On Monday and Tuesday, all three major indices – S&P 500, Dow and NASDAQ – smashed through previous all-time highs to new records.
And everyone is asking, can this bull market keep running?
The market strength is especially exciting given the rough start to the fourth quarter. As you may recall, the Dow and S&P 500 shed around 3% in the first two trading days of October. The selloffs were largely due to weak economic data and the continued U.S.-China trade war.
After a few shaky days, however, investors picked themselves up, dusted themselves off and got back to work. And now here we are, sitting at new highs.
So, can this bull market keep running? Absolutely!
And let me explain why.
I’m a numbers guy, and the numbers are in our favor. When the S&P 500 first broke through 3,040 in October, it was also the first time that the S&P 500 set a new all-time high in three months. Market analysts at Bespoke found that in the previous 32 instances when the S&P 500 broke through new highs after a three-month hiatus, the S&P 500 has posted gains in the following month, three months, six months and even year.
Bespoke also noted that the S&P 500 has averaged a 0.73% gain in the month following a new all-time high, as well as an average 2.41% gain three months out. The results are even better when you consider these instances in the current bull market: The S&P 500 has rallied an average 4.69% in the next three months and a stunning 14.01% in the following 12 months.
So, if historical precedence continues to ring true, we’ll close out 2019 on a very high note, but I also expect 2020 to be just as strong – if not stronger. In fact, I look for the S&P 500 to rally at least another 20% and hit 4,000 by yearend! (You can find a full market briefing with my 2020 predictions at this link.)
However, the stock market is growing more narrow. Think of it like the Tour de France: You’re going to have a very narrow pack pulling ahead next year. So even if the market goes even higher than I’m predicting, if you want to make real money next year, you need to be riding with the leaders.
To make sure you’re ahead of the pack, I’m writing a special series called How to Make 2020 Your Record-Breaking Year. In this series, we’re going to cover the best strategies to make this your most profitable year yet.
Even during bull market conditions investors get mediocre returns – again and again. In more than 30 years of investing, I’ve seen it happen many times. But as I will explain, 2020 will be year of tremendous growth, and you can beat the market for even bigger gains with the right investing strategy.
Whether its maximizing yield, achieving a retirement catch up or finding the small stocks set for life-changing gains, this series will explain your path to leaving so-so market gains in the dust.
So, in today’s article, we’re going to cover a key foundation of this strategy: dividend stocks.
Making Your Overall Returns Smoother
Now, in a bull market that’s so well-established, some of you might be asking yourselves: Why bother with dividend stocks?”
People are especially surprised that I recommend so many dividend stocks. “Aren’t you the growth guy?” And, in a word, yes. That’s why, here at InvestorPlace, my flagship newsletter is Growth Investor!
I know dividends are boring; they trade in a herky-jerky manager. You’ll get stock appreciation… if you hold them long enough.
But let’s not forget that dividend stocks often zig when the growth stocks zag. This is why I always recommend owning them – because they make your overall returns smoother.
That’s something to keep in mind right now – with the market hitting new record high after high.
And with S&P 500 yielding more than the 10-year Treasury, yield-hungry investors continue to flock to the stock market, so dividend stocks are in prime position to soar. But you don’t want to invest in just any dividend stock. Chasing dividend yields alone can be downright dangerous.
Stocks are not like Treasury bonds. There’s no guarantee that you will get your money back. There’s also no guarantee that company will continue paying a dividend. If you choose poorly, you could lose your capital as the stock price falls. Or, that nice juicy dividend could be slashed.
In most cases, dividend yields are tantalizingly high for a reason (the stocks are cheap and rightly so) – and are simply not supported by the fundamental earning power of the business.
Investors who pile into these over-paying stocks can be in for a rude awakening. That’s why there are always four things I always want to see from any dividend stock; if not, it won’t even get a second look.
The Four Things I Demand From Any Dividend Stock
The first thing I always look for in a dividend investment is the company’s ability to increase their dividend payments. So, when I assess a stock’s Dividend Trend, I look at the last four quarters of payments to see if they are growing, unchanged or decreasing. If a company has to cut its payout, that’s generally a bad sign – not just for the yield, but for the stock itself, too.
The second is Dividend Reliability. Has the company been paying for years without missing? Or has it had some gaps during times of trouble? Consistent payments is a great sign, and this plays a big role in whether you should buy, sell or hold the stock.
Then you want Forward Dividend Growth. This factor requires some homework on my part…looking at growth estimates for the company and for its dividend. Inflation is very real, and you certainly don’t want a dividend stock that can’t offer increasing payouts over time.
Lastly, I look at Earnings Yield. Essentially, I gauge the company’s earnings quality; if it scores highly, this can signal future dividend increases, or at least a strong ability to pay dividends. If it scores poorly, the opposite is true.
If I’m making a dividend portfolio sound like a lot of work – well, in my Platinum Growth Club service, I do it all for you.
For Platinum Growth Club, I operate a highly selective Model Portfolio, where only the best of the best dividend stocks make the cut (some of which yield as high as 11%!) These stocks are hand-picked by me and are designed to do well in any market environment. I call these my Elite Dividend Payers. And as the market moves higher, I expect dividend stocks to lead the way.
However, you don’t want to only own dividend stocks. You need to make sure your portfolio is balanced, which is why you’re going to want to deploy some other strategies as well. Next on the docket are the small-cap growth stocks. (As a special bonus, a couple of my favorites just happen to pay dividends as well.)
Tomorrow I’ll go into all the details of my small-cap strategy in Part 2 of my How to Make 2020 Your Record-Breaking Year series, so stay tuned!
Note: In the meantime, be sure to check out my brand-new 2020 forecast. I’m as sure about what comes next for this market as I have been about anything in my 35 years of investing.
My research shows that a rare combination of extremely powerful forces will send the market soaring to Dow 40,000 in the new year.
Now I know you might be skeptical. And I understand how you feel. This isn’t the first time the noise and the fearmongering in the financial media have tried to scare people out of the market.
But time and again, the market has just kept going up and up and up. And through it all I’ve shown my readers model portfolio gains of 457%, 751%, even 1,125%.
Look, I’ll be the first to tell you when I think the party is over. But right now, the last place you want to be is on the sidelines.
Missing this Great Market Melt Up to Dow 40,000 in the months ahead would be a devastating mistake. So I’ve posted my full forecast for you here. See my research for yourself and get the simple steps you can take right now to prepare for the massive market move ahead.