Everyone loves a deal and loves getting something at a rock bottom price. Dividend investors are no different. However, as long-term buy-and-hold investors, we aren't known for our ability (or desire) to time the market and call the bottom. That's not to say we can't enjoy the benefits of buying at the bottom. So, how does a long-term buy-and-hold investor accomplish this?It is really quite simple if you employ a sound asset allocation model and systematically invest during the good times and the bad. Easy to say, and do, when things are going well, but many people have a hard time buying into a market that has been declining for an extended period of time. To the contrary, many investors sell their positions and move to cash when things look bad. Then move back into equities once they rise for a period of time. Sell at the bottom and buy at the top is not how to make money in the market.
Many observers point to March 2009, when the S&P hit its low, as the bottom of the most recent market downturn. If you were following a disciplined approach and bought that month, you most likely are sitting on some incredible gains. Consider the stocks I purchased in March 2009:
The Coca-Cola Company (KO) | Analysis
- March 2009 Price: $39.69
- Recent Price: $54.97 up 38.5%
- Current Yield: 3.2%
- Yield-on-cost: 4.4%
3M Co. (MMM)
- March 2009 Price: $47.88
- Recent Price: $83.76 up 74.9%
- Current Yield: 2.4%
- Yield-on-cost: 4.4%
Wal-Mart Stores Inc. (WMT) | Analysis
- March 2009 Price: $48.42
- Recent Price: $54.11 up 11.8%
- Current Yield: 2.2%
- Yield-on-cost: 2.5%
Buying at the bottom is great, but buying near the bottom isn't bad either. Consider these stocks that I picked up in April 2009:
Abbott Laboratories (ABT) | Analysis
- April 2009 Price: $44.36
- Recent Price: $52.26 up 17.8%
- Current Yield: 3.3%
- Yield-on-cost: 4.0%
Chevron Corp. (CVX) | Analysis
- April 2009 Price: $68.97
- Recent Price: $80.75 up 17.1%
- Current Yield: 3.4%
- Yield-on-cost: 3.9%
McDonald's Corp. (MCD) | Analysis
- April 2009 Price: $55.09
- Recent Price: $69.03 up 25.3%
- Current Yield: 3.2%
- Yield-on-cost: 4.0%
United Technologies Corp. (UTX) | Analysis
- April 2009 Price: $45.16
- Recent Price: $73.69 up 63.2%
- Current Yield: 2.1%
- Yield-on-cost: 3.8%
Granted, the technique works the other way also, in that systematically investing each month will guarantee you will buy at market highs (note I didn't say at the top). Comfort can be taken in that every protracted downturn will eventually produce an absolute bottom (i.e. a point that will never be touched again). However, throughout history highs have constantly been exceeded. Thus, there are no true tops, only recent highs. Any long-term dividend investor will tell you that the yields are better at the bottom, so forgive me for smiling the next time the market crashes.
Full Disclosure: Long ABT, CVX, KO, MCD, MMM, UTX, WMT. See a list of all my income holdings here.
(Photo: gerard79)
Tags: [ABT] [CVX] [KO] [MCD] [MMM] [UTX] [WMT]
