I know that bear markets can be a time of intense emotions for investors like us. Fear, doubt, excitement, and exhaustion are normal when stocks sell off big, as they've done in 2022.
In times of fear, uncertainty, and doubt, it's useful to step back and take a big-picture view.
We're starting the 10th month of this bear market, and so far the market has fallen 25%. That might feel like a long and brutal slog through market hell, but historically the median bear market involves a 32% decline over 11 months.
This is then followed by 13 months to recover to new record highs. While different risk factors cause every bear market, so far this one is on track for a historically average decline in the historically average time period.
Several Dividend Kings members have asked me to explain some of my best tips for staying safe and sane during these turbulent times.
Because while a 4X market rally over the next decade is historically likely, and stocks are almost certainly going to be up three years from now, that's cold comfort when the market can fall 4% in a day and our beloved aristocrats can fall as much as 7% in a matter of hours.
So here are my two favorite tips for getting through these tough times, past what seems like market hell, to the glorious other side of the bear market valley.
The dream of market timing is simple and beautiful. Avoid bear markets, including the market's single worst days.
In theory, avoiding the worst single-day loss in stocks each year can increase your long-term returns by 214X.
But here's what actually happens. According to Bank of America, since 1930 99.84% of the market's long-term returns, an impressive 177X return were from the 90 single best market days.
Miss just 90 of the best days out of 21,252 (0.43% of market days), and instead of 17,715% returns you earned 28%.
80% of the market's best days, without which you can't retire rich...ever, happen within 2 weeks of the worst days.
Fortunes are made in bear markets" - Value investor Todd Sullivan
If you think you can sit out a bear market and buy back at the historical bottom, you are forgetting about market history and human psychology.
Think back to March 23, 2020, the Pandemic bottom. Stocks had just fallen 34% in a month, and doomsday prophets warned about a 60%, 70%, or even 90% market crash.
But at the market's bottom in 2020, which was the historically average bear market bottom, did you feel excited to be buying stocks?
Or did the doomsday prophets and their warnings of much larger crashes to come seem logical and smart?
Everyone says they want to buy stocks when they sell off big. Buffett's "greedy when others are fearful." But when stocks are down 25%, 30%, or 35%, it's because terror is rampant on Wall Street.
All past declines look like an opportunity, all future declines look like a risk." - Morgan Housel
When the market is selling off hardest, when the deals are greatest, and the blue-chip bargains are raining from the sky, you want to bend it like Buffett and buy, buy, buy. Even if it feels terrible in the moment, and everyone "knows" that stocks have to fall further.
In October 2008 Buffett wrote "Buy American: I Am" in the NYT. He didn't say it was the bottom, just that world-class blue-chips were deeply undervalued and long-term investors would eventually be very glad they did.
He was right. Even though stocks crashed 31% more soon after he started buying blue-chips and told the rest of us too as well.
So here's how I manage my emotions to avoid the siren's song of market timing even in the most terrifying of market times.
I have spent seven years building my portfolio, saving 90% of my pre-tax income, and amassing a $2 million nest egg.
I'm earning close to $100,000 per year in dividends, growing at about 11% per year.
If I weren't dealing with several family medical crises at the moment, I'd be reinvesting that river of dividends into steadily more undervalued blue chips.
But even if you can't afford to save any of your dividends (many retirees can't) if you own world-beater blue-chips your dividends will grow exponentially over time.
What if you're not retired yet? Or if you can live off just a fraction of your post-tax dividends? Then you can profit from reinvesting your dividends and new savings at some of the best valuations in years.
160 years of market data in the US, UK, and Australia shows that being fully invested all the time is optimal 70% of the time. During bear markets? It's almost 100% of the time.
In fact, being fully invested all the time (as soon as you get new discretionary savings, you invest them) adds up to an extra 2.4% per year. Over 30 years, that's 2X the inflation-adjusted wealth compared to trying to buy only during bear markets.
Do you know what's great about blue-chip dividends? They always go up, no matter what the economy or stock market are doing
Had I owned what I do now, my top 12 companies would have turned a 3.6% yield in 2005 into a 93% yield on cost this year.
Do you know what goes down in a bear market? Short-term stock prices.
Do you know what only goes up? World-beater blue-chip dividends and how many shares you own.
OK, so now that I've hopefully helped you stay calm, sane, and safe in this bear market, here are my Top 12 world-beater blue-chips that I've personally invested $1.6 million into.
