What’s the end of the second quarter mean for the dividend investor in a stock market? Not much. It is an opportunity to count the checks, compare the total with last year’s, and measure the growth rate. Is the cashflow less, more, or the same as expected? Does the multi-year income forecast need to be revised?
Beyond that, there is the usual opportunity to maximize a portfolio’s cash NPV by taking advantage of the daily repricing, sometimes wildly, of income streams that don’t change much year-to-year. (Dividend growth tends to be steady; share prices are all over the place.) In the increasingly narrow US stock market, the dividend investor is seeing better prices on more income streams than they have in years.
Despite daily repricing and the opportunities afforded by it, being a dividend investor in a stock market is still less trader-like and more like the active management of any set of non-publicly-traded, income-producing assets such as real estate, private businesses, etc. Yes, there is a market price for those assets, which is important when you enter and when you exit years later, but in the interim, the cashflow is the measure of the portfolio’s health. If it’s rising in line with expectations, all is good.
Compare that with the experience of the many engaged, buy-low-sell-high-and-repeat-frequently stock investors. They have a much more involved quarter-end ritual. How did they do against total return benchmarks over the past 90 days. Keep in mind that in our low-yielding market, the “how did they do” question is almost entirely about share prices, not cashflows. How about versus peers? What factors explain the differences? (There are hundreds to choose from.) Individual securities necessarily “out-” or “under-performed” other individual securities. Why were some owned but not the others? For 2q23, why didn’t everyone know that AI stocks would go vertical? And so forth. That’s a tough job. Hats off to those investors.
Notably, a somewhat similar process of frequent introspection affects the people and committees behind so-called “passive” (rules-based) investment products.
There are certainly important and good reasons for quarterly reporting by corporations and quarterly measurement of investment products, as mandated by regulatory authorities.
But apart from explicit speculations, most if not all successful business development and investment is measured in years and decades. Intense scrutiny quarter-by-quarter not only doesn’t help, it can also hinder long-term positive outcomes if corporate executives feel pressure to “make the quarter” regardless of cost. Professional investors can succumb to the same dynamic.
In a market that reprices daily, keeping one’s focus on the long-term is not easy. But it is the key to investment success.