Getting Paid to Wait
To repeat the obvious, we are still in a period of extreme market volatility and overall decline in 2022. We have said it in this space many times before, but it is almost impossible to time the market. And data and history tell us that trying to “get out and get back in” often hurts more than it helps.
As a firm, we have probably done more trading this year than in years’ past. Some of that was simply due to changes in opinion of certain stocks and funds, but some other changes were to shift into holdings that pay dividends on a regular basis. The idea behind this is to get paid to wait for prices to recover.
Dividend stocks fit most often into the Value Stock category as opposed to Growth Stocks which typically rely on sheer price growth (no dividend payments) for investors to make money. Here is a good chart from American Century Investments that shows the historic valuation gap between Value and Growth stocks.
This valuation gap could present an opportunity for investors to shift away from growth stocks and into value stocks as the period of outperformance of growth over value has gone on longer than average. Keep in mind that dividends are based on the number of shares owned, and unless there is a dividend policy change inside the company, will not be affected by price movement. Hence, value stocks are usually more resilient during market downturns.
We are all tired of seeing markets go down, and it seems like each day comes with more bad news. Finding solid dividend paying stocks (as well as some short to mid-term interest paying stocks) might give investors some relief or at least some income to offset all of the recent volatility.
Speaking of tired, our new puppy Phoebe has been working hard at wearing out her older sister Rosie on a regular basis. After some aggressive play sessions between the two of them, Rosie often looks like we feel about the markets right now.