I own over 100 stocks in total, but 80% of my $2 million portfolio is concentrated in the 12 world-beater blue-chips I'm recommending today.
Schwab recommends US investors own 20% to 30% international stocks, and I'm right in the sweet spot.
I have a diversified portfolio prioritizing maximum long-term income.
I have exposure to every sector though I'm about 50% invested in pipelines and tobacco.
You don't have to sacrifice yield for growth, not if you own the right combo of max yield and growth.
Long-term total returns tend to be a good conservative approximation of long-term income growth.
In fact, high-yield portfolios that reinvest their dividends and rebalance annually get an income growth boost.
What do I mean?
Analysts expect 16% long-term returns from my 12 top world-beater blue-chips, similar to the returns they've generated over the last 18 years.
They also expect about 13% long-term returns from the Nasdaq (which yields just 1%) similar to what the Nasdaq has delivered over the last two decades.
The last time my top 12 blue-chips were this undervalued, they delivered Buffett-like 20% annual returns over the next 15 years and 24% annual returns over the next 10 years.
Remember how the market after a bear market usually delivers 4X returns over 10 years? Remember how individual blue-chips can deliver 8X to 16X? Well, here's proof of that.
OK, so this is a pretty impressive portfolio that I've entrusted 90% of my life savings to.
But which 12 world-beater blue-chips have I invested $1.6 million into? Which ones are my top recommendations for new investors today?
I've linked to articles exploring each company's investment thesis, growth prospects, risk profile, valuation, and total return potential. Here are my top 12 personal recommendations in order of what % of my portfolio they represent.
First, let's see what kind of returns the 8% undervalued S&P 500 offers 24% into a bear market.
Analysts expect 14% annual returns or 35% in total through 2024.
|Year||Upside Potential By End of That Year||Consensus CAGR Return Potential By End of That Year||Probability-Weighted Return (Annualized)|| |
Inflation And Risk-Adjusted Expected Returns
(Source: DK S&P 500 Valuation & Total Return Tool)
Over the next five years, analysts expect 11% annual returns from the S&P 500, or 65% in total.
That's a solid return potential, but take a look at what my top 12 world-beater blue-chips offer.
The S&P 500 offers about 14% annual return potential or 33% through 2024.
These world-beater blue-chip bargains offer 17% to 57% CAGR return potential.
But my goal isn't to double my (or your) money in just over two years. The goal here is life-changing income and wealth over the long-term.
(Source: Dividend Kings Zen Research Terminal)
These aren't just blue-chips; they are Ultra SWANs (sleep well at night) blue-chips. How can we know? By comparing them to the bluest of blue-chips, the dividend aristocrats.
|Metric||Dividend Aristocrats||My Top 12 World-Beater Blue-Chips|| |
Compared To Aristocrats
|Average Recession Dividend Cut Risk||0.5%||0.5%||100%|
|Severe Recession Dividend Cut Risk||1.5%||1.5%||100%|
|Dividend Growth Streak (Years)||44.8||36.2||81%|
|Long-Term Risk Management Industry Percentile||67% Above-Average, Bordering On Good||68% Above-Average, Bordering On Good||101%|
|Average Credit Rating||A- Stable||A- Stable||NA|
|Average Bankruptcy Risk||3.04%||3.09%||102%|
|Average Return On Capital||105%||154%||147%|
|Average ROC Industry Percentile||83%||80%||96%|
|13-Year Median ROC||89%||131%||147%|
|Discount To Fair Value||11%||33%||300%|
|DK Rating||Good Buy||Very Strong Buy||NA|
|LT Growth Consensus||8.7%||11.2%||129%|
|Total Return Potential||11.5%||16.5%||144%|
|Risk-Adjusted Expected Return||7.8%||11.0%||141%|
|Inflation & Risk-Adjusted Expected Return||5.6%||8.8%||158%|
|Conservative Years To Double||13.0||8.2||63%|
(Source: Dividend Kings Zen Research Terminal)
These world-beater blue-chips match the aristocrats for safety, quality, dependability, and long-term risk-management, or even exceed them.
Their average dividend cut risk in a historically average recession is 0.5%.
Their average severe recession cut risk is 1.5%.
Their average dividend growth streak is 36 years, almost 2X the Ben Graham standard of excellence, and makes this a dividend aristocrat portfolio.
