The Dividend “Deal of the Decade” Can Quadruple Your Cash

Brett Owens, Chief Investment Strategist
Updated: May 6, 2020

Mainstream financial channels have made a big deal out of the current relief rally (“Is it a ‘V-shaped’ recovery?” they comically muse). Whether it’s a V, W,  L, Nike swoosh or (my favorite) bathtub, the fact is that most stocks are still down on the mat.

(This is no surprise. The average bear market lasts 12 to 18 months. We are just beginning month three—yikes.)

The well-known S&P 500 always leads the headlines. Five hundred of America’s blue-chip firms, sounds like a pretty good sample size, no?

In 2020… no. The index is weighted by market cap, giving favor to Microsoft (MSFT), Apple (AAPL) and Amazon (AMZN)—its top three holdings—which have outperformed the market by a wide margin recently.

Most income investors don’t look to Microsoft, Apple and Amazon for yields.  And since you are reading this, you probably do not either! Their dividend yields are too small (or in Amazon’s case, non-existent) to rely on for income. Most investors, income fans included, own a wider basket of stocks.

The wider the basket, the rougher the year it has been. Let’s consider that:

  • Year-to-date, the “big cap focused” S&P 500 is down “just” 12%. However,
  • When we weight its 500 stocks equally, its return drops to -21% YTD. And,
  • When we expand the universe to look at small cap stocks, we see the Russell 2000 is down a brutal 27% thus far in 2020:

Don’t Let the S&P 500 Fool You

These “garbage heap moments” provide contrarians like us with rare opportunities to dig for dividend gold. With industries being washed out overnight, we now have plenty of opportunity to buy great dividends for dimes on the dollar. Our potential reward is two-fold.

First, we’re getting more dividend for every dollar we invest. Second, we have big price upside on these positions.

Dividends on Sale, Once a Decade

My recent research into pullbacks and bear markets has highlighted an obvious finding that many of us (including myself) overlook:

Once every decade or so, something really bad happens to stocks.

In recent memory, we had the crash of 1987, the tech bubble bursting in 2000, 2008 (which needs no intro), and, currently, the global pandemic of 2020. With this knowledge in mind and, of course, a ton of patience, an income investor could simply stockpile cash for 8 to 13 years or so and grab the “deal of the decade” when it presents itself.

Now I realize that nobody actually does this. And to be fair, the relentless upward climb of the stock market does place these crashes in perspective. Let’s look at Black Monday, which looked like a retirement-killer in real time:

The Crash of 1987, “Live”

Thanks to hindsight we have our own “spoiler alert.” Black Monday would eventually fade into a mere blip on the historical radar:

The Crash of 1987, in Hindsight

These meltdowns are great for us income investors, provided that we keep our portfolios intact and have enough cash on hand to buy the bargains. (In 2020, we also have to worry first about keeping ourselves intact! More on this in a minute.)

The type of “once-in-a-decade dividend” I’m looking for us to see here soon is a blue chip like Pfizer (PFE). This perennial cash cow recently yielded as much as 4.5%, a high watermark it’s only “achieved” in 1987 (and its wake), 2008 (and its aftermath) and now again in 2020:

Pfizer Only Pays 4%+ in Panics (and Their Aftermaths)

It’s interesting to note that, in our previous example, Pfizer’s yield didn’t peak during the panic itself. It peaked during the aftermath.

After the 1987 crash, Pfizer paid 4.3%. Investors who bided their time got an even better deal 18 months later.

Same in 2008. The sharpest selling occurred in late 2008, but Pfizer’s shares wouldn’t bottom for another few (painful) months. Believe it or not, in March 2009, Pfizer’s payout (briefly) shot up to 11%! This is the type of opportunity we are waiting to pounce on.

Investors who bought shares then not only locked in an incredible double-digit yield, but they also set themselves up to quadruple their money over the next 11 years (including dividends, and also even accounting for the recent pullback).

It’s All About the Aftermath

In the long run, you’d have done quite well buying Pfizer any time its yield popped above 4.3%. But in the short term, you had some heartburn. The highway to high yields is often a bumpy one, and this initial buy signal in Pfizer actually triggered in late 2007, which got you onboard just in time to lose nearly half of your capital:

Highway to High(est) Yield

Bear markets are tricky by nature. Monday’s manic rally naturally makes us want to dump all of our cash back into the market. However, if history is any guide, the aftermath of the initial crash is going to last for many months.

The stock market is, therefore, likely to stay a rollercoaster. So, let’s fasten our seatbelts while we pay attention and compile our dream shopping list. The best dividend buys—those that only surface once a decade—are about to become available.

Can’t Wait? “Drip” the Dip with 10% Yielding Monthly Payers

For those of you who prefer to “dollar-cost average” your way through these bear markets, consider monthly dividend stocks in times like these. Choose wisely, and you can enjoy a secure 10% annual income stream that features dividend payments every 30 days. Thanks to these payouts, you’ll be able to:

  • Cover your monthly expenses without worrying about the stock market’s next move. Plus, you can…
  • Reinvest any extra cash in the “deals of the decade” we’ve been discussing. A little bit of cash in these companies is going to quickly turn into a fortune in the next bull market. And thanks to these monthly payments you…
  • Can simply “DRIP” the money into our shopping list stocks every month. You’ll naturally acquire more shares when prices are low. This dollar-cost averaging will help solidify your fortune for the rest of this decade.

Of course you can’t just buy any monthly payer, especially right now! So let me share my favorites with you. Please click here to see my favorite 10% dividends that get paid out each and every month, bull or bear, rain or shine.