The S&P 500 is still levitating, and if youre like me, youre starting to feel like this bull run is on borrowed time.
Its understandable. The economy is just now stumbling to its feet, yet interest rates are already creeping higher. I think youll agree that we need higher borrowing costs like we need a hole in the head!
Treasury Rates Bust Through the 1% Barrier
Sure, 1.2% is a historically low number, but bear in mind 1% is an important psychological barrier, and were already well beyond thatand once rates broke through it, you can see how quickly they took off. Its entirely possible theyll be off to the races in the next few months, taking rates on mortgages, car loans and lines of credit with them.
But its not all doom-and-gloom. As I write this, lockdown restrictions have recently eased (yet again) here in California. And well over a million Americans are getting vaccinated daily.
That brings us to a critical question: how the heck do we invest through this transitional market? Ive got a three-point plan for you that works in any economynot just the Twilight Zone one were living in now.
Step 1: Start With Tollbooth Stocks
Tollbooth stocks are the kinds of companies we safety-conscious dividend investors love: they hold the infrastructurethink pipelines, warehouses and data networksbig players like, say, Amazon.com (AMZN) must have to operate.
These quiet toll collectors hand over most of the cash they collect to us as dividends. Another benefit of these stocks is that buying them is much safer than trying to pick individual winners in competitive industries.
To show you what I mean, lets say that, five years ago, you wanted to buy into the trend toward surging mobile-device use and data consumption. You could have bought the go-to US telecom stock, AT&T (T), which is renowned for high yields: it paid around 5.5% back then.
But that high yield wouldnt have saved you from a lousy return. In the last five years, AT&T has been run over by the S&P 500even with dividends included!
Popular Telecom Pick Flops
What about Verizon Communications (VZ)? It typically yields a bit less than AT&T. But it did add some price gains in the last five yearsenough to push it past Ma Bells stock. But it still got run over by the S&P 500:
Verizon Does a Bit Better, But Its Still Dead Money
Now lets compare this duo to our tollbooth play, American Tower (AMT), a real estate investment trust (REIT) with 181,000 cell towers around the world. All the major telcos pay rent to AMT, including AT&T and Verizon.
The stock roared past both of themand the market, to boot!
This Tollbooth Play Is Anything But Boring
American Tower is just one example of an effective tollbooth play. There are plenty more out there, including pipelines, owners of corporate data centers (more on that in a second) and utilities.
Step 2: Add Growth With Relative Strength
Tollbooth plays can provide a great base for your portfolio. Now lets add upside (in both share prices and dividends) with stocks showing what I call relative strength.
Relative strength means that strong stocks tend to stay strong, giving them a solid base from which to jump. Forget the bargain binwere not looking for low P/E ratios herejust stocks that have momentum.
Everybody loves betting on a long shot, but the trouble is, these underdogs simply dont come in enough to pay. We like strong stocks, smart management and megatrends. But everybody wants those, so where do we find our edge?
In two places:
Giant semiconductor maker Texas Instruments (TXN) provides a good example of the kind of fast return a relative-strength stock can deliver.
Below is a chart of TXNs performance over the last decade. You can see that the stock more or less tracked the market for half of that time before setting up and then sprinting past the benchmark in early 2016.
TXN Plants Its Flag
With the pattern firmly established, I recommended TXN in my Hidden Yields service in June 2017. The result? The stock recently smashed through my $170 buy up to price (meaning I no longer recommend it for new buying), handing us a 149% total return in about three-and-a-half years. Thats nearly double the S&P 500s 73% gain!
Now lets move on to the final key in our dividend-investing plan:
Step 3: Take Out Some Inflation Insurance
With 10-Year Treasury rates rolling higher and the Feds money-printing quantitative easing likely to stick around, it doesnt hurt to build some inflation protection into our portfolios.
Most investors think gold is the best inflation hedge, but it doesnt work for us because coins and bars dont pay dividends. (In fact, youll probably have to pay to store them.) Gold miners arent exactly dividend machines, either. Major producer Newmont Corp. (NEM) yields just under 2% as I write this.
Instead, well look for stocks with:
Steady dividend growth grows your yield on cost over time. That can mean that a 3% current yield could grow to 6%, 8% or even 10%+ years down the road. (Ill show you this yield gain in action below.)
A good place to hunt for stocks that tick these two boxes is back in the REIT space. Beyond cell-tower landlords, you could look to REITs running another piece of critical infrastructure: corporate data centers, which house the servers companies need to keep running, especially in this era of remote work.
Data-center landlord Equinix (EQIX), for example, pays a dividend thats surged 64% in the last five years. That spectacular payout growth means folks who bought back then dont care a bit about the 1.5% yield the stock offers todaythe inflated dividend theyre collecting now amounts to a much bigger percentage of their original purchase price5.8%, to be exact!
Theyve also seen a strong gain as investors have followed that surging dividend and bought the stock, driving it up a stunning 142% in that time.
Finally, the beta ratingEquinixs five-year beta is 0.32, meaning the stock is 68% less volatile than the S&P 500. That means an investor can enjoy their growing payouts with much less risk of the stock price falling out from under them.
How to Make a PREDICTABLE 20% Gain in the Next 12 Months (Bull or Bear!)
I hope this 3-step dividend safety plan helps you navigate 2021 with more peace of mind. By following it, you can nicely set yourself up to capture some strong upside while protecting your portfolio from a pullback, too.
Ive got even more for you, too. In addition to giving you my 3-step plan, Im going to give you 7 stocks that fit this potent strategy to a T. I call these 7 dividend growers recession proof because Ive handpicked them to hand you predictable returns of 12% to 20% a year, in a bull or bear market!
This 7-stock mini-portfolio puts the power in your hands. All 7 of these picks are nicely positioned to:
All 7 of these low-key dividend growers are just starting to show their relative strength now, and I fully expect them to launch on their next leg up soon, as more investors clue into the low-volatility dividendsand gainson offer here.
Dont miss out. Get full detailsnames, tickers, complete dividend histories, best-buy prices and moreon all 7 of these stout dividend growers now.