2022 has been a rough year for the stock market. While some stocks (like those of energy companies) have produced solid returns this year, many more have found themselves caught up in the bear market. A bear market is defined by a drop of at least 20% from recent highs, and since summertime, that's where many stocks and major indexes have found themselves.
Although nobody likes seeing their portfolio's value drop, bear markets aren't all bad. In fact, you could argue that they're a necessary evil. Instead of focusing on the cons of a bear market, investors can use it to their advantage and grab some great stocks at a discount. If you're looking for some good buys during the bear market, look no further than Dividend Kings.
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They can provide some stability
There are dividend stocks, there are Dividend Aristocrats, and then those that reign over them all: Dividend Kings. Dividend Kings are stocks that have increased their yearly dividends for at least 50 consecutive years. During times of increased uncertainty, Dividend Kings can often provide a sense of stability.
To receive the title of Dividend King in 2022, a company must have increased its yearly dividend since 1972, at minimum. This means it's survived and still managed to reward shareholders during some of the toughest economic times the U.S. has seen:
- 1973-1975: OPEC oil embargo
- 1980-1982: Recession due to monetary policies meant to fight inflation
- Early 2000s: Dot-com bubble
- 2008-2009: The Great Recession because of the financial crisis
- 2020: COVID-19 pandemic and recession
Past results don't guarantee future performance, but with Dividend Kings, you know you're getting stocks that have stood the test of time and that have weathered bad economic storms before. Many household names have cut their dividends over the years, so this isn't a small feat.
It's easier to focus on the long term
It's easy to get too consumed in the daily volatility of the stock market, especially when it's in a downward trend. If you're investing for the long term, the best thing you can do is understand that volatility is inevitable. But this is much easier to do when you're at least getting paid while the volatility is happening. And that's where dividends come into the picture -- they reward investors for patience.
Another benefit is that as share prices fall, a company that maintains or grows its per-share dividend payout enjoys a higher dividend yield. For instance, if a stock's price is $50 and it pays out $1 in yearly dividends, the dividend yield would be 2%. If the stock price dropped to $40, the dividend yield would now be 2.5%.
Dividend Kings are also good during bull markets, but you can get more bang for your buck by buying them in bear markets.
Don't completely pivot
If you're currently investing in dividend stocks that aren't Dividend Kings, no worries. Not being a Dividend King isn't inherently bad by any means. Some companies are great investments but haven't been public or paid out a dividend long enough to qualify.
You don't want to sell your current stocks and put all your money in Dividend Kings. Dividend Kings should be part of a diversified portfolio, but they shouldn't be all of it. Now's not the time to abandon your investments and jump ship completely; it could be counter-productive.
However, if you're feeling a bit uneasy about investing during these times, Dividend Kings can provide a sense of reliability. Don't be afraid to lean on them and let them lead you through these tough economic times.
