It’s been more than a decade since we’ve gotten a true bear market, which tends to bring stock valuations more in line with historical norms. Even so, since 2009, we’ve experienced a few quick drawdowns that resulted in more reasonable prices, and more generous yields, than this expensive market typically offers.
There was the August 2014 correction triggered by China’s “Black Monday.” There was our near-bear experience in 2018, prompted by tariff fears, Fed rate hikes and the partial government shutdown. And right now, the stock market is trying to deal with a bubbling health crisis that represents its first real challenge in months.
Broadly speaking, stocks haven’t suffered anywhere near the losses they absorbed in 2014 and 2018. The emergence of the deadly Wuhan coronavirus has so far, at its worst, produced a five-session, 2.6% drawdown in the S&P 500 between Jan. 21 and Jan. 27, which is a relative drop in the bucket.
But that’s also the market’s deepest slump in nearly three months. And more importantly, the coronavirus’ potential effects on trade, travel and energy has created a “flash sale” of double-digit dips across several industries.
But be careful.
While value is a core component of every buying decision I make, I also look for the rare “green on the screen” when markets are panicking. In other words, I want to see which stocks hold up well when everything is flashing red.
Specifically, I want to see which high yielders are holding up relative to the market. Substantial dividend income is the surest path to a cozy retirement, but what good are those payouts if the stocks are turning tail every time the market flops?
These three 6-plus percent payers have hummed through the market’s recent hiccup:
- Cohen & Steers Total Return Realty (RFI), 6.4% yield
- Compass Diversified Holdings (CODI), 6.0% yield
- Consolidated Communications Holdings (CNSL), 28.5% yield
Outperformance in the face of broader market turbulence is a sign of “relative strength,” which means (at least at the moment) that the stocks are acting better than the market.
Just remember to take the bigger picture into account, too.
Broadband and TV provider Consolidated Communications Holdings, for example, has been a longtime dog. In fact, its stock only jumped because of loose M&A optimism tied to Brookfield Infrastructure Partners’ (BIP) buyout of regional telecom Cincinnati Bell (CBB).
Sustainable gains? Maybe not. But let me show you what happens when you buy a sustainable outperformer in the midst of a crisis.
In the disastrous final quarter of 2018, healthcare-focused Medical Properties Trust (MPW), a triple-net hospital REIT, put up an 8% gain that most investors would’ve been thrilled about in any year. It was especially impressive given the fact that the S&P 500 was dive-bombed by 14% over the same time frame.
What happened next? This strong stock got even stronger, churning out 28% total returns since the start of 2019 — good enough to beat both the S&P 500 and VNQ by roughly 15 percentage points.
In fact, it even outperformed over this recent weak spell.
To learn more about generating monthly dividends as high as 8%, click here.
