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
When Fear Is High, Buy the Dip
(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:
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.
- 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:
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