For all the pain the stock market has brought this year, there’s still no better time in all human history to be alive.
From our longer lifespans… to life-saving medical advances… to the billions removed from extreme poverty in the last 30 years alone… anyone alive today has a lot to be grateful for.
But I’d say, for most people, what matters is the sheer number of conveniences that exist today.
We live in a world where a meal can go from frozen to microwaved in just a few minutes…
Or when a load of laundry takes just a few presses of a button rather than hours of backbreaking labor…
Or when nearly every piece of content is available on some streaming service…
The list goes on.
But there’s a downside to all that convenience. We’ve lost perspective.
It only makes sense that we expect the same speed for our investment returns.
We see this trend play out all the time, with investors rushing into whatever is “hot,” hoping for a quick return…
One year, it’s pot stocks. Another year? Cryptos… And don’t forget SPACs or the flavor-of-the-month tech that will “change everything.”
But outside of really good timing, all those examples have underperformed in the short term this year.
Since January 1, cryptos are down 60% as a whole… the legal cannabis sector is down 66%… and SPACs have seen a decline in announced deals of nearly 80%.
It just goes to show… Being in a rush often leads to poor returns.
That’s why a cornerstone of your portfolio should be a focus on long-term stocks… And more specifically, companies that pay dividends.
Turn Patience Into Profits
As you probably know, dividends are a cash payout to shareholders – representing a part of the company’s profits going to the owners.
Sure, it’s not as exciting as the latest “hot” crypto trade…
If anything, it’s downright boring… But companies that grow their dividends over time offer several attractive features.
First, dividend stocks have lower volatility than the market on average. The data on Dividend Aristocrats going back to 1990 indicates a beta of 0.8, compared to 1.0 for the stock market as a whole.
That’s perfect for volatile markets because it offsets the explosive moves we often see in investments like cryptos and tech stocks.
Second, dividend stocks tend to be in mature industries with steady growth. That gives them tremendous cash flows to pass on to investors… and the likelihood of an increasing dividend over the long term.
Finally, the magic of compounding makes dividend stocks ideal for any long-term investment strategy.
We want to reach the point where our investments are returning ever-increasing wealth… Reinvested dividends make that process happen much more quickly.
How to Invest In Income-Growing Stocks In 2023
Much like bonds, income-producing stocks took a hit this year as interest rates rose. But lower stock prices also translated into higher yields.
Even better, many dividend payers continued to grow their annual payout. That’s a good sign of long-term strength.
Over time, watching cash roll into your portfolio – or watching your share count grow with each dividend reinvestment – are where the real magic of wealth creation happens.
And right now, we see opportunity emerging in dividend-growth stocks, including lower prices and higher starting yields.
With the market still contending with rising interest rates, we can continue to expect stocks to stay under pressure.
But we know from market history that you can’t time the exact bottom in any market.
So, we need a strategy that strikes the right balance for current market conditions…
For today’s markets, one compelling way to break up your buys is into thirds. You’d start by buying a third of a position now.
And when the Federal Reserve announces at some point next year that it’s raising interest rates, buy the next tranche.
The final layer of your buys can come as soon as the Fed reverses course and cuts interest rates.
Using this strategy can take the risk out of buying all at once ahead of a market dip…
It’s also a great time to focus on dividend-growth stocks – particularly those that have announced their annual increase in recent months.
You’ll grab a higher starting yield, and when markets turn around, grab some capital gains, too.
Look, the truth is, you can’t build a solid financial future trying to time the market or buying up every hot new investment hoping for a jackpot.
Patience and consistent profit are key, no matter how small the payout. Because over time, those small wins add up…
And I can’t think of a better way to achieve that than with dividend-growth stocks.
They’re an easy way to ensure that your investment portfolio is geared toward creating an ever-increasing amount of income – no matter what the market does in 2023 and beyond.
Analyst, Palm Beach Daily