Buffett Says Make Money While You Sleep, 2 Dividends For A Retirement Dream

  • The stock market is a psychological battleground where emotions create more impact than intelligence.
  • A sound and well-rested mind is essential for a happy and prosperous living; The Income Method enables this for you.
  • Two dividends with yields of over 8% to sleep well at night in this bear market.

Successful Investing Needs Better EQ Than IQ

It is often misunderstood that one must be very intelligent to be a successful investor. After all, big investment firms hire only from the top business schools in the country, and investing is all about complex metrics and security analysis, right? Wrong.

“You don’t need to be a rocket scientist. Investing is not a game where the guy with a 160 IQ beats the guy with a 130 IQ. Rationality is essential.” – Warren Buffett

His lifelong buddy and prominent billionaire Charlie Munger adds that very smart individuals may actually be terrible investors.

“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments” – Charlie Munger

The emotional quotient (EQ) is a more critical requirement than the intelligence quotient. It is hard to control emotions when the market whipsaws with the news and your hard-earned capital shrinks, but if your portfolio pays you to stay calm, don’t you think you will have better control over your decision-making?

A Good Night’s Sleep Is Key To Success

People may assume that successful investors like Mr. Buffett read reports and perform analyses and make investment decisions all day and barely get any sleep. In reality, Mr. Buffett is known to sleep from 10:45 PM to 6:45 AM every day. The 91-year-old Oracle of Omaha firmly believes in the importance of caring for one’s mind and body.

You only get one mind and one body. And it’s got to last a lifetime,” Buffett once said. “But if you don’t take care of that mind and that body, they’ll be a wreck 40 years later.” – Warren Buffett

It isn’t just Warren Buffett who insists on getting a good night’s sleep. Amazon (AMZN) founder billionaire Jeff Bezos insists on having a sound and well-rested mind to make high-quality daily decisions.

However, most investors panic based on the events they see in the news. Fears of higher interest rates, rising inflation, soaring energy prices, and predictions of an upcoming recession are interfering with many minds and wreaking portfolios. In the past ten years, I can recall at least three years (4 if we include 2022) where there were persistent and well-articulated forecasts for recessions. Imagine how many Mr. Buffett would have come across in his 80+ years of investing? If he had let the president’s tweets, some prominent company’s CEO’s bad feelings about the economy, or a renowned banker’s concerns about near-term economic hurricanes shape his investment decisions, he wouldn’t have become the billionaire he is today.

Your decisions today impact your well-being and the quality of your retirement life. If you start micromanaging your portfolio based on the news, you will have difficulty enjoying your golden years. We have two picks for you that will work hard to make money while you sleep. Read on to find out more about them.

Pick #1: HT-D Preferred Stock, Yield 8.4%

As Americans put the pandemic in the rearview mirror, the economy is witnessing substantial demand for services. Despite higher prices, domestic travel volumes are soaring this summer, and hotel giants like Marriott International (MAR) and Hilton (HLT) are optimistic about recovery to pre-pandemic levels. It isn’t just vacation and leisure travel; leading analysts are also projecting a solid comeback for business travel this year.

“Large technology, financial services firms have begun their return to office processes, which bodes well for the near-term business travel recovery” – Baird Travel Report Card

Hersha Hospitality Trust (HT) is the owner-operator of 26 hotels in strategically good locations in the U.S. Following the announcement of the sale of its urban properties, the REIT’s footprint can broadly be categorized into Luxury and Lifestyle properties & New York City properties. (Source: June 2022 Investor Presentation)

Successful Investing Needs Better EQ Than IQ

It is often misunderstood that one must be very intelligent to be a successful investor. After all, big investment firms hire only from the top business schools in the country, and investing is all about complex metrics and security analysis, right? Wrong.

“You don’t need to be a rocket scientist. Investing is not a game where the guy with a 160 IQ beats the guy with a 130 IQ. Rationality is essential.” – Warren Buffett

His lifelong buddy and prominent billionaire Charlie Munger adds that very smart individuals may actually be terrible investors.

