If it feels like this bear market has been a long one that's because it has, at least by the standards of corrections since the Financial Crisis.
We've seen incredible crashes and face-ripping rallies, including the last bear market rally, which saw the average Nasdaq stock soar 42% in two months.
This isn't unusual since recessionary bear markets tend to be long and have four bear market rallies on average. But the longest bear market, the Tech Crash of 2000, lasted 31 months and had six bear market rallies.
If you feel frustrated by a failed 17% rally, imagine how it felt to have three 21% bear market rallies fail. I don't have to imagine because I lived through the tech crash and I remember well the sense of despair investors felt.
Is this bear market going to end soon? JPMorgan thinks it might end in Q1 2023. But other analysts, like Morgan Stanley, think the worst is yet to come, and that we might not see new record highs until Q1 2025.
What's a smart long-term investor to do when faced with a potential multi-year bear market? As I learned in the Army "embrace the suck" and harness the power of blue-chip bargain hunting to your advantage.
After the kind of market pain we've just suffered through, the average 10-year gain is 281%, or nearly 4X returns off the lows.
Whether those lows were back in June or are still in our future, the point is that more blue-chip bargains you buy now, the richer you'll be in three-plus years when stocks are hitting new highs.
In all my articles I'm using the Dividend Kings Zen Research Terminal to find incredible blue-chip opportunities for you to consider.
The Zen Research Terminal is our flagship tool, the easiest and simplest to use if you're looking for the best blue-chips for your specific goals, time horizon, and risk profile.
But we also have an even simpler tool - the DK Top Buy List.
This showcases our favorite five investing ideas for any given month, from each of our analysts:
Between the six of us, we have almost 300,000 followers.
Today I wanted to highlight this month's Top Buy List recs, which number 26 companies (four overlapping ones).
Let me show you why collectively these 26 blue-chips can help you create a rock-star high-yield dividend growth portfolio that can help you:
You can get the latest Top Buy list by going to the "lists" and "top buy" list, which will bring up the same data I'm showing here.
I've linked to articles showcasing each company's investment thesis, growth outlook, risk profile, valuation, and total return potential. In order of highest to lowest yield:
Now let's compare them to the S&P 500.
Analysts expect the S&P 500 to deliver 9% annual returns through 2024 potentially.
But I'm not here to help you score a quick double. Dividend Kings is about changing your life.
Fortunes are made by buying right and holding on." - Tom Phelps
These aren't just blue-chips; collectively, they are 12/13 Super SWAN quality companies, some of the most reliable companies on earth. How do we know? Let's compare them to the bluest of blue-chips, the dividend aristocrats.
|Metric||Dividend Aristocrats||DK Top Buy List|| |
Compared To Aristocrats
|Average Recession Dividend Cut Risk||0.5%||0.5%||100%|
|Severe Recession Dividend Cut Risk||1.5%||1.7%||113%|
|Dividend Growth Streak (Years)||44.8||12.5||28%|
|Long-Term Risk Management Industry Percentile||67% Above-Average, Low Risk||68% Above-Average, Low Risk||101%|
|Average Credit Rating||A- Stable||BBB+ Stable||NA|
|Average Bankruptcy Risk||3.04%||3.85%||127%|
|Average Return On Capital||105%||95%||90%|
|Average ROC Industry Percentile||83%||78%||94%|
|13-Year Median ROC||89%||95%||107%|
|Discount To Fair Value||0%||31%||7250%|
|DK Rating||Reasonable Buy||Very Strong Buy||NA|
|LT Growth Consensus||8.7%||13.0%||150%|
|Total Return Potential||11.1%||16.4%||147%|
|Risk-Adjusted Expected Return||7.5%||11.0%||144%|
|Inflation & Risk-Adjusted Expected Return||5.3%||8.7%||162%|
|Conservative Years To Double||13.4||8.2||62%|
(Source: Dividend Kings Zen Research Terminal)
These Top 26 blue chips compare very favorably to the dividend aristocrats on safety and quality, and blow them out of the water on valuation.
The average dividend cut risk in a historically average recession since WWII is 0.5%, the same as the aristocrats.
In a severe recession, like the Great Financial Crisis or Pandemic, it's 1.7%, basically matching the aristocrats.
The average dividend growth streak is 13 years, which while not as impressive as the aristocrat 45 years, is still very good.
Pandemic Dividend Cuts by Dividend Growth Streak
During the Pandemic, companies with a 12-plus year dividend growth streak were significantly less likely to cut their dividends.
S&P estimates their average 30-year bankruptcy risk at 3.85%, similar to the aristocrats 3.05%.
