Published on Intelligent Income

Simply Safe Dividends

October 2021 1

October 2021

Published on 10/1/21

Intelligent Income

Quality dividend ideas for safe income and long-term growth

Monthly Recap

Turbulence returned to the stock market last month. The S&P 500 fell 4.7% in September, snapping its 7-month win streak. The dip is just a blip in the grand scheme of things, with the benchmark index still up 16% year-to-date and nearly 100% since the depths of the pandemic in March 2020. But it was nevertheless notable.

The main source of volatility in September came near the end of the month. The yield on the 10-year Treasury note, which serves as the benchmark for borrowing costs worldwide, jumped from 1.3% to 1.5%, hitting its highest level since June.

This move reflected growing concerns that high inflation will persist, prompting investors to demand more yield to compensate them for this risk. Costco provided the latest example of lingering inflationary pressures when it reported earnings on September 23.

Citing port delays, container shortages, higher labor and freight costs, and shortages of everything from computer chips to oils and chemicals, the warehouse giant raised its price inflation expectations to between 3.5% and 4.5%. That's up from 2.5% to 3.5% forecasted in late May and 1% to 1.5% in March.

Costco's merchandise buyers expect supply-chain bottlenecks and shortages to extend into 2022, suggesting these pressures are at least several months away from moderating. Even Federal Reserve Chairman Jay Powell acknowledged that pricing pressures could be

In This Issue

Portfolio Updates

? Performance........................5 ? Top 20 Stocks......................8

Emerson, 3M slip on growth jitters; ACN, AMT hike div. ? Conservative Retirees........15 Bond-like stocks slump; three new dividend raises ? Long-term Growth............24 AOS falls on China risk; RV demand lifts Thor

Idea Generation

? Safe Dividends..................31 ? Growth Dividends............32 ? High Yield Stocks.............33 ? Dividend Increases...........34 ? Ex-Dividend Dates............35

Resources

? Our Best Dividend Articles ? Dividend Safety Scores

Quote of the Month

"The combination of strong demand for goods and the bottlenecks has meant that inflation is running well above target." ? Jay Powell

This information is for general informational use only and is not personal investment advice. See the disclaimer on the last page for more. COPYRIGHT ? 2021 Simply Safe Dividends LLC

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October 2021 - 2 -

"more enduring than anticipated" during a congressional hearing on September 28.

Earlier in the month the Fed also indicated it is likely to soon begin reducing its $120 billion-amonth of bond purchases, which have helped keep bond yields near record lows. Officials suggested the Fed could even implement its first post-pandemic interest rate hike in 2022, earlier than many investors expected as the economy continues strengthening.

This triggered large price movements in different parts of the market as investors digested the potential for more stubborn inflation and a potential shift away from ultra-loose monetary policy.

Bond-like stocks sold off to keep their yields competitive with the higher rates offered by lowerrisk Treasury notes. The utilities sector lost 6% in September, weighing on some of our holdings such as American Electric Power (-9%), WEC Energy (-7%), and Duke Energy (-7%).

From a fundamental perspective, rising rates increase borrowing costs for these indebted businesses. Their capital-intensive operations also raise their sensitivity to inflationary pressures, which take more time to pass along due to regulatory oversight of utility rates.

So, is it time to bail on utilities and other slow-growth, defensive stocks with bond-like qualities?

As usual, we plan to stay the course and remain diversified (the utilities sector accounts for about 15% of our Conservative Retirees portfolio). We don't own these types of companies to generate market-crushing capital gains, but rather to preserve our capital over time while generating a reliable, growing income stream.

We don't expect the current pace of inflation or the potential for an uptick in interest rates to threaten those qualities. Neither do management teams, with several bond-like stocks announcing dividend increases in the past month.

Telecom giant Verizon lifted its dividend by 2%, regulated utility OGE nudged its payout up by 1.9%, New Jersey-based utility PSEG increased its dividend by 5.9%, and diversified gas utility NJR boosted its dividend by 9%. Business as usual despite their fluctuating stock prices.

With most of these stocks also yielding near 4% or higher and representing durable businesses with solid financial strength, they look more appealing than the fixed 1.5% yield offered by the 10-year Treasury note.

And in some cases, their valuations are already cheaper than in 2018 when the 10-year Treasury note yielded around 3%, double its current level.

This information is for general informational use only and is not personal investment advice. See the disclaimer on the last page for more. COPYRIGHT ? 2021 Simply Safe Dividends LLC

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October 2021 - 3 -

For example, Verizon's dividend yield sits at 4.7%, not far from the 5% level shares sported in early 2018. The stock's forward P/E ratio is also at its lowest level in at least five years.

American Electric Power (AEP) is another example, with a yield and P/E ratio not far from their early 2018 levels when interest rates were substantially higher.