“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments” – Charlie Munger

The emotional quotient (EQ) is a more critical requirement than the intelligence quotient. It is hard to control emotions when the market whipsaws with the news and your hard-earned capital shrinks, but if your portfolio pays you to stay calm, don’t you think you will have better control over your decision-making?

A Good Night’s Sleep Is Key To Success

People may assume that successful investors like Mr. Buffett read reports and perform analyses and make investment decisions all day and barely get any sleep. In reality, Mr. Buffett is known to sleep from 10:45 PM to 6:45 AM every day. The 91-year-old Oracle of Omaha firmly believes in the importance of caring for one’s mind and body.

You only get one mind and one body. And it’s got to last a lifetime,” Buffett once said. “But if you don’t take care of that mind and that body, they’ll be a wreck 40 years later.” – Warren Buffett

It isn’t just Warren Buffett who insists on getting a good night’s sleep. Amazon (AMZN) founder billionaire Jeff Bezos insists on having a sound and well-rested mind to make high-quality daily decisions.

However, most investors panic based on the events they see in the news. Fears of higher interest rates, rising inflation, soaring energy prices, and predictions of an upcoming recession are interfering with many minds and wreaking portfolios. In the past ten years, I can recall at least three years (4 if we include 2022) where there were persistent and well-articulated forecasts for recessions. Imagine how many Mr. Buffett would have come across in his 80+ years of investing? If he had let the president’s tweets, some prominent company’s CEO’s bad feelings about the economy, or a renowned banker’s concerns about near-term economic hurricanes shape his investment decisions, he wouldn’t have become the billionaire he is today.

Your decisions today impact your well-being and the quality of your retirement life. If you start micromanaging your portfolio based on the news, you will have difficulty enjoying your golden years. We have two picks for you that will work hard to make money while you sleep. Read on to find out more about them.

Pick #1: HT-D Preferred Stock, Yield 8.4%

As Americans put the pandemic in the rearview mirror, the economy is witnessing substantial demand for services. Despite higher prices, domestic travel volumes are soaring this summer, and hotel giants like Marriott International (MAR) and Hilton (HLT) are optimistic about recovery to pre-pandemic levels. It isn’t just vacation and leisure travel; leading analysts are also projecting a solid comeback for business travel this year.

“Large technology, financial services firms have begun their return to office processes, which bodes well for the near-term business travel recovery” – Baird Travel Report Card

Hersha Hospitality Trust (HT) is the owner-operator of 26 hotels in strategically good locations in the U.S. Following the announcement of the sale of its urban properties, the REIT’s footprint can broadly be categorized into Luxury and Lifestyle properties & New York City properties. (Source: June 2022 Investor Presentation)

HT recently reported solid labor trends, having observed a 15% increase in applicants per open job posting in April 2022 and achieved an 11% increase in new hires during the first four months of the year. Strongly rebounding travel volumes have also resulted in the REIT experiencing a rapid acceleration in property cash flows into the spring.

HT recently announced the divestiture of its non-core assets in urban locations at pre-pandemic cap rates and will soon be operating properties that cater mainly to the higher-margin segments. By divesting its seven non-core properties to raise $505 million, HT plans to retire $460- $480 million in debt and improve its leverage ratio to 5.8x. With this transaction, there will be no debt maturity until 2024.

Hersha’s business fundamentals have massively improved since March 2020, and the REIT’s recent divestiture announcement is well-positioned to improve the operating metrics. Despite improving business dynamics, HT remains in a position where profits must be used to improve the balance sheet. As such, there remains uncertainty over the restoration of common dividends. This is why we find better risk-reward with the HT’s preferred securities.

Among the three classes of preferreds, we like (HT.PD) and (HT.PE) for their discount to par and higher current yield. HT-D currently yields 8.4% and trades at a ~23% discount to par value. HT has been promptly paying its preferred dividends since April 2021, after a 1-year hiatus due to the pandemic and its impact on the travel industry. These preferreds are cumulative, and all missed distributions were paid in full to make them current last year.

