If you invest money in the stock market, you will eventually face a bear market. There is no way around it. Bear markets test your emotional strength in a way that is difficult to explain unless you have experienced one.
However, there is a way to soften the blow. Instead of focusing on stock prices, focus on dividend payments. Here’s how Procter & Gamble (PG 0.43%)And the kellogg (K -0.76%)And the hormel (HRL 0.31%) She helped me manage my emotions during turbulent times.
Terrible year
As far as stock prices go, 2022 has been a horrible year, with S&P 500 index by approximately 20%. I noticed the drop, of course, but I didn’t do it in stages. In fact, I saw it as a way to grow my portfolio faster, thanks to dividend reinvestment.
In fact, my focus on dividend investing completely changes the way I view market volatility, making it inevitable bear markets An easier way to deal with it from an emotional point of view. Some examples will help.
For starters, I like to buy long-term dividend payers when their yields are historically high. Basically, this means buying companies that have a long history of success behind them when they are out of business.
For example, I bought Consumer Goods Procter & Gamble giant at the time was cutting brands out of its portfolio so it could focus on the most profitable brands. The yield at that point was near an all-time high and close to 4%.
I felt comfortable jumping in despite the fact that Wall Street was so negative, because P&G has been increasing its dividend annually for decades. In fact, it is a file The king of profits With over 60 years of annual highs.
You don’t build a line like this by accident, and it proves that Procter & Gamble can handle adversity, even if the short-term results can be a little hard to look at. The stock has risen strongly since those dark days, and profit return It is now down to around 2.4%. However, during 2020, the stock is down more than 20%, at one point.
I didn’t pay any attention because I was focused on the generous profit stream I was making. And falling prices? Well, that means I was able to buy more shares in a great company when I reinvested the dividend. Buying more shares, meanwhile, means my dividend flow increases at a faster clip because my next dividend payment will be from a larger stock base.
Dividends help me sleep at night
A more recent example of my approach is Kellogg’s, which fell deeply out of favor during 2020 and 2021. There were good reasons for this, including a strike at the company’s cereal production plants in the United States. But the company had a yield of more than 4% and a long history of increasing its dividend over time, so it stepped in on its darkest days.
Management’s efforts to right the ship are starting to play out in 2022, and the stock is up more than 10%. To be fair, Kellogg’s is a complicated story today because it plans to divide itself into three parts.
However, here’s the real story: I didn’t know the stock was up 10% until I wrote the line above. I never looked because I’ve been watching the dividend all year. Most important to me was the fact that the Board increased the dividend in the second quarter of 2021 and the third quarter of 2022.
These increases tell me that management still believes the company’s future is on solid ground. When Wall Street sentiment turned broadly negative, as evidenced by the decline Standard & Poor’s 500 Back off, it had little effect on me.
With a dividend yield of about 3.3%, Kellogg’s isn’t as attractive as it used to be. But for investors willing to put up with the uncertainty of a company’s breakup, that yield is still toward the high side of the company’s historic yield range.
However, the most attractive option may be Hormel. The company is a dividend king with more than 50 years of annual dividend increases. It owns iconic brands, such as SPAM and Planters, and is growing its local, international and foodservice businesses through acquisition and innovation.
The stock is down about 7% in 2022, but again, I wasn’t watching that. I was looking at the earnings increase that occurred in the first quarter of that year. Although Hormel’s yield of 2.4% seems low on an absolute basis, it is high historically.
Notably, the company announced another increase in the first quarter of 2022 in November. The increase would be a generous 6%. That would allow me to buy more Hormel shares while they’re still out there with investors.
Buy sources of income and sleep well
In essence, a stock is an ownership stake in a company’s future cash flow. Dividend is a tangible return on that share. If you focus on buying companies that value highly to reward investors with dividends, you can build a portfolio that will help you avoid the jitters of bear markets.
In fact, focusing on the profits I get from Procter & Gamble, Kellogg, and Hormel has allowed me to largely ignore the vagaries of the market. Procter & Gamble is the kind of company you’d want on your wish list in the event of a major downturn. Meanwhile, Kellogg’s (for the more aggressive types, given the pending business break-up) and Hormel’s look rather attractive at the moment.