Joel Greenblatt, 40% CAGR returns for 21 years, considers return on capital his gold standard proxy for quality and moatiness.
The dividend aristocrats have delivered 105% returns on capital over the past year. These world-beater blue-chips 154%.
Their ROC industry percentile is 80%, wide moat blue-chips.
Their 13-year median ROC is 131%, confirming wide and stable or even improving moats.
S&P estimates their average 30-year bankruptcy risk at 3.09%, an average credit rating of A- stable.
And seven risk-rating agencies consider their long-term risk management in the 68th industry percentile, low risk, above-average, bordering on good risk management.
Long-Term Risk Management Is The 184th Best In The Master List (63rd Percentile)
|Classification||Average Consensus LT Risk-Management Industry Percentile|| |
|S&P Global (SPGI) #1 Risk Management In The Master List||94||Exceptional|
|Foreign Dividend Stocks||76|| |
|Strong ESG Stocks||73|| |
|My Top 12 World-Beater Blue-Chips||68||Above-Average, Bordering on Good|
|Low Volatility Stocks||68||Above-Average, Bordering on Good|
|Dividend Aristocrats||67||Above-Average, Bordering on Good|
|Master List average||62||Above-Average|
|Monthly Dividend Stocks||60||Above-Average|
|Dividend Champions||57||Average bordering on above-average|
(Source: DK Research Terminal)
Their risk-management consensus is in the top 37% 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 world-beater blue-chips 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 I trust these world-beater blue-chips with $1.6 million of my savings, here's why you might want to buy some of them today.
For context, the dividend aristocrats trade at 18.1X forward earnings (11% historical discount) and the S&P 500 at 15.4 (an 8% historical discount).
These world-beater blue-chips trade at 12X earnings, a 33% historical discount.
Analysts expect these blue-chips to deliver 36% total returns within 12 months. Their fundamentally justified 12-month total return potential is 59%.
But my goal isn't to make 36% returns in 12 months or even 59% in a year.
My goal is to earn 100X returns over decades with some of the world's highest quality and safest world-beater blue-chips.
My top 12 world-beater blue-chips offer not just one of the safest 5.3% yields on earth but are growing at 11.2% CAGR. That means a 16.5% CAGR long-term return potential.
|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
|My Top 12 World-Beater Blue-Chips||5.3%||11.2%||16.5%||11.6%||9.3%||7.8||2.42|
|Schwab US Dividend Equity ETF||3.6%||8.80%||12.4%||8.7%||6.4%||11.3||1.86|
(Sources: DK Research Terminal, FactSet, Morningstar, Ycharts)
Analysts think my top 12 world-beater blue-chips could run circles around almost any popular investment strategy. Not just SCHD, the aristocrats, and the S&P 500 but also the Nasdaq.
|Time Frame (Years)||8% CAGR Inflation-Adjusted S&P 500 Consensus||9.2% Inflation-Adjusted Dividend Aristocrats Consensus||14.2% CAGR Inflation-Adjusted Top 12 World-Beater Blue-Chips Consensus||Difference Between Inflation-Adjusted Top 12 World-Beater Blue-Chips Consensus And S&P Consensus|
|30 (retirement time frame)||$10,090.65||$14,056.34||$53,842.34||$39,786.00|
|60 (investing lifetime)||$101,821.14||$197,580.66||$2,898,997.84||$2,701,417.18|
|100 (institutional time horizon, multi-generation wealth, philanthropy timeline)||$2,220,223.05||$6,702,560.00||$589,404,101.15||$582,701,541.15|
(Source: DK Research Terminal, FactSet)
Analysts think these world-beater blue-chips could deliver nearly 100X returns over the next 30 years, or 53X adjusted for inflation.
Over an investing lifetime, they could deliver nearly 3,000X returns.
My goal is to turn my portfolio into a charitable trust, which is why the 100-year potential for 589,000X returns is rather appealing.
|Time Frame (Years)||Ratio Top 12 World-Beater Blue-Chips Consensus/Aristocrat Consensus||Ratio Inflation And Inflation-Adjusted Top 12 World-Beater Blue-Chips Consensus vs. S&P consensus|
(Source: DK Research Terminal, FactSet)
This kind of strong compounding, nearly doubling in real terms every five years, can deliver life and world-changing wealth over time.
What evidence is there that these world-beater blue-chips can deliver anything close to 16.5% CAGR long-term returns.
