December Massacre Looming? Here’s What To Buy For 6.5% Dividends
Contrarian Outlook | Dec 10, 2019 04:27AM ET
I’m going to hand you a dead-simple strategy that perfectly lines you up for dividends growing 150%—or more—plus safe current yields of 6.5% and higher.
The kicker? This quick 3-step plan positions you for fast 70% upside, too—especially when stocks dive.
And if stocks soar? You’ll very likely outrun the market, too!
What I’m going to show you really is the closest thing to a “heads you win, tails you win” scenario I’ve ever seen in investing.
More on this easy move (and how it drove a huge 70% gain for folks who pulled this same “trick” exactly one year ago) shortly.
“History Doesn’t Repeat, But It Does Rhyme”
First, if you’re like me, you’re getting a sense of déjà vu these days: the sinking feeling that December 2019 could be a replay of December 2018.
Think back 12 months: stocks were in a death spiral till Christmas, when they finally found their footing:
December 2018: Stocks Cough Up a Lump of Coal
We all know what’s happened since the S&P 500 rebounded hard, soaring 23%.
Here’s where our déjà vu comes full circle, because while history doesn’t repeat itself, it does often rhyme. And as I wrote on November 19, I see plenty of good signs for stocks in 2020, just as I did in December 2019.
Two reasons why I’m optimistic:
- The presidential election: according to the Stock Trader’s Almanac, since 1952, the market has risen 10.1%, on average, during election years when the incumbent is running for a second term. And stocks have only tumbled four times in election years dating back to 1928!
- The Fed: LPL Financial looked at three previous occasions when the Fed cut rates three times in a row and paused—the same scenario we have now—and found that a year after the final cut, stocks were up 20%, on average.
I know you can see where I’m going here because if these two powerful signals are right again, any December pullback would be a terrific buying opportunity—just like December 2018 was.
Get The News You Want
So what should we be buying?
If you’ve read my Contrarian Outlook articles, what I say next won’t surprise you: stocks with dividends that aren’t only growing but accelerating. To see how this pays off, let’s go back to the best proving ground we have: last December’s wipeout.
This December 2018 Buy Call Soared 70%
At the dark depths of the 2018 trough—on December 21, to be exact—I rolled out two dividend-growth picks for members of my service .
This was unprecedented: I usually stick with my single best pick every month. But the selloff had served up such a big opportunity that I couldn’t help myself—especially when there were two fantastic dividend growers begging for our cash!
The first: National Research (NASDAQ:NRC) a healthcare-information provider that charges hundreds of thousands in recurring “recession-proof” subscription fees to its cash-rich healthcare providers!
Best of all, this nimble midcap stock—trading at an absurdly low 16-times earnings when I recommended it—hands most of its profits to shareholders, having nearly tripled its quarterly payout in the preceding five years. Management was so flush, it even pumped out big special dividends on the regular!
Quarterlies, Specials and Raises—Oh My!
Twelve months on, we got more than we could have imagined from NRC: 67% in gains and dividends—more than double the S&P 500’s return.
Dividend Growth Powers NRC
And then there was our second winning call from last December…
December 2019 Could Easily Serve Up Another Winner Like This
In that same issue , I pounded the table on Nexstar Broadcasting Group (NASDAQ:NXST), a mid-cap owner of local-TV stations, websites and mobile apps. It was cheaper than NRC, at a ridiculous 6.5-times earnings, because most people think local news is dead!
But these folks missed the steady cash NexStar collects from other broadcasters for it content—and its fast-growing digital revenue, too. They also missed NexStar’s explosive dividend growth: up 150% in the preceding five years!
NexStar’s Accelerating Dividend…
A year later, and we’d wrung 45% in gains and dividends out of the stock, as its price raced to “catch up” to its soaring payout growth.
… Yanks Its Share Price Up
Look, I’m not showing you these examples to revisit past glories—only to show you the type of gains and dividends we could have in the bag 12 months from now, especially if we see a December massacre like last year’s.
And if you look for stocks with the same “triggers” NXST and NRC boasted last December—soaring dividends, share prices lagging their payout growth and unusually low valuations, you’ll give yourself a very good shot at outrunning the market in 2020, and for years to come.
70% Upside Is Just the Start
The best part of investing this way is how it quickly multiplies your income stream. And it does so in a way that most folks don’t even think about!
To see what I mean, consider self-storage REIT National Storage Affiliates Trust (NYSE:NSA), which sports a current yield of 3.6%.
I know—that doesn’t sound terribly exciting, but focusing on the current yield totally misses the point of what I’m going to show you here.
First, as you can see below, NSA’s dividend has closely matched the 68% rise in its share price since I recommended it in a bit more than three years ago, in August 2016, proving that a surging payout is a critical driver of share prices:
NSA’s Share Price Tracks Its Dividend
That kind of growth is terrific, of course, but it’s on the dividend side that it really packs a punch because readers who followed my 2016 recommendation aren’t getting a 3.6% payout—they’re yielding a hefty 6.5% on their original buy, thanks to the 50% jump in NSA’s dividend.
That cash stream has ignited the stock’s total return, bringing it up to 98% (on a “sleepy” self-storage REIT, no less!) in just over three years.
My Top 7 “Dividend Doublers” for 2020 (bull or bear)
I’m not going to spend this whole column rehashing past calls—so let’s look to your future—and dive into the 7 dividend-growth picks I have for you now.
These 7 stout dividend plays are all sitting on cash piles they can’t send out the door fast enough! And just like our 3 past Hidden Yields recommendations above, these 7 fresh buys are cheap now, with share prices badly trailing their surging payouts.
It’s only a matter of time before they race to catch up!
The Bottom Line
Here’s the upshot: all 7 of these new picks should be on any dividend investor’s radar no matter what happens in December. But if we do get a December 2018 replay this month, their upside will be even bigger.
As of now, I’ve got each of these 7 solid dividend growers pegged to return 20% in dividends and gains, year in and year out, on average. That’s enough to double your nest egg every four years!
And just like the lucky folks who bought NSA three years ago, the yield on your initial buy will soar, too: to 6%, 7.5% … and eventually over 10%! It’s the safest way to build a high-income stream there is in the stock market—guaranteed.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement ."
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