When Timing Meets Opportunity: Which Dividend Achievers Are at a 52-Week Low?

Although the stock market reflects a continuum of time and events, the investment community would much rather focus on the one year performance of investments. With this in mind, I have constructed a timeline of when Dividend Achievers have reached a new one year low.

The 2009 list of Dividend Achievers consists of 284 companies. Many of these companies are in the banking, finance and real estate arena. The above timeline excludes most banking, finance and real estate companies and instead focuses on all other sectors of the economy. I routinely avoid falling industries or sectors of the economy that are breaching new highs (highest relative strength).

What should be noticed is that the remaining stocks (after excluding banking, finance and real estate) provided us with 166 companies to invest in with 9 months and 35 different days in the year to (theoretically) buy low and sell at whatever price suits our needs. All of this could be done within a one year time frame allowing the investor to get out when and if necessary. Below I have a table with Dividend Achievers performance from their 52-week low (the left column has the best performing and the right the worst performing).

I found it interesting that the months of March and October are where the most companies reach their new lows. This seems to confirm the stories that we've all heard about October being the worst month to be holding stocks, yet it seems that it might be the best month to be buying stocks. As we are in a real bear market (as opposed to the fake bear markets touted by the folks on CNBC just because the market declined 20%) the distribution of new lows is much less than in "normal" or range bound markets.

Conversely, during the roaring bull markets of the past, stocks hitting a new 52 week low were few and far between. I was definitely put to the test when I did my fundamental due diligence. The thinking at the time was, "if the company was so great then why is everyone else selling it?" Because I developed my investing approach with the worst case scenario in mind I now realize that it is most ideal for bear markets. During bull markets I was forced to hold companies much longer than I have done recently.

It should be noted that the basis of my investment philosophy hinges on the belief that if I can buy quality stocks at a new low then I can avoid much of the buyers remorse associated with individual stock selecting. I never intended for this approach to be a "trading" strategy. I have sailed through the nautical graveyard of other sunken ships that have fallen prey to the siren song of easy money in trading. However, the reality of Charles H. Dow's principle of "seeking fair profits" has demonstrated to be a reality to reckon with in today's fast paced, gee-whiz technology society.

I have continually examined the stock market data every which way to see the benefits of "buy and hold" only to come to the conclusion that such an approach is inconclusive and unreasonable. It just isn't fair to tell someone that if they look at the stock market over the last 100 years it has outperformed all other asset classes. Nobody has an investment timeline of 100 years, so why sell such a ridiculous idea to an uninitiated person who works so hard for their money.

Believing that somehow I'm right on this matter, I still need to emphasis that anyone hoping to follow my approach should first limit their efforts to their retirement accounts (IRA, Roth IRA, 401k etc.) Some may feel that it is hard to think rationally when a stock is down and the news is so negative. My answer to this is that it doesn't hurt to prove that the company is really going to disappear off the planet. After all, the timeline above takes place every year with varying quantities and distribution no matter what.

Disclosure: Long CAH, Long BCR

Comments

[BlueOkie:]

Might want to back test this for at least 10 years and get some economic cycles. Ofcourse, this is trading not investing.

Jul 10 08:43 AM

[Larrysyr:]

I like your perspective in looking for contrarian indicators.

Assuming that "dividend achievers" are solid and not going down the tubes, it appears you are trying to find a good entry point for a trade. The 52-week low probably represents a temporary market overreaction, and a good company will recover, so I agree with that part of your analysis.

The problem is when to exit the trade. Even the worst-performing stock you list has gone up, but if you hold them much longer, the paper profits may evaporate. The second half of your strategy would be useful - what would be a good indicator that you've captured the bounce off the low and may as well cash in? Conversely, what would lead you to conclude the trade is a loser and it's time to abandon it?

Since a bear market implies most ships are sinking, timing is the key here.

Another question I have is why would you use this strategy on retirement money rather than risk capital?

Jul 10 10:48 AM

[BigOlDave:]

Interesting analysis.

I'd shop for good value in the right hand column (worst performers). A couple there are owned or on my watch list already.

Dave

Jul 10 12:43 PM

[elliot_mllr:]

Since these are dividend achievers it would be helpful to review the yields on the companies whose stocks you list. In any updates perhaps you could do set forth the yields.
Thanks

Jul 10 04:30 PM

[Dividend Inc:]

Greetings BlueOkie,

I have backtested this approach since 1994 and actually used this method since 2004. Essentially, I took 10 years of testing and countless number of timesbacktesting this approach. My method obviously isn't the answer however it has returned double digit positive gains since 2004.

Greetings Larrysyr,

I totally agree with you about the viability of this method for the long term. However, when you visit my blog you'll see clear indications of when I issue a sellrecommendation. Additionally, I attempt to " seek fair profits" by holding only as long as it takes to beat "guaranteed" sources of income like treasuries or CDs. My "About This Site" section is much more clear on this concept.

Another matter to consider, if the return from the stock exceeds the dividend that could have been received within a year then the investor should seek betteralternatives. As as example, if a stock yields 5% but the price increases 10% in 6 months then the justification for holding the stock any longer has dissipated. I wouldn't sell the stock but I would definitely research any stocks that are within 10% of the 52-week low seeking to switch from one to another.

Another matter that is critical to my approach as listed on the blog is that I don't follow traditional diversification orthodoxy. I only hold 2 to 5 stocks at a time. This mean that 20% to 50% of investable funds will go into one stock. My attempt at explaining this concept can be found in the article titled "Diversification Doesn't Matter."

Elliot_Mllr,

Personally, I de-emphasis the matter of dividend yield. Dividend yield is the red herring in investment decision making among Dividend Achievers. Almost any company can pay out anoutsized dividend long enough to draw in new investors. More important to me is the earnings power and quality management behind the dividend yield. As far as I'm concerned the consistency of dividend increase is proof of both. As an example, when I issued my research recommendation of Helmerich & Payne in 2006 the dividend yield was less than 1%. However, if the stock was bought at or near the date of the recommendation the short and long term gains that followed were beyond what could have been received through any high dividend yield.

Jul 12 11:31 PM