A spike in interest rates could still weigh on the share price performance of these stocks, but a lot of these concerns seem to be at least partially baked in already.

Other bond-like holdings, such as Duke Energy, WEC Energy, and Public Storage, still trade at richer valuations compared to the levels they were at during periods of higher interest rates. But, in aggregate, we feel comfortable with our exposure and the defensive tilt of our portfolios.

By investing in time-tested businesses that maintain strong balance sheets and generate steady cash flow, a conservative dividend growth strategy benefits from emphasizing predictability.

While rising interest rates may weigh on the short-term price performance of bond-like stocks, it's a good bet that their underlying businesses will continue to grow in value over the next decade (albeit at a moderate pace).

This information is for general informational use only and is not personal investment advice. See the disclaimer on the last page for more. COPYRIGHT ? 2021 Simply Safe Dividends LLC

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October 2021 - 4 -

This reduces the risk of permanent loss of capital, which we believe is a bigger concern for growth stocks and unprofitable "story stocks" that have seen their valuations swell since the onset of the pandemic.

The far-off profits these businesses will hopefully generate make their valuations more sensitive to interest rates, with the tech-heavy Nasdaq slumping over 5% in September as bond yields rose.

Growth stocks can also face a much wider range of future outcomes as they seek to disrupt the status quo, for better or worse. Fortunately, our success in building a sustainable retirement income stream does not depend on making hard calls on whether Tesla is worth $3,000 or $30 a share.

Looking ahead, analysts do not expect inflation and higher interest rates to rock the boat. S&P 500 companies are projected to record about 10% earnings growth in 2022 as the global economy experiences a more synchronized recovery and supply chain bottlenecks are resolved.

While high price volatility like we saw in September can increase temptation to tinker with your portfolio, no one has a crystal ball. It is possible inflation is peaking out, and now is the worst time to go heavy into inflation hedges such as energy stocks, which have already rallied more than 80% over the past year. Or pricing pressures could move higher and force the Fed to respond.

It's a lot easier to look at the few dozen companies in a portfolio, keep tabs on their dividend safety, make sure you remain reasonably diversified, and tune out hard-to-forecast macro factors.

We'll do our best to keep you informed and focused on what matters. Thank you for your support of Simply Safe Dividends.

Sincerely,

This information is for general informational use only and is not personal investment advice. See the disclaimer on the last page for more. COPYRIGHT ? 2021 Simply Safe Dividends LLC

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October 2021 - 5 -

Portfolio Performance Here is each portfolio's total return performance in September, 2021 year-to-date (YTD), over the trailing 12-month period (1 Year) and annualized since inception. Returns for the S&P 500 and relevant dividend ETFs are provided for comparison purposes.

Additional performance information for the portfolios, including their dividend growth track records, can be found in each portfolio's section of this newsletter.

Top 20 Dividend Stocks Portfolio S&P 500 Index (SPY) Schwab U.S. Dividend Equity ETF (SCHD)

Annualized

Inception September

Date

2021

2021 YTD

1 Year

Since Inception

6/12/15

-5.19% -4.65% -3.71%

10.40% 19.81% 15.88% 29.93% 18.28% 38.48%

11.51% 14.14% 14.07%

Conservative Retirees Portfolio

6/17/15

S&P 500 Index (SPY)

S&P 500 High Dividend Low Volatility ETF (SPHD)

-4.80% -4.65% -3.99%

11.91% 18.26% 15.88% 29.93% 15.78% 33.59%

10.28% 14.13% 8.72%

Long-term Dividend Growth Portfolio S&P 500 Index (SPY) Vanguard Dividend Appreciation ETF (VIG)

6/9/15

-5.51% -4.65% -4.99%

10.92% 21.03% 15.88% 29.93% 10.16% 21.44%

14.43% 14.26% 13.23%

The amount of risk taken to achieve a certain return is equally important. The Sharpe ratio measures risk-adjusted returns by comparing a fund's returns to a fund's volatility (i.e. standard deviation). Higher ratios are better, indicating higher expected return per unit of risk.

Since inception in 2015, our portfolios have delivered comparable or higher risk-adjusted returns versus their benchmarks. The lower volatility of our Top 20 and Conservative Retirees portfolios suggests they could perform relatively well during future market downturns, too.

Average Monthly Return Monthly Standard Deviation Annual Sharpe Ratio

SPY ETF 1.19%

4.23%

0.96

Top 20 0.97% 3.48% 0.94

SCHD ETF 1.19%

4.25%

0.95

Retirees 0.87% 3.44% 0.86

SPHD ETF 0.80%

4.53%

0.59

LT Growth 1.21%

4.23%

0.98

VIG ETF 1.10%

3.76%

1.00

This information is for general informational use only and is not personal investment advice. See the disclaimer on the last page for more. COPYRIGHT ? 2021 Simply Safe Dividends LLC

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