Now let's consider return on capital or ROC. This is Joel Greenblatt's gold standard proxy for quality and moatiness.
The aristocrats have 105% ROC, and these 26 life-changing Super SWANs 95%.
Their ROC industry percentile is 78%, meaning their profitability and quality is in the top 22% of their peers.
Their 13-year median ROC is 95%, higher than the aristocrats' 89%, and confirming these are wide and stable moat Super SWANs.
And finally, according to seven risk-rating agencies, their average long-term risk management ratings are in the 68th industry percentile, slightly better than the dividend aristocrats.
Long-Term Risk Management Is The 195th Best In The Master List (61st Percentile)
|Classification||Average Consensus LT Risk-Management Industry Percentile|| |
|S&P Global (SPGI) #1 Risk Management In The Master List||94||Exceptional|
|Federal Realty Investment Trust||78|| |
Good - Bordering On Very Good
|Strong ESG Stocks||78|| |
Good - Bordering On Very Good
|Foreign Dividend Stocks||75||Good|
|26 Life-Changing Super SWANs||68||Above-Average, bordering on good|
|Low Volatility Stocks||68||Above-Average|
|Master List average||62||Above-Average|
|Monthly Dividend Stocks||60||Above-Average|
|Dividend Champions||57||Average bordering on above-average|
(Source: DK Research Terminal)
These blue chips' risk-management consensus is in the top 39% of the world's highest quality companies and similar to that of such other blue-chips as
The bottom line is that all companies have risks, and these 26 Super SWANs are above-average, bordering on good, at managing theirs.
When the facts change, I change my mind. What do you do, sir?" - John Maynard Keynes
There are no sacred cows at iREIT or Dividend Kings. Wherever the fundamentals lead, we always follow. That's the essence of disciplined financial science, the math behind retiring rich and staying rich in retirement.
OK, so now that you know why we are so fond of these 26 Super SWANs, here is why you should consider buying some today.
For context, the S&P is trading at 17X forward earnings, basically historical fair value. So are the dividend aristocrats.
These 26 world-beater blue-chips are trading at 14.7X earnings or cash flow, and trading at a 31% discount to fair value.
That's why analysts expect 35% total returns from these Super SWANs in the next 12 months.
Their 12-month fundamentally justified total return? 54%.
But my goal isn't to help you earn 35% in a year, or even 54%, though that's certainly possible with these incredible blue-chips.
My goal is to help you life-changing wealth and income so you can retire in safety and splendor.
These 26 life-changing Super SWANs yield not just a very safe 3.5%, but analysts expect them to grow at 13% over time, delivering potentially 16.5% CAGR total returns. That's on par with the greatest investors in history.
|Investment Strategy||Yield||LT Consensus Growth||LT Consensus Total Return Potential||Long-Term Risk-Adjusted Expected Return||Long-Term Inflation And Risk-Adjusted Expected Returns||Years To Double Your Inflation & Risk-Adjusted Wealth|| |
10-Year Inflation And Risk-Adjusted Expected Return
|DK Top Buy List||3.5%||13.0%||16.5%||11.6%||9.3%||7.8||2.42|
(Source: DK Research Terminal, Morningstar, FactSet, Ycharts)
That's not just more than the dividend aristocrats and S&P 500; it's far more than analysts expect from the Nasdaq in the future.
|Time Frame (Years)||7.9% CAGR Inflation-Adjusted S&P 500 Consensus||8.7% Inflation-Adjusted Dividend Aristocrats Consensus||14.2% CAGR Inflation-Adjusted DK Top Buy List Consensus||Difference Between Inflation-Adjusted DK Top Buy List Consensus And S&P Consensus|
(Source: DK Research Terminal, FactSet)
Over a standard retirement time frame of 30 years, analysts think the DK Top Buy list could deliver up to 54X real returns.
|Time Frame (Years)||Ratio Dividend Aristocrats/S&P Consensus||Ratio Inflation And Inflation-Adjusted DK Top Buy List Consensus vs. S&P consensus|
(Source: DK Research Terminal, FactSet)
That's potentially 5.5X the S&P 500 and 4.4X more than the dividend aristocrats.
Life-changing yield, quality, and return potential? All at a 31% discount and a sub 15 PE? Now we're cooking with gas.
But what evidence is there that these 26 blue-chips can deliver anything close to 17% long-term returns over time?
The future doesn't repeat, but it often rhymes. - Mark Twain
In our case, "past performance is no guarantee of future results."
