, “The Bear Market Survival Guide,” in 2003. The world and global financial markets have evolved considerably since then. Given that many dividend investors are conservative folks focused on generate safe income, what tips would you have for them to survive the next bear market?
Yes, that book was written right after the internet bust and took me more towards investing in dividend type stocks and also examining sectors more closely. My tip is when the next bear market occurs, and it will happen several times over an investors’ lifetime, don’t panic. Rebalance your portfolio and keep purchasing additional shares of dividend stocks as prices fall further. No one can pick the bottom. The best methodology is to incrementally buy as prices fall.
Many retired investors are worried that record low interest rates have potentially created a bubble in certain higher-yielding dividend stocks. As a result, they are sitting on cash and hoping for a pullback before investing. Does this seem like a rational strategy? What is a conservative investor to do in today’s low interest rate environment to generate reasonable retirement income without taking undue risk?
Yes, all higher yielding assets have risen in value due to the extended period of low interest rates since 2008. I agree that certain sectors like utilities and consumer staples are highly priced versus historical values. But sitting in cash is nonsensical, as it earns nothing and inflation will slowly erode the value of the cash. I would recommend looking at other areas of the market that are not as richly priced including stocks in sectors like financials, energy, and healthcare. There are plenty of stock candidates in these sectors that trade at 10-12 times earnings.
You have spent a considerable amount of time studying the history of financial markets and a number of factors that impact the safety of stocks. What do you believe makes a safe dividend stock safe? Do you have any actionable advice for investors on how they can identify and avoid riskier dividend stocks?
My two primary criteria are a solid balance sheet and high credit rating. Secondarily, a consistent record of revenue and dividend growth. Lastly, a low valuation versus the market and low beta. These factors would focus any investor on firms that are considered best of breed. An additional criteria would be payout ratio. I prefer companies that pay out a lower percentage of earnings in dividends. Some exceptions exist like utilities and telecom. Having a little Verizon and Southern in your portfolio is never a bad thing given their high dividends, price stability, and credit ratings.
A lot of investors are turning to dividend stocks for the very first time to try and earn a reasonable return on their cash. What advice would you give to beginning dividend investors?
Do your homework. There is so much information today for a new dividend investor including lots of books and great dividend blogs. They may start by reading and learning as much as they can about the stock market and dividend investing. Then purchase a dividend ETF or go through a DRIP program at a major company. Even with a small amount of money, following a dividend investing strategy is easy and a long-term solid choice.
In your book, you publish a Top 100 Dividend Stocks list. What are a few safe dividend stocks you like today?
The Top 100 list is very diverse. It has stocks from all major sectors. Some are high dividend safety stocks like Verizon and some are more focused on dividend growth like Cardinal Health. My favorite group at present within the Top 100 are the financial stocks. Firms like T. Rowe Price, Metlife, and KeyCorp Bank all pay dividends above 3% and are trading at very low historical valuations. This is another key element to become a successful dividend investor. Buy dividend stocks that other investors shun when they are cheap. You can do that through the cash you receive from your current dividend stocks or by reducing your position in those stocks that have already been big winners and now trade above fair value.
Tim McIntosh embraces a conservative investing approach that focuses on minimizing downside risk and maximizing dividend income for all market environments. Not surprisingly, many of Tim’s Top 100 Dividend Stocks are Dividend Aristocrats and Dividend Kings.
In fact, here is what Tim states about the importance of dividend growth:
“Over the years, stocks of companies that initiate and consistently grow their dividends have outperformed the broader market, and have significantly outperformed stocks that cut or don’t pay dividends. This is known as the dividend growth effect. Once a company enters a cycle of increasing dividends, it is highly motivated to maintain the trend. It is constantly under pressure to increase profits and cash flow every year, because if it doesn’t, it will be forced to decrease or suspend its dividend, which usually leads to a sharp sell-off in the stock. Management works hard to avoid hurting the stock price since they are often paid in stock options. The best indicator of a company’s ability to grow its dividend in the future is typically its track record of growing it in the past. A low payout ratio, the ratio of dividends to earnings, is also an indicator of a company’s ability to grow dividends. Companies with high dividend yields may find their dividends unsustainable during difficult times, exactly when investors need the income stream most. Companies with a history of growing dividends have proved they can not only sustain but also grow dividends, even during down markets. From a portfolio management perspective, dividend growth portfolios can be well diversified since companies steadily growing their dividend tend to exist across various sectors. Our favored sectors; Healthcare, Energy, Technology, & Financials, have a plethora of companies that grow dividends in a consistent manner. This is an advantage over portfolios focusing solely upon highest dividend yields, which tend to be concentrated in mature sectors like utilities and, prior to 2007, financials. Today, dividends are as important as ever, and by many measures dividends look to be cheap relative to the income available in bonds.”
Tim McIntosh’s latest book can be found here, and readers can expect to:
- Learn how to reap income from companies each year through dividends & interest payments
- Learn how to reinvest those payments in a prudent manner to build your investment portfolio over time
- Learn how to sell covered calls against your investment portfolio to further enhance your income
- Learn about the Top 100 Dividend Stocks that can serve as the anchor to your investment portfolio
Don’t forget to sign up for a chance to win a free copy of The Snowball Effect!