I recently joined Market Wrap to chat with Moe Ansari about the market. The time to dump stocks, I told Moe, was early in the year. Or late 2021. Before the mainstream media even whispered the words bear market. Now that just about everything is 20% down, we have professional stock cheerleaders like The Wall Street Journal lamenting that buying the dip isn’t working.
A contrarian sign that this dip should be bought? Perhaps…
Moe and I yapped about the Federal Reserve (of course), the doom and gloom mainstream crowd, and my two favorite dividend stocks to buy right now.
You know I’m a big chart guy! So let me share some charts from the “show notes” with you here.
Moe asked me, “We hear all the ‘Doom and Gloomers’ out there. Why would you buy something now with the market on its back?”
Because the time to sell and hide was earlier this year. If you’re a premium subscriber of mine, you’ll appreciate that is exactly what we’ve done. We are sitting on large cash positions around 50% in each of our portfolios:
Now, let’s get ready to go dividend shopping.
But hold on—why didn’t we just “pre-shop” in January and buy crash-proof income stocks? Because they don’t exist!
Let’s take 2008. We’re living Financial Crisis Lite right now. With the markets way down, there’s a manhunt underway for investments that did great in ’08.
These stock searchers are going to be looking for a while! I brought up three recession-proof holdings to Moe:
- Protein King Hormel Foods (NYSE:HRL). Whether it’s a recession or a full-blown financial crisis, Hormel’s Spam always sells.
- Pantry Prince Mondelez (NASDAQ:MDLZ), maker of power brand Oreo. I don’t care what is happening in the world, your investment strategist is getting his Oreos (and not settling for the Trader Joe’s substitute!).
- And UnitedHealth Group (NYSE:UNH). The health carrier is always growing EPS at a 10% annualized rate.
But January 2008 of that year wasn’t yet an ideal time to buy this recession-proof trio:
12 Rough Months for 3 Recession-Proof Stocks
Moving our buy date six months from January to July 2008 really helped forward returns. Sure, there were dips to come, to put it lightly, but as bear markets mature, we want to be net buyers rather than net sellers.
A dollar-cost averaging (DCA) approach works well late in bear cycles. We don’t have to worry about catching the exact bottom when we deploy money methodically. An “every couple of months” purchase plan starting in summer ’08 would have worked great. In fact, three years later, the Spam-Oreo-healthcare trio made their late ‘08 buyers quite happy!
Late in the Bear: DCA Time
Moe continued, “What are you expecting from the Fed this week, and how do you think the market will react?”
Nice job by Moe with the question of the month here! We both (correctly) assumed the Fed would do a three-quarter point rate hike, and that’s how it played out.
But individual meetings and decisions are not important. There’s a big unwind at play here. And that has been reflected since the Fed’s latest rate hike and “tough talk” on inflation.
It really is different this time. For many years, Fed Chair Jay Powell printed money prolifically. This lifted asset prices across the board, including of our dividend stocks.
(Hey, we’re not arguing—and we took profits. We’re just sayin’.)
Pre-Jackson Hole we compared Jay to “Hans” (aka the “Yodel Man” and “Yodely Guy”) in the old Cliff Hangers game from The Price is Right. The Chairman grew the Fed’s balance sheet to nearly $9 trillion, and it was all looking fine for a bit:
For Years, the Fed’s Balance Sheet Climbed and Climbed
But Jay/Hans took things too far. And now he’s left to mop up his inflationary mess.
Our Fed balance sheet climber is (finally) shedding assets and raising rates. This is the responsible thing to do because it sops up all the extra and inflationary money sloshing around.
Unfortunately, Mr. and Ms. Market like liquidity. They might even be addicted to it after 14 years of being “on the juice.”
When the Markets are told tightening is coming and staying for a while, they throw a big fit. They like loose money. So this little downtick in the Fed’s balance sheet has already caused quite the taper tantrum:
Fed Balance Sheet Shrinks
This is a reason for continued caution, so I’m all about playing a bounce that confounds vanilla financial headline readers. Think of it as a multi-week swing trade instead of a multi-year buy and hope hold.
Moe followed up, “What dividend stocks do you like paying 5% or more? And what do you think of telecoms like AT&T?”
I’ve picked on AT&T (NYSE:T) for years. The stock is lame.
AT&T dishes a dividend that looks decent on paper but never raises it. And worse? It loses the annual yield in price declines.
No thanks!
I told Moe to instead consider Alerian MLP ETF (NYSE:AMLP), which pays 8.2% (way more than AT&T). Alerian owns infrastructure companies—middlemen that act as energy toll bridges.
As long as energy prices hang in there, these tolls keep coming. Which means these dividends continue to get paid.
Given the supply constraints in the energy market, the geopolitical mess in the world and an eventual need to replenish the Strategic Petroleum Reserve, these energy infrastructure dividends are a no brainer.
Say no to AT&T and hello to Alerian.