Still, studies show that over time, blue chips with relatively stable fundamentals offer predictable returns based on yield, growth, and valuation mean reversion.
So let's take at how the DK Top Buy List has performed over the last 15 years when 91% of total returns were the result of fundamentals and not luck.
15% annual returns, including the current bear market. Beating the S&P? Check. Beating the Nasdaq? By a bit, but yes.
The average 12-month return over the last 15 years? 17% CAGR, and the average 10-year rolling return? 18% CAGR.
Why are we confident in these blue chips' ability to deliver approximately 17% annual returns in the future? Because these world-beaters have been doing it for the last 15 years.
All while running circles around the S&P 500 and Vanguard's High Dividend ETF (VYM), one of the world's best high-yield ETFs.
But wait, our it gets better.
Want safe dividends that grow in all economic and market conditions? The DK Top Buy list delivers just that.
|Metric||S&P 500||Nasdaq||Vanguard High Dividend ETF|| |
DK Top Buy List
|Total Inflation-Adjusted Dividends||$361.43||$284.29||$588.57||$1,239.29|
|Annualized Income Growth Rate||7.7%||22.3%||8.6%||20.2%|
|Total Income/Initial Investment||0.51||0.40||0.82||1.74|
|Inflation-Adjusted Income/Initial Investment||0.36||0.28||0.59||1.24|
|More Inflation-Adjusted Income Than S&P 500||NA||0.79||1.63||3.43|
|Today's Annual Dividend Return On Your Starting Investment (Yield On Cost)||5.4%||5.0%||9.2%||36.6%|
|Today's Inflation-Adjusted Annual Dividend Return On Your Starting Investment (Inflation-Adjusted Yield On Cost)||3.9%||3.6%||6.6%||26.1%|
(Source: Portfolio Visualizer)
What started out as a 2.8% yield in 2008 has grown into an inflation-adjusted yield on cost of 26%.
For every $1,000 invested into the DK Top Buy list, investors have gotten back $1239 in dividends growing at 20% per year, almost as fast as the Nasdaq's 22% CAGR.
Investors in the Top Buy List have received 3.4X more inflation-adjusted income than the S&P 500.
This is the power of owning world-beating blue-chip bargains for the long-term.
The market is selling off again, creating fear, uncertainty, and doubt in the minds of many investors. That's understandable, but do you know what else it creates?
Volatility isn't risk, the source of future returns." - Joshua Brown, CEO Ritholtz Wealth Management
From bear markets come the kind of returns rich retirement dreams are made of. The average 10 year return after an 18+% decline over six months is 281%, or nearly 4X.
Individual blue-chips can deliver 8X to 16X returns, especially 31% undervalued world-beater Super SWANs like these:
I can't tell you when these potentially life-changing Super SWANs will bottom because in the short-term stock market returns are 97% luck. But in the long term, they are 97% fundamentally driven destiny.
If you're looking for potentially life-changing safe high-yield and long-term returns, bear market blue-chip bargain hunting is what you need.
And these 26 Super SWANs in the DK Top Buy list are our best ideas for this month.
What about next month? And next year? Well, the companies will always change over time, but our methodical time-tested focus on safety and quality first, and prudent valuation and sound risk management always, never will.
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This article was written by
Adam Galas is a co-founder of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 5,000 investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.
The WMR brands include: (1) The Intelligent REIT Investor (newsletter), (2) The Intelligent Dividend Investor (newsletter), (3) iREIT on Alpha (Seeking Alpha), and (4) The Dividend Kings (Seeking Alpha).
I'm a proud Army veteran and have seven years of experience as an analyst/investment writer for Dividend Kings, iREIT, The Intelligent Dividend Investor, The Motley Fool, Simply Safe Dividends, Seeking Alpha, and the Adam Mesh Trading Group. I'm proud to be one of the founders of The Dividend Kings, joining forces with Brad Thomas, Chuck Carnevale, and other leading income writers to offer the best premium service on Seeking Alpha's Market Place.
My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives.
With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and safe and dependable income streams in all economic and market conditions.
Disclosure: I/we have a beneficial long position in the shares of BTI, AMZN, LOW, MMP, MA, GOOG, QCOM, CMI, BAX, CMCSA, BASFY, ADDYY, SIEGY, ALIZY, IIPR, FRT, O, TSM, MRK either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Dividend Kings owns BTI, AMZN, LOW, MMP, MA, GOOG, QCOM, CMI, BAX, CMCSA, BASFY, ADDYY, SIEGY, ALIZY, IIPR, FRT, O, TSM, and MRK in our portfolios.