Tuesday, April 12, 2022

Dividends Are Gold in a Down Market

In a down-market when many people are rushing to buy gold, I already have mine. No, not that kind, but something much better! A stable stream of dividend income from solid companies. While everyone else is panicked about their portfolio's decline, I see the downturn as an incredible buying opportunity.

I am certainly not the first to recognize the power of buying good dividend stocks when they are down. The 'Dogs of the Dow' is probably the most popular implementation of this strategy. Michael O’Higgins popularized this strategy in his book, Beating the Dow (1991 and 2000). In O’Higgins' implementation he invests in the 10 highest yielding securities in the Dow Jones Industrial Average (Dow), and rebalances annually. He back-tested the strategy by looking at the 26-year period from 1973 to 1998. During that period the 'Dogs of the Dow' outperformed the Dow, earning 17.9% annually versus 13.0% for the Dow.

Granted the 'Dogs of the Dow' strategy is not a traditional buy and hold dividend investing strategy, but it does emphasize the power of dividends when combined with good solid companies. It is easy to see why a down market does not depress me. There's gold in them-there hills!

Full Disclosure: No position in the aforementioned securities.

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