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Essential Insights9 min read

Dividend Investing at Fly High Investing

Start with Fly High’s approach to earnings, dividend support, diversification, and ongoing portfolio monitoring.

On this page 21 sections

Fly High Investing was built around a straightforward idea:

A portfolio should work for you by producing income.

Most conventional investment strategies focus primarily on accumulating assets and eventually selling them to fund retirement. Fly High Investing follows a different path by concentrating on publicly traded companies and funds that distribute a meaningful portion of their earnings to shareholders.

The objective is not simply to find the highest yields available. It is to identify substantial dividends supported by recurring earnings, combine those investments in a diversified model and continuously monitor the evidence supporting the income.

Income Is the Objective

Many investors judge success almost entirely by changes in stock prices.

A Fly High investor begins with a different question:

How much recurring income is the portfolio producing?

Stock prices still matter. They affect valuation, yield, buying opportunities and the number of shares acquired through reinvestment.

However, the primary purpose of the Fly High approach is to build an income-producing portfolio rather than depend entirely on selling shares to create cash flow.

Why High-Yield Dividends?

A conventional dividend portfolio may generate only a few percent in annual income. That can require a very large account to produce meaningful cash flow.

High-income securities can generate substantially more income from the same amount invested.

The tradeoff is that high yields require deeper analysis.

A large yield may exist because:

  • The investment structure distributes most of its taxable income
  • The company operates in a naturally high-income industry
  • Investors misunderstand the business
  • The market expects earnings to weaken
  • The dividend may be reduced
  • The company carries greater credit, leverage or financing risk

Fly High Investing is designed to distinguish high income supported by a functioning business from high income that exists mainly because the market expects trouble.

Earnings Come First

Dividends are paid from the economic output of a business.

That makes recurring earnings the starting point of the Fly High methodology.

We compare the earnings available to shareholders with the regular dividend being paid. When possible, we separate repeatable operating income from temporary support such as one-time fees, asset sales, accounting adjustments or fee waivers.

A dividend supported by recurring earnings is fundamentally different from a distribution supported by events that may not repeat.

Read Why Earnings Fix Everything.

Use the Right Earnings Measure

Different businesses report their performance in different ways.

For a conventional corporation, earnings per share and free cash flow may be useful.

For a business development company, recurring net investment income is usually more relevant.

For an equity REIT, adjusted funds from operations may provide a clearer view.

For a mortgage REIT, distributable earnings may better describe the income available for dividends.

For a closed-end fund, the source of the distribution and the earnings generated by the underlying portfolio must be examined.

Using the wrong measure can make a weak dividend appear safe or a strong dividend appear unsupported.

Explore:

Dividend Coverage

Dividend coverage compares recurring earnings with the regular dividend.

For example:

  • Recurring quarterly earnings: ﹩0.60 per share
  • Regular quarterly dividend: ﹩0.50 per share
  • Coverage: 1.20 times

The company generated twenty cents of earnings for each dollar distributed.

Coverage below 1.00 means the company did not generate enough recurring earnings during that period to fully support the regular dividend.

One quarter is not enough to establish a durable trend. Fly High Investing reviews coverage across multiple quarters and considers the reasons for changes.

Asset Quality

Recurring earnings depend on the quality of the assets producing them.

For a lender, those assets are primarily loans and other investments in borrowers.

For a property-owning REIT, they are buildings, leases and tenant relationships.

For a mortgage REIT, they are mortgage loans, securities and related investments.

For a fund, they are the securities held in its portfolio.

Fly High Investing examines the evidence most relevant to each business, including:

  • Non-accrual loans
  • Payment-in-kind income
  • Borrower and tenant concentration
  • Occupancy
  • Delinquencies
  • Credit quality
  • Underwriting standards
  • Financing costs
  • Liquidity
  • Industry conditions

Strong current earnings matter, but the quality of the assets producing those earnings helps determine whether the income can continue.

Read The Impact of Asset Quality on Dividend-Paying Companies.

Dividend Durability

Dividend durability is the likelihood that recurring earnings can continue supporting the regular payment.

The Fly High analysis considers:

  • Earnings coverage
  • Earnings trends
  • Asset quality
  • Leverage
  • Liquidity
  • Financing costs
  • Management decisions
  • Industry conditions
  • Dividend history
  • Reliance on temporary adjustments

No dividend can be guaranteed. The objective is to evaluate the evidence and identify deterioration before it becomes obvious in the payment itself.

The Fly High 50 Model Portfolio

The Fly High 50 Model Portfolio is a continuously monitored research model consisting of 50 publicly traded high-income securities.

The model focuses primarily on:

  • Business development companies
  • Real estate investment trusts
  • Other qualifying high-income securities

Each model holding is selected through the Fly High methodology and evaluated for:

  • Recurring earnings
  • Dividend coverage
  • Dividend durability
  • Asset quality
  • Valuation
  • Diversification
  • Reinvestment quality

The Fly High 50 is not a mutual fund, ETF, pooled investment vehicle or individually managed account.

Subscribers receive the model and related research, then independently decide whether and how to use that information in their own self-directed brokerage accounts.

Why 50 Holdings?

