Markets
BA

Your Post-Crash Action Plan for 600% Dividend Growth

By Brett Owens

If youaEURtmre wondering what to do in this panicky market, IaEURtmve got a few aEURoeget rich quickaEUR words for you: buy cheap, high-quality dividend growers with both hands.

I know thataEURtms easy to say, but overcoming fear is vital, because history proves itaEURtms the path to serious wealth. I can show you why in 2 charts. HereaEURtms the first one:

A Snapshot of Terror

This is the CBOEaEURtms S&P 500 Volatility Index, which captures panic in a picture, spiking when the market tanks and dozing off when markets gently rise. When you overlay the VIX with the marketaEURtms ups and downs, a canaEURtmt-miss pattern emerges: folks who aEURoebought terroraEUR have ridden every dip to big gains!

When Fear Is High, Buy the Dip

Be greedy when others are fearful? You bet!

(IaEURtmll have 3 perfect buys for youaEUR"with one of these rate-friendly stocks boasting 600% dividend growth in the last 5 yearsaEUR"in a moment.)

But wait, is this time different? After all, stocks-at-large do seem pricey. I wouldnaEURtmt dive into an S&P index fund today (trading at a rich 24-times earnings) just because the VIX spiked.

And no matter how many times President Trump says the Fed has aEURoegone crazy,aEUR interest rates will keep rising. A December hike is baked in, according to futures markets, and 3 more increases are likely next year:

So what do we buy now?

Source: CME Group

IaEURtmll answer that in 3 words: dividend-growth stocks. But not just any old dividend growers.

We Need Dividends That aEURoeOutrunaEUR the 10-Year

We want stocks whose dividends are growing faster than the yield on the 10-year Treasury note.

Because why would you sit in aEURoedead moneyaEUR Treasuries when you can grab a dividend thataEURtms doubling every 5 years (or, better yet, rising 600%!)?

And (for once) Wall Street (kind of) agrees with me.

Just last week, the suits at Jefferies Group said the following:

aEURoeUltimately, companies with either high FCF (free cash flow) yield, net cash and/or positive earnings revisions will be able to live with long-term rates. Companies simply offering a dividend with no growth will fare poorly, in our view [italics mine].aEUR

Translation: stocks with rising payouts and heaps of cash wonaEURtmt even notice a slight rise in borrowing costs.

The ProofA A A

HereaEURtms the truth: if youaEURtmd jumped on cash-rich stocks with fast-growing dividends 3 years ago, when this rate-hike cycle started, youaEURtmd have demolished the market.

Consider the case of Boeing ( BA ), which I pounded the table on in December 2015 aEUR"the same month the Fed started nudging rates higher.

The reasons?

  • Free cash flow was soaringaEUR"at the time, the companyaEURtms FCF yield was 8.4%. In other words, in just a year, BA was throwing off nearly 10% of its market value in FCF!
  • The dividend was accelerating, having doubled in the previous 5 years, with each yearaEURtms hike eclipsing the last.

The result? Boeing shredded rising rates and handed us a massive 206% total return in 2 years!

3 Dividend Growers to Crush Rising Rates

But enough about past wins. LetaEURtms dive into the 3 aEURoenext BoeingsaEUR I have for you now:

  • Apple ( AAPL )
  • Broadcom Inc. ( AVGO )
  • Marathon Petroleum ( MPC )

WeaEURtmll start by stacking them up by free cash flow yield, one of the yardsticks Jefferies talked up last week.

3 Cash Machines

As you can see, all 3 are generating at least 5% of their market value in FCF, with Marathon clocking in at 10%. Those are terrific numbers. And the FCF backstopping them is soaring.

Cash Flow on the RiseaEUR

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

BA AAPL AVGO MPC

Other Topics

Options

Latest Markets Videos