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| By Sean Brodrick |
There’s no doubt about it: Market conditions are bumpy. The S&P 500 is down 17% year to date (YTD). The good news is there are ways to profit in this chaos with companies that take advantage of funds flowing away from riskier stocks.
One excellent way is by joining my Gold & Silver Trader Members who are bagging big wins in this market shift. Although gold isn’t blasting off (yet), my Members have seen their biggest gains in the energy sector, which is a big reason I’m changing the name of the service to Resource Trader next week. If you’d like to learn more (and my current open recommended positions), click here now.
Another great way to win in this market environment is with dividend growers — the stocks that offer the best historical returns while maintaining solid downside protection.
Superior Returns
Historically, companies initiating and growing dividends have vastly outperformed the broader market.
Within the S&P 500, the performance speaks for itself:
Between 1972-2021, dividend growers outperformed nonpayers by nearly 15-to-1! They even outpaced the equal-weighted index by over 3-to-1!
The simple explanation is that these are usually the strongest companies. They have the financial flexibility to reward shareholders while their mature cash flows support sustainable growth.
During times of turmoil when asset appreciation is flat or negative, dividends help bridge the gap.
And get this: Over the long run, 40% of the S&P’s total return is attributed to dividend distributions.
Better Value When the Market Hates Growth
Dividend raisers have another distinct advantage in this current inflationary environment. Since they’re mature companies, they tend to trade at lower multiples than their growth-reliant peers.
I’ve told you before how Wall Street is doing a big rotation from growth to value. Dividend raisers win out in that trend.
When discount rates increase due to inflation and rising interest rates, these companies are less affected. We’ve seen it take place over the past year.
Over the one-year period ending in April, value stocks finished in the green while growth stocks lost ground. Notably, in April, growth stock losses of over 12% were twice the dip we saw in value stocks.
Growth stocks have a rocky road ahead because easy monetary policies are over for now. I expect more of the same as the Fed further tightens policy to fight inflation, which is going to happen.
At last week’s Federal Open Market Committee (FOMC) meeting, the central bank said it was prepared to move ahead with multiple 50-basis-point interest rate increases.
A Noble Dividend Raiser
One of my favorite funds to play this trend with dividend raisers is the ProShares S&P 500 Dividend Aristocrats ETF (NOBL).
NOBL is the only exchange-traded fund (ETF) that exclusively holds the S&P 500 Dividend Aristocrats. These high-quality companies not only paid dividends, but they have grown their payouts for at least 25 consecutive years, with most doing so for 40 years or more.
NOBL’s biggest investment emphasis is on capturing market growth while limiting downside when trading goes sideways. To do that, it holds companies boasting steady top- and bottom-line growth.
Of NOBL’s 64 holdings, its top three positions are in Albemarle (ALB), Amcor (AMCR) and Exxon Mobil (XOM). All stocks have weightings ranging between 1%-2% of the fund.
NOBL is liquid, with an average daily trading volume of over 765,000 shares. It holds about $10 billion in assets under management (AUM). The fund’s expense ratio is 0.35%.
NOBL’s weekly chart shows that it has traded resiliently. The fund decisively bounced off of support, which could send it barreling toward the upper end of its recent trading range.
Given the recent market-wide slide, there are many great companies trading at bargain-basement prices. When some investors see panic, others see opportunity.
Always conduct your own research before entering a position if you’re investing by yourself.
Conditions are bumpier, but the cream should still rise to the top.
All the best,
Sean
