After 2008 and the years of volatility that followed, many investors are still afraid (understandably) to put their hard-saved money in common stocks. But with the returns on bonds in the basement and waves of baby boomers reaching retirement age, many are rapidly realizing that they don’t have much choice. If you’re one of these reluctant investors, or even if you just have a conservative streak when it comes to your hard-earned money, today’s Contributor Interview will be of special interest to you.
Kelley Wright is Editor of Investment Quality Trends, a newsletter that recommends undervalued, dividend-paying stocks. As he explains below, the letter’s system is designed to do one thing: achieve real total return. To learn more about the IQ Trends system, read on for our conversation.
Chloe Lutts: Hi Kelley, thanks for talking to me today. To start, when was Investment Quality Trends founded? And when did you come on board?
Kelley Wright: IQ Trends was first published in April 1966, by our founder, Geraldine Weiss. I came on board as Managing Editor in December 2002.
CL: And what’s the newsletter’s investing system or philosophy? What do you look for in the stocks recommended in IQ Trends?
KW: Investment Quality Trends is an investment tool and advisory service, where we espouse the wonderfully old-fashioned idea that the sole purpose of investing in the stock market is to realize a return on investment. In our opinion, the most fundamental measure of return on investment in the stock market is the cash dividend. As such, we focus exclusively on high-quality, dividend paying stocks, which we call Select Blue Chips.
In our four-plus decades of experience, Select Blue Chips have provided the best opportunity to achieve real total return, which we define as capital (price) appreciation, plus dividends, plus dividend growth. In order to be considered a Select Blue Chip, a stock must pass our stringent value identification system, which is based on the twin pillars of quality and value.
One of the most important characteristics of Select Blue Chips is that their prices tend to fluctuate between repetitive high-yield and low-yield boundaries. The significance of these repetitive dividend yield boundaries is they provide investors objective measures as when to buy, sell or hold. Our buying discipline is limited to shares of companies trading at a repetitive area of high dividend yield, which we call Undervalued. Our selling discipline is to sell these shares when they are trading at a repetitive area of low dividend yield, which we call Overvalued. The area between these two yield boundaries is called the Rising Trend, which is essentially the hold area.
CL: Personally, what drew you to Benjamin Graham-style value investing and dividend investing?
KW: I was introduced to value investing and the importance of dividends by my maternal grandfather as a youngster. While in college I read The Intelligent Investor and was taken by the fact that so much of what my grandfather had learned experientially and passed on to me was in concert with Graham’s philosophy. It was kind of like catching up with an old friend.
CL: As a dividend- and value-focused advisor with historical perspective, do you think that dividend-paying stocks have gotten too popular recently?
KW: Dividend-paying stocks have historically moved in and out of favor with retail investors. When the economy and markets are going gangbusters, they tend to be out of favor. When things get rough, they are typically “rediscovered.” Low interest rates have definitely pushed investors seeking yield to dividend paying stocks as there are few alternatives for income currently. The result is that we are seeing fewer good values as the price of shares have been bid up. During periods when good values are sparse, we just wait until Mr. Market hands us a good opportunity. Geraldine would often say that, “Stocks are like streetcars; another will come along shortly.”
CL: I love that saying! So can you share one or two of your favorite stocks to buy today?
KW: Two stocks that offer good current value are Air Products & Chemical (APD) and Reliance Steel & Aluminum (RS). Both are well managed and have excellent track records for consistent dividend increases. There are also some excellent values in the defense sector, which should come as no surprise considering the potential for tough budget cuts.
CL: Generally, what’s one important piece of advice you think more investors need to hear?
KW: The one thing I think all investors should understand before they commit any money to stocks is that the longer their investment time horizon (when they will need their money to provide for their cash needs), the better. Any time less than three years is just too short. Five years is better and ten years or longer is optimal.
CL: What do you see as the biggest challenge in the market right now?
KW: The biggest challenge in the market is the same for any environment: Knowing your personal time horizon (when you will need the money); knowing what you ultimately are investing for (what needs the money will address); the ability to identify high-quality companies and when they offer good value.
CL: Let us get to know you better—what else do you like to do besides investing?
KW: Outside of investing my true loves are my wife of 25 years, Kathy, and our five children: Trinity (17), Keegan (14), Jillian (13), Evan (10) and Christian (6). Trinity and Jillian are training for their black belts in Goju Ryu. Keegan and Evan play travel baseball. Between those four, Kathy and I run a shuttle service and I generally wind up on a baseball field helping the coaches. As often as we can, we are at the beach surfing, boogie boarding and in my case, doing some serious sitting around.
CL: Sounds great! Thanks for talking to us, Kelley!
Wishing you success in your investing and beyond,
Chloe Lutts
Editor of Dick Davis Dividend Digest
