An anti-crisis method managed to generate money for a group of investors in the economic crisis of 2008. What strategy to apply when only more inflation is expected and the Federal Reserve increases interest rates. This is how it can be applied today.
An appropriate investment strategy for us to follow now, as the Federal Reserve is likely to raise rates until the US economy ends up in a recession (assuming, of course, that we’re not already in one!). A two-part dividend growth strategy that actually made money for a group of investors in the disastrous year that was 2008. I think stocks are heading down even before they finally go up.
If we look a year from now, I like our chances. And if you have been following my work, and my cautionary warnings.
It’s now July thankfully, and we can start responsibly nibbling on the highest quality dividend earners. In doing so, we will require these 2 things:
- Strong, and better yet accelerating, dividend growth, because as we’ve been saying over and over (and over again!) in our recent series on my Dividend Magnet investment strategy, it’s the main driver of stock prices .
- A low beta: Beta is a measure of volatility and can be detected by most evaluators. Simply put, a stock with a beta of 1 trades more or less along with the market. Betas below 1 are less volatile than the market, while those above are more volatile.
Combine a low beta and an accelerating dividend and the result can be a truly powerful and stable growth and income machine.
The classic example of a low-beta dividend payer braving a downturn occurred the last time a financial crisis (as opposed to a health crisis) rocked the market. That was 2008, a year that wiped 37% off the S&P 500. But General Mills (GIS), which has a history of being much less volatile than the market, sailed against the tide.
During 2008, its 5-year beta averaged just 0.23, meaning it was only 23% as volatile as the S&P 500. The reality turned out even better for GIS shareholders: The stock was one of the few to survive. that disastrous year with a profit, and a decent one at that!
In December when General Mills shares bottomed out that year, they were still almost 2% above their level in January 2008. The only problem with General Mills today is that their dividend growth is not only poor but also is slowing down
But the dividend has barely budged in six years, and the stock price hasn’t gone anywhere either. That seems unlikely to change as inflation drives up the company’s ingredient costs. Sure, the payout is up 151% since the end of 2008. Okay, and his dividend magnet pushed up the stock price at the same time.
To be sure, GIS is still a decent stock to hold: thanks to its low beta, it’s unlikely to drop as much as the market on the next leg down. But there are much better examples of dividends and a low beta rating combining for superior returns.
UNH’s Shocking 5,400% Dividend Growth Story
Case in point: Health insurer UnitedHealth Group (UNH), a name Hidden Yields members will know well: We’ve made a 76% total return on the stock since we bought it in January 2020.
Since 2008 check out the difference in dividend growth compared to General Mills – not even close! The explosive growth of UNH payments has driven a more than 10x price gain:
Also note the rapid growth in stock payouts in recent years (UNH just announced a healthy 14% dividend increase in June). Thanks to its five-year beta of just 0.77, it should be 23% less volatile than the S&P 500. But this year, like GIS in 2008, it has done much better: while the market sank 19%, UNH gained ground!
This is also the best way to generate a safe and high dividend over time. Because if you have a stock like UNH for the long haul, its return on cost, or the current return on the stock at the time of your original purchase, will likely skyrocket, thanks to its strong dividend growth.
Consider this: If you had bought UNH in early 2009, your dividend would have barely been recorded, due to the almost invisible 0.1% return on the stock at the time. But fast-forward to today and you’d get an incredible 24.8% return on your original purchase, thanks to the stock’s impressive 5,400% dividend growth in that span.
Optum provides pharmacy benefits, manages clinics, and supplies data analytics and other cutting-edge technology to optimize health care. UNH’s strong growth was due in large part to its foresight in 2011 to start Optum, its own technology-driven unit. These days, Optum’s profits continue to grow faster than UNH’s legacy business, with its profits accounting for more than half of the company’s total bottom line.
Imagine getting a quarter of your original buyback in cash dividends every year! That is the power of the dividend magnet.
Finally, it is concluded that the best investments that are giving the best results are those of IRAIC, with the generation of dividend growth according to the type of investment in the different sectors of the industry, which have led to a great development and strengthening generating a productive market and potential customers around the world. Published by The Tampa Herald, news and information agency.
