This Is The Perfect Stock Market For Solid Dividend Stocks

We have been talking about dividend stocks a lot lately in The Juice. Because, for quite a while, we have felt that — with interest rates set to come down — it makes sense to consider other potential income generators. 

Now, with the market descending into something like, if not chaos, it looks like we made the correct assessment. 

In a minute, we’ll continue a series we started last week: the battle of the dividend stocks. Where we put two very different types of dividend stocks against one another to help you decide which is the better investment. 

Before the market tanked on Monday, we had already decided to pit Procter & Gamble (PG) against AT&T (T). 

Why? Because it’s the classic case of a high-yield dividend stock against a relatively low-yield one that has a serious dividend increase streak. We’ll get to that in a minute. 

But first, another reason why stocks such as PG are so important not only in this week’s environment, but as staples in your long-term, buy-and-hold portfolio. 

When the shit hits the fan, consumer defensive stocks, such as PG, tend to do relatively well. We’ll take up the larger sector another day, but today we focus on PG. 

As of the market close Wednesday, PG is up 5.8% over the last five days, while—

• SPDR S&P 500 (SPY) is down 6.1%
• Invesco QQQ (QQQ) is down 7.8%
• Nvidia (NVDA) is down 15.9%
• Microsoft (MSFT) is down 5.3%

Just four examples for comparison. But they’re representative of the bigger picture. There’s a similar disparity if you look at Wednesday’s price action only with PG up a little; SPY, QQQ and MSFT down a little; and NVDA down even more. 

While this isn’t to say PG is a better buy than the other four, it is to say that, here again, to reiterate because it matters—

• Investors like consumer-stocks such as PG in this type of volatile environment. 
• Investors also like stocks such as PG when rates come down because they can provide income generation that, sooner or later, cash accounts will not offer. 
• Stocks like PG — no matter the environment — have a place to help diversify your portfolio. To offset downside in one area with strength in another. At least in theory. But, right now, we’re seeing this theory play out. 

Plus. if nothing else, it’s always nice to see some green in a sea of red. 

All of this said, if you own PG — and other stocks like it — alongside, say, SPY, QQQ and the Magnificent Seven, you’re most likely doing well. Notwithstanding this week’s carnage. 

If you think it’s time to get into defensive income names, be careful. Particularly the income part is more important to you than the defensive part. 

On the surface, you might be more attracted to T and its 5.8% dividend yield. That’s better than you can get in most high-yield savings accounts (HYSA) and CDs right now. (See the link in the first paragraph for more on that). But, remember, T stock is a long-term train wreck. 

Yeah, it’s up 11.5% YTD and 37.4% over the last year. But it’s down 26.2% over the last five years. It’s still about $10 per share shy of its 2020 highs. 

A $5,000 investment in T five years ago is only worth about $5,270 today. And that includes dividend reinvestment. It’s not long ago that T had to cut its dividend. So it has no dividend increase streak to write home about. 

Meanwhile, Procter & Gamble has increased its dividend for 69 consecutive years. That’s incredible. 

Yet, you might look at its 2.4% dividend yield and scoff. That’s less than you can get right now in a run-of-the-mill HYSA or CD. 

But PG stock is a relatively strong performer, up more than $50 per share (or 45.6%) over the last five years. A $5,000 investment in PG five years ago is worth approximately $7,877 today. 

PG is a dividend stock and a consumer name you can count on. Especially when the chips are down and there’s an alley fight like we have seen this week. 

The Bottom Line: The Juice isn’t panicking over this week’s market action. But that doesn’t mean we don’t like to consider what’s happening and ensure we’re prepared.

We don’t think it makes a ton of sense to rotate in and out of sectors or types of stocks if you’re a long-term investor. That’s not long-term investing. That’s market timing. 

Of course, you might keep a bit more cash in the bank when rates are high and buy the dip when your favorite stocks correct. But you should own the broad market, higher risk/big reward stocks and solid dividend stocks (including consumer defensive names) all of the time. 

This type of strategy will get you much closer to diversification than buying and selling on the headlines and hysteria of the day.

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