Is This the Dividend Trade of the Decade?

Brett Owens, Chief Investment Strategist
Updated: June 15, 2022

Attention, growth investors! A quick stock market question for you.

(Dividend people, you are welcome to play, too.)

Take a quick peek at the chart below. The lines are revenue gains over the past twelve months for four stocks.

Three of them are top holdings in ARK Innovation ETF (ARKK). The fourth, well, is a contrarian special that careful readers already know. (Hint, hint.)

Which sales curve would you want to own?

Pick Your Growth Stock

Did you peek at the key? Of course you did. Well, were you surprised that Exxon Mobil (XOM) was running laps around these three laggards?

ARKK fanpeople, we told you so. In these pages, 13 months ago, we said that XOM’s 6.1% dividend had 61% upside.

Darn it, we were off a bit! Since that column, XOM has dished us 95% total returns (including dividends). Take that, tech darlings!

There’s more to this stock than just a pretty top line, too. As income investors, we ask a company to treat their money like it’s ours. In 2020, XOM demonstrated how good it is at protecting our interests.

The price of oil crashed a year ago and barrels were trading hands at negative prices. Negative! This means people were paying others to take oil off their hands.

Yet somehow, some way, XOM paid its dividend—without a blip or mortgaging the firm’s future. It aced the ultimate payout stress test.

Will ZM, SQ and CRSP pass their exams? The Federal Reserve officially begins to taper its balance sheet today. It has a $9 trillion pile of “funny money” to whittle down to help tame inflation.

This is bad for tech stocks. They tend to rely on easy money and low interest rates, both of which are “over” for the moment.

The stocks we picked on above have been duly crushed. I’m sure you have friends who owned ARKK. We all do. Please be nice—and let them know where they can find better investing advice:

Our “Boring” Growth Stock Since We Told Them So

There’s still plenty of time to get in on this “dividend trade of the decade.” The rally in energy payers has been a long time coming.

The oil bear market from 2014 to 2020 set up this move. During that time, energy producers underinvested in new supply. They were just trying to hang on and continue making their dividend payments. Smaller firms especially had to preserve cash to stay in business!

Even the great XOM stopped hiking its payout in 2019. Its debt levels ballooned in 2020. But help was on the way in the form of a “crash ‘n rally” oil pattern:

  1. First, the price of oil crashes (see, April 2020).
  2. Next, energy producers scramble to cut costs. They slash production.
  3. The economy recovers because it always does. Energy demand picks up.
  4. Then, there is not enough supply! So, the price of oil begins to climb.
  5. Because it takes many years to explore and drill, supply lags demand for years. The price of oil climbs and keeps climbing, from x to y.

This time last year, we were in “phase four.” crude oil prices headed higher and XOM the company benefitted massively. It smartly used some of the cash to pay down the formerly ballooning debt. a sign that the firm had turned the corner. Despite all this, the stock was dirt cheap! Your dividend guy had to share this with you:

How We Knew XOM’s Dividend Was Secure

We are now in “phase five” of the current crash and rally pattern. Oil demand is still ahead of supply and likely to stay that way for many more years, perhaps until the end of the decade. Remember, this sector has been underinvested in since 2014. You don’t turn around eight years of that on a dime.

We’ve made the fast money on XOM, but the real money is likely still to come. Don’t give up early on these energy dividends. They very well could be the trade of the 2020s.

Now, the Fed could pause this payout party. Jay Powell is likely to hike and tighten until he sends the economy into a recession. This squeezes energy demand.

But any break would be temporary.

We want to hold these post-COVID dividend stocks as long as we can, maybe even until 2030. As a group they will quadruple the investment income provided by mainstream investments like the S&P 500 (which is getting trashed this year anyway).

Plus, my favorite payers have XOM-style price upside. Click here and I’ll explain more about the Post-COVID Portfolio, my #1 investing secret.