Diversification limits the effect that one company can have on total portfolio income.

If positions begin at approximately equal sizes, each represents about 2% of a 50-stock portfolio. A problem in one holding can still be unpleasant, but it should not determine the outcome of the entire income stream.

The number alone does not create diversification.

Fly High also considers:

  • Industry exposure
  • Management firms
  • Sources of earnings
  • Credit exposure
  • Interest-rate sensitivity
  • Payment schedules
  • Investment structures

A portfolio containing many companies exposed to the same economic force may be less diversified than it appears.

Position Sizing

Position sizing determines how much influence each holding has over portfolio income.

An equal-weight approach provides a practical starting point. Over time, market-price changes and reinvested dividends will cause position sizes to move.

Subscribers can direct new contributions and cash dividends toward smaller positions when appropriate.

The objective is to avoid allowing one attractive yield, one favorite company or one speculative opportunity to dominate the portfolio.

Ongoing Monitoring

A company that qualified for the model last year must continue qualifying today.

Fly High Investing monitors model holdings for developments affecting earnings and dividend support.

The review includes:

  • Quarterly earnings
  • Dividend declarations
  • Changes in coverage
  • Company filings
  • Material business developments
  • Credit conditions
  • Interest rates
  • Financing changes
  • Management decisions
  • Industry developments

A model holding may be removed when the evidence no longer supports its place in the Fly High 50.

Weekend Updates

Weekend Updates bring together the most important developments affecting the model.

Updates may include:

  • Earnings results
  • Dividend declarations and changes
  • Material company news
  • Changes to the Fly High 50
  • Emerging risks and opportunities
  • Updated income and performance information
  • Broader market developments

The objective is to explain what changed, why it matters and whether it affects the income thesis.

Earnings History and Performance Information

Subscribers receive access to:

These resources make it easier to compare companies consistently and identify changing earnings trends.

Reinvestment and Compounding

Dividends can be received in cash or reinvested into additional shares.

When recurring earnings support the dividend and the investment remains attractive, reinvestment can accelerate income growth.

Each dividend purchases more shares. Those shares may produce additional dividends, which can then purchase still more shares.

This is the compounding engine behind the Fly High strategy.

Read:

When Lower Prices Can Help

A lower share price increases the yield available to a new buyer when the dividend remains unchanged.

It also allows each reinvested dividend to purchase more shares.

This can accelerate future income when:

  • Recurring earnings remain strong
  • The regular dividend remains covered
  • The investment thesis remains intact
  • The lower price provides an attractive valuation

A declining price is not automatically an opportunity. Investors must determine why the price fell.

Read Lower Prices, Higher Yields.

When Reinvestment Becomes Destructive

Automatic reinvestment is not always beneficial.

It can steadily increase exposure to a company when:

  • Earnings no longer cover the dividend
  • Asset quality is deteriorating
  • Temporary support is being treated as recurring
  • Leverage is increasing
  • The dividend is repeatedly reduced
  • Stronger opportunities are available elsewhere

The dividend should not be reinvested merely because the displayed yield has increased.

Reinvestment should follow evidence, not habit.

Portfolio Changes

Fly High Investing is not designed as a short-term trading strategy.

The model does not rotate holdings simply because prices fluctuate or market sentiment changes.

A change becomes appropriate when the evidence supporting the income thesis has materially changed or another investment offers a meaningfully stronger combination of income quality and valuation.

The decision is based on future prospects, not the original purchase price.

The Fly High Difference

Fly High Investing combines several principles:

  1. Income is the primary objective.
  2. High yield is useful only when earnings support it.
  3. Each business must be evaluated using the correct earnings measure.
  4. Dividend coverage must be reviewed across multiple quarters.
  5. Asset quality matters because assets produce the earnings.
  6. Diversification limits dependence on one company or industry.
  7. Reinvestment should increase productive income.
  8. Model holdings must continue earning their place.
  9. Market volatility and business deterioration are not the same thing.
  10. Subscribers remain in control of their own accounts.

This is not a list of stocks selected solely because their yields are large.

It is a continuing research process designed around substantial, evidence-supported dividend income.

Who Fly High Investing Is For

Fly High Investing may be useful for people who want to:

  • Build a high-income portfolio
  • Supplement retirement income
  • Reinvest dividends for future cash flow
  • Research BDCs and REITs
  • Understand dividend coverage
  • Monitor a diversified income strategy
  • Make their own investment decisions
  • Spend less time collecting and organizing company information

It is designed for self-directed investors who understand that higher income generally comes with greater complexity and risk.

What Fly High Investing Does Not Promise

Fly High Investing does not promise:

  • Guaranteed dividends
  • Guaranteed investment returns
  • Freedom from market volatility
  • That every model holding will perform well
  • That the model is appropriate for every investor
  • Individualized investment, tax or legal advice

The Fly High 50 is a research model. Subscribers remain responsible for their own investment decisions.

Begin with the Fly High Method

Start by learning how the income is produced and how Fly High evaluates it:

See what a Fly High subscription provides.

This page is provided for general educational and informational purposes. It is not individualized investment, tax or legal advice. Review our Terms of Services for additional information.

 

 

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