HT spends ~$24 million annually on preferred distributions. At pro forma 3.2x EBITDA, and with over $88 million in cash on hand, these distributions are well-covered for 3+ years. Looking at the market cap of these preferreds, the D series appears to be one that is most likely to be redeemed last, presenting a valuable income opportunity until such time.

HT is managed by a capable team that has worked to improve the REIT’s operating metrics through the pandemic. HT leadership, trustees, and founding partners own ~18% of the available pool of common, preferred, restricted shares, and other non-tradable securities of the REIT. It gives us confidence, knowing management is strongly aligned with the shareholders in their decision-making.

The income method of investing in the rapidly recovering travel industry is buying significantly discounted preferred shares of high-quality companies. With HT-D, we have over 29% upside and a healthy 8.4% yield.

Hersha will report Q2 earnings on August 3rd. The HT preferreds will be ex-dividend on June 30th.

Pick #2: DVN, Yield 8.7%*

Energy is one of the most discussed industries in today’s economy of soaring oil and gas prices. Fortunately for us, this is a very shareholder-friendly sector that prioritizes the return of excess profits through growing dividends.

Devon Energy Corporation (DVN) is an independent oil and gas producer with production facilities spread throughout North Dakota, Wyoming, Oklahoma, Texas, and New Mexico, and the company maintains a diversified exposure to energy commodities. (Source: May 2022 Investor Presentation)

The image below shows DVN’s top three free cash flow priorities, and this is a value investor’s dream come true.

Devon Energy free cash flow priorities
May 2022 Investor Presentation

DVN maintains an impressive 29-year track record of dividend payments to shareholders. The company declares dividends in two parts: (1) DVN targets to pay out ~10% of its operating cash flow in the form of the fixed dividend; and (2) the variable dividend amount is determined quarterly and can be up to 50% of the company’s excess free cash flow. Thus, shareholders directly stand to benefit from tailwinds for the company. It is noteworthy that DVN’s fixed dividend has more than doubled since 2018. Based on the declared dividend for Q2, DVN has a fixed-plus-variable dividend payout of $1.27, which annualizes at 8.7%.

During Q1, the company retired ~1.1% of the shares outstanding and has ~1.1 billion left in its share repurchase program. Repurchases make more cash flow available for a smaller number of shares outstanding and are a win-win for income investors. DVN already maintains a healthy balance sheet, and the company intends to improve it further by lowering its leverage – the net-debt-to-EBITDAX to 0.2x. In addition to that basket of goodies, the E&P company is utilizing the tailwinds of the energy industry to fortify its business and expand its footprint with the recently announced all-cash acquisition of RimRock Oil and Gas LP.

Despite hydrocarbon prices trading at multi-year-high levels, energy is still the cheapest sector in the S&P 500. These prices are expected to remain elevated for the foreseeable future, and DVN remains a valuable opportunity at a forward P/E of 9x for solid income prospects.

Conclusion

Investors like Warren Buffett have been successful not just because they were born with a high IQ or went to renowned business schools, but because they demonstrated discipline, self-control, and a high emotional quotient through time. Mr. Buffett’s Berkshire Hathaway (BRK.A) (BRK.B) earned $5.3 billion in dividends last year without lifting a finger. You, too, can make money in your sleep by adopting the income method.

Successful income investing does not require staring at the screen and watching the news all day. We make prudent investment decisions to produce sustainable income for a long-lasting retirement. And because our income method rewards us with regular dividends, we can buy attractively priced securities without worrying about picking bottoms and other bear market sentiments.

Prioritize your health, mental well-being, and most importantly, personal relationships with loved ones. It isn’t worth wrecking any of these due to fears of the future. Buy quality, robust names that produce profits in good and bad times and are structurally designed to reward shareholders. This way, you can get a good night’s sleep because that is the true definition of success.

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