The coronavirus is pumping the brakes on a long bull market. If you invested $10,000 in a fund tracking the S&P 500 market barometer at the start of 2010, your investment would have been worth $30,220 on Feb. 18, 2020. But the market barometer fell 12% over the next 10 days, reducing that decade-ago investment to $26,490 at the end of February.
You should expect the market to stay volatile until the coronavirus situation has been handled. In the meantime, I would suggest picking up a few solid dividend stocks that add more value to your portfolio when stock prices are going down. Right now, three of the best options for a $10,000 investment would be technology giant IBM (IBM -8.25%), drugstore chain Walgreens Boots Alliance (WBA -1.18%), and tobacco titan Altria (MO 1.45%).
Each one of my three suggestions comes with a unique investing thesis. If you have $10,000 of uninvested assets at hand today, you could divide it between these three tickers or put all of it into the idea that suits you best. Either way, you can't go wrong with these three no-brainer buys right now.
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The magic of Drip investing
Reinvesting your dividends in additional shares of the dividend-paying stock will supercharge your returns in the long run. You know that hypothetical $10,000 S&P 500 investment I mentioned earlier? That stake would have topped out at $37,300 with an active dividend reinvestment plan. The dividend yield on an S&P 500 tracker typically sits near 2% but the cumulative effect of reinvesting these modest payouts added up to a 23% boost in 10 years.
The dividend reinvestment boost only grows over time. Just buying a market tracker and not activating a reinvestment plan would have missed out on an 11% boost over the past five years, or 48% in two decades. Patience is a virtue in the stock market, and doubly so for dividend investors.
Furthermore, dividend investors really don't mind if share prices dip once in a while, or even stay low for several years. Those automatic reinvestment buys will let you pick up more shares on the cheap, and you're really not rooting for high prices until you're ready to sell the stock.
Tobacco trouble
Altria is a classic income-generating stock, armed with a dividend yield of 7.8%. The tobacco giant's yields sank as low as 6.1% in December, but share price have fallen 18% since then. Lower stock prices generate higher effective dividend yields, not to mention a more attractive buy-in price.
It's true that Altria's stock is taking a beating for good reason. The coronavirus scare isn't even the main issue here, as the company is under investigation for its handling of a $12.8 billion investment in e-cigarette maker Juul. But Altria still powers its entire dividend policy from operating cash flows, and it operates in one of those sin-stock industries. Altria's operating cash flows have doubled in three years while share prices fell 45% lower.
Buy Altria now to lock in these fantastic dividend yields. If the Juul story drives the stock even lower this year, you'll just pick up a few extra shares along the way.
A picture of stability
The parent company of Walgreens and European convenience store chain Boots is trading near six-year lows today. Facing challenges from both e-commerce specialists and big-box retailers, the company is nursing a stalled revenue line with the help of equally stable bottom-line profits and cash flows.
But the retailer isn't sitting still. Walgreens is reshaping its business model as we speak, planning to close 200 underperforming stores in 2020 while introducing Jenny Craig store-within-a-store concepts in other locations. The company will also be among the first to try a drone-based delivery service, undermining some of the advantages that online stores claim against brick-and-mortar stores.
Stable sales and cash flows isn't exactly what retailers dream of, but it's better than watching these metrics plunging under the e-commerce assault. Walgreens keeps increasing its dividend payouts and the yield stands at a healthy 4% right now. If you expect this centennial retail veteran to reshape itself and post yet another comeback, this looks like a great time to take the plunge.
Again, remember that you don't mind the stock being cheap until it's time to sell. Start your dividend reinvestment plan today and give Walgreens some time to get back on track.
This tech turnaround is overdue
Finally, IBM has been a turnaround in the making for eight years. This company has always focused on cash returns to shareholders through a combination of buybacks and dividend payments. That used to be an uncommon strategy in the tech sector, where even the largest and most mature companies preferred to reinvest their extra cash into the business instead.
Dividend reinvestments would have boosted your IBM holdings by 36% over the last 10 years, and the company sports a 5% yield today. The IT titan runs under new leadership these days, having replaced Ginni Rometty with cloud-computing czar Arvind Krishna in January.
I think this company is on the right track, leading the marketwide charge into artificial intelligence and data analysis services. In short, IBM is poised for a massive rebound as its long-running strategy shift starts to pay dividends. Until then, you can pick up shares at just 12 times trailing earnings and 9 times forward estimates, pocketing that juicy dividend yield to boot.
