While there are growing concerns that the gains of the stock market could be temporary due to Federal Reserve actions, dividends are forever. That is especially so for “Dividend Aristocrat” stocks such as Illinois Tool Works (NYSE: ITW), Coca-Cola (NYSE: KO), and Sherwin Williams (NYSE: SHW). Investors can count on the dividends from those publicly traded companies, no matter what the market conditions.
That has been proven by history as to earn the title of “Dividend Aristocrat” the management of the entity must have increased its dividend annually for at least 25 consecutive years.
For long term investors, that track record provides a foundation for a portfolio. The dividend income from these companies can always be expected. In addition, it can be expected to increase annually, too. That was proven even during The Great Recession by Coca-Cola, Illinois Tool Works, Sherwin Williams, and other Dividend Aristocrats.
Should the stock market head south, these companies will be even more valuable. Investors will flock to safety stocks, according to a recent article in The Wall Street Journal. With such a strong dividend component, investors will sell others and buy these shares so that there is some positive return. That will apply for both individual and institutional investors. Mutual funds that own dividend-paying stocks always become more attractive in bear market conditions due to the income stream that is provided.
As it is impossible to time the market, it is impossible to know when it is at the bottom.
What investors should consider is to set a target rate for a dividend. When the yield hits that, then buy the stock. As an example, say a 3% dividend yield is established as the target rate. At present, Coca-Cola is trading for around $40 a share with a dividend of about 2.8%. So for the dividend yield to reach 3%, it would have to fall to around $38 a share. That provides the price to buy using this method.