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 blue chips with relatively stable fundamentals offer predictable returns based on yield, growth, and valuation mean reversion over time.
We've already seen how my top 12 world-beater blue chips have run circles around the Nasdaq and S&P for the last 18 years.
They've delivered returns similar to what analysts expect in the future.
But guess what else they've been able to do? Deliver amazing returns, safe and growing income, and with lower volatility during market crashes.
During the Great Recession, they fell just 36%, not much more than a 60/40's 32%.
In the 2022 bear market, their peak decline was 17.5%.
And let's not forget the ultimate goal of my portfolio, maximizing long-term income over time (to donate to charity).
You've already seen how my top 12 world-beater blue chips have delivered incredible 21% annual income growth over time. But here's what that kind of dividend hyper-compounding can do over time.
|Metric||S&P 500||Nasdaq||My Top 12 World-Beater Blue-Chips|
|Total Inflation-Adjusted Dividends||$503.87||$346.45||$3,403.23|
|Annualized Income Growth Rate||8.2%||17.8%||21.1%|
|Total Income/Initial Investment %||0.78||0.54||5.28|
|Inflation-Adjusted Income/Initial Investment %||0.50||0.35||3.40|
|More Inflation-Adjusted Income Than Altria||NA||0.69||6.75|
|Today's Annual Dividend Return On Your Starting Investment (Yield On Cost)||7.6%||6.5%||93.2%|
|2022 Inflation-Adjusted Annual Dividend Return On Your Starting Investment (Inflation-Adjusted Yield On Cost)||4.9%||4.2%||60.1%|
(Source: Portfolio Visualizer Premium)
Over the last 17 years, the S&P has delivered 8% annual income growth, the Nasdaq 18%, and my top 12 world-beaters 21%.
The S&P has repaid half your investment in inflation-adjusted dividends while the Nasdaq 35%. My top 12 world-beaters have repaid your initial investment 3.4X.
The 3.6% yield is now a 60% inflation-adjusted yield on cost and still growing exponentially at a rate of over 11% per year.
The Nasdaq is the best dividend growth ETF in history but can't hold a candle to the incredible power of world-beating yield + hyper-growth in my portfolio.
The 2022 bear market might end tomorrow, or it could take until the end of 2023. Are we headed for a recession?
The bond market estimates a nearly 60% chance that we will get a mild recession by the end of November 2023.
Then again, in the 40% chance we avoid recession, falling long-term interest rates and the 25% bear market we've already had might mean stocks could bottom a lot faster than many investors think.
I can't tell you when the bear market will end. In the short term, luck is 33X as powerful as fundamentals. But in the long term, fundamentals are 33X as powerful as luck. And here's what I can say with high confidence about my top 12 world-beaters: BTI, MMP, AMZN, ENB, PM, EPD, CMI, MO, VFC, GOOG, LOW, and TROW.
How worried am I about having 80% of my $2 million invested in these top 12 world-beater blue-chip bargains? I'm sleeping very well at night, knowing my hard-earned savings are in safe hands, protected by fortress balance sheets, and being managed by world-class risk managers.
Whether the bear market just ended or we have another 20% more to fall won't matter to long-term investors able to look beyond the next year or two.
If you're tired of praying for luck on Wall Street, why not try making your own?
If you're losing sleep over interest rates, inflation, and the Fed, it's time to try some Ultra-SWAN ultra-yield hyper-dividend growth.
Because when you have the world's best income growth blue chips working hard for you, one day, probably sooner than you expect, you won't have to.
Whether you have $2,000 to invest or $2 billion, the principles of smart long-term investing don't change.
Whether you have already retired or have 50 years until retirement, the incredible power of dividend compounding over time is a constant.
If you want to get rich, stop buying crap." - Kevin O'Leary
I learned the hard way as a young man that get rich quick schemes don't work. But combining the world's best ultra-yield, hyper-dividend growth, and hyper-growth blue-chips does.
That's why I'm happy to not just recommend my top 12 world-beater blue-chips to you today. I'm downright pounding the table about these rich retirement dream stocks.
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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, MMP, AMZN, ENB, PM, EPD, CMI, MO, VFC, GOOG, LOW, TROW 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, MMP, AMZN, ENB, PM, EPD, CMI, MO, VFC, GOOG, LOW, and TROW in our portfolios.