Most investors were scared from the severe drops in global stock markets last week, caused by the freezing of the debt markets and the global recession fears which the tightening of the credit markets might cause. Most stocks have suffered double digit percentage losses since the start of the year, even after yesterdays record rally. It’s no place to panic however. Historically the average duration of bear markets has been about 18 months since the great depression. Since 1956 however the average duration of bear markets has been about fourteen months.
It has taken S&P 500 about 5.2 years on average to recover from to above its bear market highs since 1929. If we check the same parameter starting in 1956 the average recovery time from a bear market comes out to 2.8 years on average.
I think that now is a perfect time to start looking for bargains and then dollar cost average in them. I would then consider ignoring most pundits out there who claim that this time it is different and that the world is coming to an end and instead focus on companies which have survived many recessions and bear markets while increasing their earnings and dividends to shareholders for many years. One great list to start with is the dividend aristocrats maintained by Standard and Poors.
I selected the following dividend aristocrat stocks which fit these criteria:
1. P/E ratio is under 20
2. Dividend Payout Ratio is under 50%
3. Dividend yield is at least 2%
4. 5 year dividend growth rate is at least 6%
I came out with the following list. You could also open the list from this link.
It is in times when gurus claim that fundamentals don’t matter any more when the astute investor will find great value stocks with decent moats at fire sale prices. Sometimes the market brings you fat pitches and it’s up to you to swing or not. As a dividend value investor however I am perfectly ok if the stock market unchanged or lower for several months or even years as I am certain that most dividend aristocrats will keep paying dividends and even better- increase them. Thus I will continue getting a return on my investment no matter what.
Full Disclosure: Long JNJ, PG, ADM, ADP, EMR, FDO, GWW, JNJ, MHP, MMM, MTB , PEP, PG, SHW, STT, XOM
Relevant Articles:
- Average Durations of Previous Bear Markets
- Why do I like Dividend Aristocrats?
- Dollar Cost Averaging
- My Dividend Growth Plan - Strategy
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Do I sound like a broken record yet? (haha)
ReplyDeleteMy picks from that list would be PG & JNJ. Not as cheap now as they were only a few days ago, but if you've held them throughout this market I think you have to be pretty happy with how they'll hold up over the long-term
Brad,
ReplyDeletePEP is getting killed today. What's your opinion on it?
This list was generated on friday, before the huge advance monday. Yet it's still relevant..
I was thinking to myself yesterday after I got back that if I had more money, averaging down while the Dow was in the 8000's would have been awesome but then just at that time on the radio it mentioned the same thing about the average length of bear markets.
ReplyDeleteAlways a good reminder to think and not worry about timing the markets.