Now more than ever before, investors must focus on dividends.
It’s the ONLY way you’re going to safely, steadily grow wealth in the stock market in the coming years.
That’s true because of a little-known stock market trend that’s been playing out since January 2000. This trend will probably continue until at least 2013, possibly 2018, possibly even longer.
Let me explain…
In January 2000, the stock market stopped going up – and started going sideways. It’s not a bull market. It’s not a bear market. It’s a sideways market. Sideways markets have two primary traits.
[ad#Google Adsense]First, during sideways markets, the stock market essentially goes nowhere for years. But it doesn’t feel that way while you’re in the middle of it… In a sideways market, stock prices ratchet up and down, making new highs and new lows within a few years of each other. So it always feels like stocks are going somewhere. But in the end, you haven’t gone much of anywhere at all.
The current sideways market is no different. It started in 2000, crashed to a bottom in 2002, hit new highs in October 2007, and crashed to another bottom in March 2009. Stocks have surged since March 2009 and are trading 100 points closer to their all-time highs than to any recent lows.
That whole time, investors felt like the market was moving somewhere… whether up or down. But if you look at a long-term chart, you’ll see stocks have gone nowhere but sideways.
Since 1900, three sideways markets have run their course from start to finish. The same thing happened during each of these periods. The ratcheting motion of stock prices, playing out over many years, starts to wear investors down. They gradually lose interest in stocks. This rising tide of pessimism leads to the second defining trait of sideways markets…
From the beginning of the sideways market to the end, stock market valuations trend gradually downward. Sideways markets start out with stocks trading over 20 times earnings and end with stocks trading around 10 times earnings.
Right now, the overall stock market is trading around 18-19 times earnings. So the current sideways market likely has years to play out. As it does, many investors are going to lose money.
This gets me to the title of this essay: Make a Fortune in Stocks… Even If the Market Goes Nowhere.
You can’t depend on the market pushing stock prices higher… More than ever before, you need to invest in only the best businesses – the ones that generate the most stable cash flows. More than ever before, you need companies that can grow and companies that pay out their growing earnings in dividends. Over the past few years, we’ve introduced many of these elite wealth compounders in DailyWealth… like dividend machine Altria and relentless dividend grower Procter & Gamble.
Focusing on these elite dividend machines should be the primary goal of stock investors, for now and in the years ahead. It’s what investors must live and breathe more than any other priority until the sideways market is over (many years in the future).
Cash flow rules in a sideways market – cash flow paid to investors via regular dividends. If a stock doesn’t pay you dividends, it’s more likely the share price will go nowhere over the next several years than at any other time in history.
Not only do I think income-focused investors need to buy dividend growers more than ever before – I also believe the average investor, the investor who might not care about dividends at all, needs to start caring about them. And he needs to buy dividend growers.
Good investing,
— Dan Ferris
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Source: Daily Wealth