Tim Plaehn's 2nd Income Investing Pillar

Hey Dividend Hunter,

Welcome to this second post in my four part series this week.

Tim Plaehn, your editor of The Dividend Hunter here today.

If you didn’t see my first pillar, I wrote an extensive post to kick off this series. Click here view the first pillar.

The entire point of this series is to introduce you to how I analyze and manage my own dividend portfolio as well as the portfolio for The Dividend Hunter.

Not knowing how to manage your portfolio correctly can lead to selling shares when you shouldn’t, or buying companies you have no business buying.

The first pillar touched on the company’s dividend. View the post here.

This second pillar is much, much different. But I believe if you don’t read this post closely, you could get bit if you disregard pillar #2.

This pillar has nothing to do with dividends, revenues, none of that.

It comes down to arguably the most important asset of the business.

If you don’t believe me…

Let me tell you a quick story.

It’s a story I can’t believe actually happened

A hot startup only nine years old was seeing Forbes cover-type growth. They’d expanded their services from one location to over 260 locations in 32 countries.

More than 5,000 employees worked day and night to make this startup one of the most well-known on the planet.

After just 9 years, the company was estimated to be worth around $47 billion…that’s around the valuation of Uber.

The CEO was seen as a tech god…whatever the heck that means. His face was on every business magazine from here to Australia.

Well, you know the ending to this story.

Within a span of two months, the entire company unraveled.

Valuations plummeted from $47 billion to now below $10 billion and dropping. 2,400 employees were laid-off.

The company? You probably know. WeWork.

A company that pretty much acted like a REIT was flaunting itself as a startup unicorn.

In the S-1 filed, rather than being profitable like many of the REITs we invest in inside The Dividend Hunter (like EPR or Apple Hospitality), WeWork was losing $2 billion per year.

The worst part was that during these mounting losses, the CEO, Adam Neumann, was making trips around the world, buying private jets, lounging in million-dollar mansions…everything you think of when you imagine a Silicon Valley blowhard…he did it.

Here’s my point…

It doesn’t matter how much revenue a company does or how much CNBC hypes up a company…

If a company has bad management, the company will eventually be in trouble.

That brings us to PILLAR #2:

Only invest in dividend companies where management is solid and working to grow company/dividends

EXAMPLE #1:

I’ll trot out Starwood Property Trust as a great example. I love this company.

They’re a finance REIT whose primary business is the origination of commercial property mortgages.

I view the STWD dividend as one of the most secure in the high yield stock space.

The REIT is managed by Starwood Capital, a real estate focused private equity company with over $50 billion of assets under management.

Starwood Capital is a 2,200 person global organization, and Starwood Property Trust taps into that reach and expertise to find high-value commercial mortgage prospects and other investments.

Billionaire Barry Sternlicht, as CEO of both Starwood Capital and Starwood Property Trust has often repeated his commitment to building STWD with the goal of sustaining the dividend. Sternlicht and the upper management team own over $100 million of STWD.

This is stuff I love hearing from management.

Management teams with a focus on sustaining…and then hopefully growing…their dividend is one I look out for.

Compare this management style to WeWork.

With WeWork, the company is losing billions, management is out having fun spending investor money.

Luckily, they never made it to IPO, or I bet thousands would’ve lost tons of money.

Another management team the opposite of WeWork…

EXAMPLE #2:

Pattern Energy Group (PEGI).

After struggling to cover its dividend in 2018, the company and management have gotten back on track with free cash flow, with the Q1 2019 cash available for distribution up 23% over the same period in 2018. Management expects to reduce the payout ratio through cash flow growth, making the current dividend more secure.

We don’t look down on companies trying to require from some issues. That may be a great time to pick up shares on the cheap.

This management team is working to grow their cashflow back to make the dividend more stable. I even moved the stock out of “aggressive” and into “conservative” because I’m certain they’ll stabilize the dividend.

Study the management teams.

How do they see their company?

What do they do behind the scenes?

Listen to their earnings calls.

Do they sound confident? Hesitant? Interested? Disinterested?

Management teams are the captains of their plane. Without a captain, the plane doesn’t move or it goes in the wrong direction.

Take it from me…once a pilot in the Air Force…

Study the team, and you can get a sense if they will be successful or not by their actions.

—————–

IN MY NEXT POST:

I’ll go through the third and final pillar I use to analyze and manage my portfolio.

But that’s not all.

After you discover this third pillar, I’ll take you into my private office and you can watch me analyze a stock on screen.

These are tips you can use yourself as you scour the markets for your next dividend pick.

At the end, I’ll reveal a tool you can use to cut down all the research time.

It’s one I created and hundreds of Dividend Hunter subscribers like yourself call it their “favorite.”