3 Steps To Big Dividends (And 18% Upside) In 2019

| May 3, 2019 | 1 Comment

CEFsWhen it comes to stocks, it takes a strong stomach to bet against the crowd. But the truth is, you can pull in big profits doing just that.

Today I’m going to show you how to push straight through the hype and peer pressure—and cash in.

It’s easy to see how shunning the crowd pays off. Look back at December, the darkest point of last fall’s meltdown. That’s when I recommended ignoring the crash completely and focusing on the gains at hand. This went double if you bought stocks through 7%+-yielding closed-end funds (CEFs).

What happened next? A fast 18% profit:

Savvy Contrarians Hit Paydirt

SPDR S&P 500 ETF

Fast-forward to today, and we contrarians are in a tough spot: the market’s floating higher, and the party appears to be back on. Should we take that as our cue to take a pass on stocks?

No way. Because here’s the funny thing: buying top-quality stocks (and especially CEFs) is still a smart contrarian move, even with the market (seemingly) on a sugar high.

Sounds impossible, right? Let me explain.

Contrarian Fact No. 1: The Bull Market Is … Young!?

Here’s something that might surprise you: all the bleating in the media about the aging bull market is way off base. The truth is, today’s bull market is really just four months old.

A Bull Market Ends … and a New One Begins

SPY Chart

As you can see, over the last three years, the market mostly stuck near its high point. See that 20% drop at the end of last year? That’s where the 2009–18 bull market died, as a bear market is, by definition, a 20% plunge from recent highs.

In other words, we aren’t living in the longest bull market in history. In fact, we weren’t even living in the longest bull market in history before 2018.

The truth is, the longest bull run ever began in the late 1980s and lasted until 2000. Although the post–Great Recession bull market came a close second, it’s over now.

The bull market we’re in today? It’s just 129 days old.

Contrarian Fact No. 2: Sidelined Cash Will Fuel More Gains

If you think the stock market is a crowded trade, the numbers disagree.

At the end of April, stocks finally broke through the all-time-high they reached in early October, before the 2018 bear market began. But that hasn’t attracted investors. In fact, there’s barely been a trickle of cash into ETFs, CEFs and mutual funds.

Cash Flow Dries Up

Average Fund Inflows

Source: CEF Insider

In all, about $187.2 million has gone into ETFs, CEFs and mutual funds in the last year. While that sounds like a lot, it’s less than 0.001% of the $25.1 trillion parked in all these funds in total. It’s also much less than the billions that typically flow into funds during bull-market years.

And make no mistake, there’s a lot of money on the sidelines.

A $3-Trillion Hoard

money on the sidelines

Although this chart is a bit behind, the end of 2018 saw the amount of cash parked in money-market funds surge 8.8%, to over $3 trillion. We haven’t seen a number like that since 2009, when the second-longest bull market in history was starting up.

Contrarian Fact No. 3: It Pays to Buy When Profits Drop

The third reason to be a contrarian may seem the most absurd: earnings are down.

S&P 500 Earnings Growth

It’s early days, but earnings for the first quarter of 2019 have dipped 3.9%, close to analysts’ expectations going into the quarter.

And this is good for stocks.

Why? For one, 2018’s dud performance means this profit drop is priced in. Second, an earnings decline that meets expectations means everything is going according to the script: there are no ugly surprises signaling a recession. Most important, these one- and two-quarter earnings dips are usually the beginning of a recovery if they happen after stocks decline.

Lower Profits, Bigger Gains

SPY Earnings drop in 2016

Let’s rewind to 2016.

When earnings fell for three quarters in a row in that year, these declines came after 2015’s market weakness, meaning this profit drop was priced in. Stocks rose an annualized 11.2% from the start of 2016’s negative earnings seasons to today, even with 2018’s bear market.

The takeaway: a short earnings drop following a market decline is a strong buying opportunity—and that’s the setup we’re seeing now.

 

9.8% Dividends and Fast 20% Upside: Get Both Here

You might be wondering just what you should buy to take full advantage of the low-key opportunity this market’s serving up.

I’ve got you covered, with 5 CEFs trading at massive discounts to their “true” value. In fact, these discounts are so bizarre they’re set to propel us to 20%+ in gains as they snap back to their normal levels.

Here’s the best news: while you watch these 5 funds’ prices take off, you’ll pick up an incredible 8.3% average dividend yield “on the side.” And that’s just the average! Two of these off-the-radar picks pay 9.0% and 9.8%!

I’ve put everything you need to know about these 5 bargain dividend plays in this unique Special Report—which is waiting for you now.

Don’t wait. CLICK HERE to get your Special Report and reveal the names, tickers, buy-up-to prices and my complete research on all 5 of these cash-rich CEFs.

 

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Category: Dividend Stocks

About the Author ()

Michael Foster is the Senior Analyst at Contrarian Outlook.

Comments (1)

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  1. Bob Westerman says:

    Ok I will certainly take a look at them

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