With market down, time to pick up companies’ stockBy: Marc Cuniberti
Those of us looking at the markets for a living have seen happier holidays. That being said there is some good news in all of this. With declining stock prices comes opportunity. Although portfolio balances have likely decreased with even profits minimized or negative, we have a chance when the market bottoms to lock in some great yields on solid companies. Companies that are the bedrock of the American economy. Names that have been around for decades, some over a century and I am excited about what this means for investors.
Many of these great companies pay dividends which are scheduled payments to stockholders every so often, usually every quarter. Since dividends are listed as a dollar amount, when the price of a stock drops its yield on your investment goes up. Many of them have increased dividends for decades and paid them for as long.
For instance, if stock "ABC Company” (fictional) says it will pay one dollar a share annually and the price last month was $10, your annual yield would be 10 percent. Now along comes our nasty correction over the last few months and stock of ABC drops to $8 which is a 20 percent drop in price and many stocks in this recent setback have seen this percentage drop.
If the company pays the dividend as scheduled, you spend $8 a share buying it and then get the buck in dividends. That payout equals 12.5 percent.
Bingo — the stock got hammered but buyers at the new level of 8 bucks get a much higher return than buyers before the crash.
With the markets suffering the worst December since 1929 (CNBC) and note the quote: “About 38 percent of companies on NYSE, Nasdaq trade at 52-week lows. Only eight days since 1984 saw more stocks hitting new bottoms. The worse December since 1929.”
We now have a unique opportunity unfolding. Remember when bad things happen, opportunities can arise and right now I see a tremendous potential opportunity being given to us with this market rout.
Yes your balances may have been hit, and yes it may look somewhat bleak right now, but when I get the chance to pick up great companies at bargain prices paying nice dividends which were higher before this seasons market set back, I take a hard look at altering strategies to take advantage of this opportunity.
The S&P 500 sat at 2929.00 on Sept. 17 and closed at 2351.00 Dec. 24 which is 19.8 percent decrease. That said, the window is opening wider every down day and I cannot ignore it. That means if we pick up some of these great U.S. stalwart companies that make up some of the best regarded companies in the country at beat up levels, we can possibly lock in great dividends and also have the possibility of a recovery lifting the prices of these stocks as well. Historically when the markets fall hard and fast, the pendulum effect sometimes comes into play in a big way. In 2009 the Dow sat at 6,626 and in about eight years skyrocketed to 26,828. That is a 404 percent increase. Add dividends to that and you imagine the results for those grabbing stocks at the bleakest of times that pay dividends.
What is the opportunity now?
While most investors and advisors might be seeing darkness and lots of red, I see opportunity. I was always a fan of dividend paying stocks of great companies, and now I am super concentrated on this strategy again. Great opportunities in life don't happen every day, but when they do, you have to sit up and take notice, have vision, and while the blood runs in the streets, look toward the sky and find the hidden opportunities. This is my thinking today.
Who wouldn’t want to own a basket of solid companies with the possibilities of some great dividends, with higher yields because of beat up prices?
And even if the market goes lower, our possible yields will only go up from there. In a weird way, we can hope the market goes even lower. Strange how things can be perceived.
Marc Cuniberti is an Investment advisor representative through Cambridge Investment Research Advisors, Inc., a registered investment advisor. Contact him at SMC Wealth Management, 164 Maple St. #1, Auburn or 530-559-1214.