In late January, President Donald Trump declared an emergency and implemented travel restrictions which were stonewalled against by leaders of the opposition and typical resistance, including Nancy Pelosi and Joe Biden.
Even as early as early as January 22, financial analysts at Yahoo and other media began writing about defensive stock moves to take if a pandemic occurs.
While opponents fought against Trump’s early protective actions, the virus was able to creep into the USA, and cause havoc. In the last 8 weeks, the US markets have lost $7 trillion in wealth. After weeks of resisting, House Democrats in March withdrew from the calendar a floor vote on a bill targeting Trump's early protection travel restrictions.
In the 2009 financial crisis, 5 million jobs were lost in one year. The banks and financial markets were crippled by lack of liquidity. It took several years for President Barack Obama to get those jobs back, even with free TARP money being lent to anyone too big to fail.
The U.S. bear market lasted from early October 2007 to March 9, 2009, when the Dow Jones industrial average hit a bottom. During the global financial crisis of 2007-2009, the S&P 500 lost about 50% of its value. Many of blue-chip stocks came back within 15 months due to extraordinary interventions by central banks and governments worldwide to salvage the stock market.
The DJIA hit a low on March 6, 2009 of 6,469.95. The value of all U.S. stocks had dropped from a peak of $22 trillion to $9 trillion, which was a staggering loss of wealth that hit the middle class hard. In 2009, the benchmark Standard & Poor’s 500 index rose 23.5 percent for the year, while the Dow climbed 18.8 percent and the Nasdaq jumped 43.9 percent from its close on December 31, 2008. It was a meteoric rebound of blue-chip stocks.
Also, because interest rates had gone to virtually zero, certificates of deposit (CDs) at banks were not able to provide income for retirees. Thus, hugely popular blue-chip dividend stock purchases began. Furthermore, the lower tax treatment of dividends for most investors made the whole sector very useful for those who wanted income and potential growth.
BLUE CHIP DIVIDEND STOCKS ARE BEST: WHY NOW?
As the wealth management professor for a top ranked U.S. law school graduate LLM program, I stress suitable, timely and prudent investments. Even if you look at the Dow 30, you will see that many of these positions are down 30-40% or more from their highs as of March 23.
Keep in mind, we have had two ”black swan” events this year: The COVID-19 China coronavirus outbreak and the Russian-Saudi oil wars, which pushed prices down to jaw-dropping lows.
With all of this in mind, it may be the best time in a generation (since either 2002 or March 2009) to buy into great dividend stocks. As a note, with fiduciary duties and a litigious society, it is typically hard to complain about an adviser who has put a client’s money into prudent blue-chip investments that are suitable for the customer because they are relatively safe.
With all of this being said, what are some deals?
Here is my short list of "income ideas" for the rest of 2020:
- Any of the “Dow 30” stocks that have lost more than 25% of their value that provide a dividend of 3% or more.
- Funds or ETFs that have low fees, good dividends and diversification in blue-chip holdings. There are great funds and ETFs holding S&P stocks and offer great dividends.
- Take a look at Dividend Aristocrats as individual stocks or Aristocrat ETFs or funds.
- Any quality ETF with a track record of dividends and potential growth. Read their list of holdings or investment criteria to make sure they are focused on blue-chip related equities. It is also smart to look at a 3-10 year graph to see how long they have been active and performing.
- There are some great discounts on some dividend yielding ETFs related to banks, financials, energy, utilities and properties such as REITS. These sectors have been beaten up with the coronavirus and the Russian-Saudi oil battles.
- For more aggressive income investors, you may want to try an MLP or BDC. However, these types of investments would generally have different tax treatment and consequences.
Remember, this is one of the best times in 20 years to find superb value. It may be smart to screen for funds or ETFs that are not overconcentrated in one sector.
At this time, we have an energy sector, financial sector/banks, and travel related sectors which have been hit hard.
There are some great values everywhere but extreme discounts can be found with airlines, hotels, REITs, cruise lines, oil and gas companies, banks, and more. Even the S&P 500 high-dividend Index may have been down more than 50% from its highs earlier this month.
If you have money to invest, you can buy quality blue-chip stocks that are 30%-40% and even 50% off their highs while they are paying up to 5% or more in dividends or an even higher rate.
If you are lucky, you can pick some winners, get the dividends and possibly capture a great capital gains in a year or two. While some companies may need to cut dividends, most companies want to keep their dividends as it generally creates loyalty and liquidity.
Let the buying begin!
Disclaimer: Consult a licensed professional before making any important investments, tax, financial or legal decision.
George Mentz JD MBA CWM Chartered Wealth Manager ® is a licensed attorney and CEO of GAFM ® global education, which is an ISO 29990 Certified professional development company operating in over 50 nations. Mentz is an award-winning author and advisory board member to several companies around the world in education, charities, and crypto currency.
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