FTS - 10 High-Yield Dividend Aristocrats Perfect For What's Coming Next

2023-10-27 07:35:00 ET

Summary

• Investors are worried about soaring interest rates, a pending government shutdown, wars around the world, and a recession looming next year.
• History is very clear, market timing is the WORST thing you can possibly try. None of the best investors in history do it, and neither should you.
• Dividend aristocrats and low-volatility blue chips are two proven ways to beat the market with lower volatility. Low-volatility aristocrats are the ultimate way to sleep well at night.
• Here are the 10 lowest volatility aristocrats that offer twice the market's yield, but with volatility so low they fell just 11% in 2022's bear market and 21% in the Great Financial Crisis.
• Long term, these ten dividend aristocrats with an average 46-year dividend growth streak and A-credit rating offer better return potential than the S&P 500 Index but with 2X the much safer yield today and the kind of low volatility that can help you remain calm and rational no matter what is coming for the economy, politics, or the stock market.

There is a lot of fear amongst investors right now.

The market hasn't even fallen double-digits from July's highs, and some people are panicking.

So here is a quick reminder about the smart and dangerous ways to deal with volatility and fear.

How Smart Investors Deal With Volatility

There will always be scary headlines and doomsday prophets.

It seems suicidal to buy a broad-based basket of stocks.” - Jeff Gundlach, famous bond trader. August 2011.

If you sold everything and went to cash today, you’d be down 45% because of inflation. The S&P 500 (SP500) is up 311% adjusted for inflation over this time.

The data is clear, 50% unemployment, a 90% stock market drop, and 100% annual inflation in 2013.” - Business Insider.

Had you sold everything and bought gold, you would be down 26% adjusted for inflation. For what Wiedemer had been promoting as the ultimate inflation protection.

The S&P is up 241%.

Do you want to destroy your retirement dreams? Market timing by listening to doomsday prophets is the best way to do it.

Everyone wants to avoid the worst market days. And yes, if you could have done that for the last 90 years, you'd have turned $1 into $38,000.

• $2,100 adjusted for inflation
• instead of $10 buy and holding U.S. stocks.

But 80% of the market's worst days come within two weeks of the best days, and if you had missed the best 90 single market days of the last 90 years? Then, adjusted for inflation, you're down 94%.

The only way you can lose the kind of money the doomsday prophets warn about is if you do it to yourself by listening to them.

In the last 20 years, the S&P has delivered 7.3% real returns and the average investor achieved 1.7%.

That's the difference between 309% inflation-adjusted returns and 32%.

Market timing is why the average investor leaves almost 90% of the market's gains on the table.

Market timing is the difference between retiring in splendor, retiring in comfort, and not retiring at all.

Want more proof?

Market timing isn't possible or necessary.

Are you not convinced by studies and data?

Who is Jim Simons? The Man Who Solved The Market.

The Greatest Quant Trader In History Can't Time Market Bottoms Any Better Than You Or I

The greatest investors in history, Buffett, Graham, Lynch, Greenblatt, Templeton, Marks, etc., they didn't try to time the market.

The greatest trader in history doesn't either.

And the data is absolutely 100% clear, that those who try to time the market almost all fail and often put their entire financial future at risk.

The Smart Way To Deal With Volatility

A diversified portfolio consisting of different asset classes such as stocks, bonds, and managed futures can deliver all the returns and income you need with rock-bottom volatility that lets you sleep well at night.

My Family's Hedge Fund

(Source: Portfolio Visualizer Premium.)

Do you know what else works? If you're just a pure stock investor?

Dividend aristocrats are a bit lower volatility.

And do you know what else works well?

By falling less during downturns, low-volatility stocks tend to beat the market over time slightly.

iShares MSCI USA Min Vol Factor ETF (USMV) is a solid volatility ETF for anyone using this strategy with zero stock picking. Historically, it generates 76% of the market's upside while falling 68% as much in the downturns.

Historical Returns Since 2011

If you add non-correlated assets like managed futures, then you can blow away a 60/40 retirement portfolio in terms of volatility-adjusted total returns.

A 60/40 has fallen 21% in the last 12 years, and the worst decline of an ultra-low volatility portfolio like USMV + KFA Mount Lucas Index Strategy ETF (KMLM) is 10%, similar to my family's hedge funds 11% decline in 2022.

• half the decline of a 60/40
• 66% less than the S&P.

That's the power of low-volatility investing. You can stay fully invested, avoiding the disaster of market timing, while sleeping like a baby no matter what the market, economy, Congress, or the Fed is doing.

How To Find The Best High-Yield Dividend Aristocrats For Today's Scary Times

Here is how I have used our DK Zen Research Terminal to find the best low volatility dividend aristocrats for the coming recession.

From 504 stocks in our Master List to the best real estate investment trust ("REIT") aristocrats you can buy today.

All in one minute, thanks to the DK Zen Research Terminal. This is how I find all my investment ideas.

10 High-Yield Dividend Aristocrats Perfect For What's Coming Next

I've linked to articles providing more information about each company's investment thesis.

I've sorted these by the lowest volatility.

1. Johnson & Johnson ( JNJ )
2. PepsiCo (PEP)
3. Coca-Cola ( KO )
4. McDonald's ( MCD )
5. Kimberly-Clark ( KMB )
6. Clorox ( CLX )
7. MGE Energy ( MGEE )
8. Church & Dwight ( CHD )
9. Fortis ( FTS )
10. Novartis ( NVS ).

Tax Implications

• FTS is Canadian = own in retirement account to avoid the 15% dividend withholding
• tax credit available for taxable accounts
• NVS is Swiss = 15% withholding
• own in a taxable account to get the tax credit
• to get the 15% withholding rate (not 35%) you must have your broker file certain paperwork.

Fundamentals Summary

• yield: 3.2% (2X S&P 500 and equal to Vanguard's high-yield ETF)
• dividend safety: 89% very safe (1.45% dividend cut risk)
• overall quality: 92% very low-risk Ultra SWAN dividend aristocrat
• credit rating: A- stable (3.1% 30-year bankruptcy risk)
• long-term growth consensus: 7.2%
• long-term total return potential: 10.4% vs 10.1% S&P 500
• discount to fair value: 11% discount (potential good buy) vs 6% overvaluation on S&P
• 10-year valuation boost: 1.2% annually
• 10-year consensus total return potential: 3.2% yield + 7.2% growth + 1.2% valuation boost = 11.6% vs 10.1% S&P
• 10-year consensus total return potential: = 200 % vs 160% S&P 500.

Twice the yield of the S&P, potentially triple your money and beat the S&P in the next decade, and the ultimate Buffett-style "wonderful companies at fair prices."

Historical Total Return Since 1996

Half the decline of a 60/40 in the Great Recession and a 60% smaller decline than the S&P. During the 2nd worst market crash in history.

Never a 3-year period of negative returns, while the S&P has gone as long as 13 years with zero returns, and that's ignoring inflation.

Volatility is so low it's like owning bonds and managed futures but 100% stocks.

S&P's peak decline in March 2009 hit -57% intra-day, and this portfolio fell just 21%.

10.2% annual income growth for the last quarter century.

The yield was 3.4% in 1997 (similar to today), and the yield on cost 42.4% today.

• 22% inflation-adjusted yield on cost.

Consensus Total Return Potential Through 2025

• if and only if each company grows as analysts expect
• and returns to historical market-determined fair value
• this is what you will make.

Johnson & Johnson

Pepsi

Coca-Cola

McDonald's

Kimberly-Clark

Clorox

MGE Energy

Church & Dwight

Fortis

Novartis

S&P 500

S&P 500's consensus 2-year return potential is 20% or 9% annually.

These low volatility Ultra SWAN aristocrats? 24 % or 10% annually.

But with twice the much safer yield (46-year dividend growth streak and A- credit rating) and much lower volatility.

Bottom Line: Buy These 10 Low Volatility Aristocrats If You Want To Ultra SWAN

I know the world is scary right now. Inflation is rising...again.

DC is a hot mess, and we're headed for a government shutdown.

War rages in Europe and the Middle East.

A recession is 94% likely next year.

But there are always plausible-sounding reasons to sell, and the data is clear. If you try to time the market, you're gambling, not investing.

JNJ, PEP, KO, MCD, KMB, CLX, MGEE, FTS, and NVS are ultra-low volatility aristocrats with exceptional fundamentals that make them perfect for whatever comes next.

Fundamentals Summary

• yield: 3.2% (2X S&P 500 and equal to Vanguard's high-yield ETF)
• dividend safety: 89% very safe (1.45% dividend cut risk)
• overall quality: 92% very low-risk Ultra SWAN dividend aristocrat
• credit rating: A- stable (3.1% 30-year bankruptcy risk)
• long-term growth consensus: 7.2%
• long-term total return potential: 10.4% vs 10.1% S&P 500
• discount to fair value: 11% discount (potential good buy) vs 6% overvaluation on S&P
• 10-year valuation boost: 1.2% annually
• 10-year consensus total return potential: 3.2% yield + 7.2% growth + 1.2% valuation boost = 11.6% vs 10.1% S&P
• 10-year consensus total return potential: = 200 % vs 160% S&P 500.

For further details see:

10 High-Yield Dividend Aristocrats Perfect For What's Coming Next