Dividend and Expense Updates,  Investing

Dividend Review – June 2022 – 2022 Bear Market

We’re square in the middle of 2022 and maybe somewhere in the middle of the 2022 bear market. That latter is certainly harder to predict as a bear market can take quite some time to play out.

The 2020 bear market barely took more than a month to play out before stocks started to rise again but still took 5 months for a full recovery. This one is already slightly longer.

Generally, a bear market is when indexes fall 20% from all time highs and while we’re a bit above that now after a few positive days, the market is still in turmoil. This time around the 2022 bear market took 5.3 months for an official definition but who knows if this is the bottom or if there’s more pain to come.

After all, bear markets often have false bottoms, dead cat bounces and all that stuff before really hitting a full bottom.

The 2007 bear market, for example, took 17 months before it found its lows followed by a 49 month recovery. The 2000 recession took 31 months to bottom with a 56 month recovery. Others have been worse as shown below. Some will say that the 1973 is most comparable due to rising inflation and that one took 21 months to bottom with a 69 month recovery! Hopefully that’s not the case here.

On average bear markets tend to take around 9.5 months to find a bottom but often far longer to recover back to previous highs. It's quite possible we've only started on the path downward due to the many economic troubles we face but maybe we've already found our bottom and are making our way out.

It's impossible to tell which is what makes investing so difficult. While the market has been decent in the past few days, we're right on the cusp of more inflation data and just heading into earnings season which may give some more insight into how companies are feeling about the path ahead.

If inflation stays hot then that certainly means continued rate hikes which may eventually lead to a full blown recession(if we're not already in one). That might mean bad things for stocks and other investments too. Bonds which have generally been a safe spot have been hit harder too due to rising rates and the pain may not be over if they continue rising quickly.

While it's never easy to see your portfolio fluctuate by tens of thousands of dollars a week, it's a necessary evil for better long term returns.

Far more money has been lost in bear markets by selling at the wrong time than gained by timing it properly. Sure, if you know the absolute bottom and could buy back at the exact right time then you'd be fine, but it's more likely you'll sell today and buy far too late missing out on all the gains in the mean time. On top of that, staying in cash and missing out on dividends in an inflationary time frame isn't a perfect strategy either.

As long as you retain your job, bear markets are actually quite a boon for investors. After all, buying when stock prices are lower and falling and re-investing dividends at much lower prices will lead to much better long term returns.

If, let's say by 2028, the S&P 500 is going to hit $6,500 then buying today at $3,900 is much better than buying a few months ago at $4,800, isn't it?

It's one of those oddities in investing that buying when it's less advantageous from a long term perspective(in a bull market) feels much better than buying when things are a better value(in a bear market). Naturally, the reason for that is that earnings may be much different between the two, rising in a bull market and falling in a bear market but the long term investor should have his eyes on the long term projection.

After all, whether you knew about it at $4,800, this time of economic hardship was eventually going to come so you were just overpaying at that time based on future(today's earnings). However, in both cases, based on long term earnings projection, the price at that time didn't really matter as long as you believed that by 2028, the S&P 500 was going to hit $6,500 because it was still worth investing. It's just better to invest with that mindset now since the long term annualized returns are better at lower prices.

Even if the stock market falls more from today and even if it looks bad on paper, the recovery will eventually happen. We may be a long ways away from a full bottom or we may be close and it may take a long time to recover but eventually it will. Hopefully, the recovery is faster than the 56 months during 2000 but maybe it won't be, maybe the pain will be long and slow.

That's why stock market investing is inherently risky and why cash and bonds can help smooth out the ride although it's a less smooth ride today with rising rates and inflation where it is. That's why investing any money you need within 5-10 years in stocks can be a problem and that's why investing in stocks is a long term game.

We'll see what happens but for me, it's more of the usual right now. I do have more cash than I typically do after selling some stock earlier this year but my investment plan calls for a 10% cash max since timing the market is impossible and I'm continually deploying cash. However, I do still have a healthy unease for what could be ahead.

While, my portfolio has taken quite a hit in recent months, dividends are still largely unaffected and it's nice to see those keep growing through these turbulent times and it's always good to re-invest those at lower prices.

Still, I know there's certainly potential for cuts in the future as the market hasn't really been stressed quite yet. Earnings are still good, employment is still high and most companies are still doing well but who knows what's ahead. It's always nice to have some extra cash on the side if a major correction were to happen.

In turbulent times, cash is king and we're certainly in turbulent times. Sure it's hard to say that when inflation is this high but values always rise and that's especially true in a market like today. As far as investments go, I actually find more interesting options on the growth side these days. Those have fallen quite a bit from all time highs while value names(especially dividend payers) haven't taken much of a hit.

While that's certainly good for portfolio values if you hold a lot of those names, it may not be as great for future returns. After all, if a real recession hits, many companies will suffer and valuations on the value side are still quite healthy when it comes to historical norms.

Still, I have been continuing to buy all names and that includes some dividend payers. Hopefully that means good things for these dividend updates.

June is always a big month and that's especially fruitful during a bear market. As long as dividend cuts don't come, these larger dividend months will mean more shares being bought at lower prices and better future dividend growth.

Last June came in at $2,847.08, just a hair shy of $3k so let's see where we are now.

June 2022 Dividends

2022 Bear Market

June's dividends came in at $3094.13, a new record and the first time a non-December month has come in above $3,000!

That's a pretty awesome result and a 8.7% bump over the prior year. That's not bad considering it's such a large month and these bigger months generally grow slower. March for example was only up 1.2% over the prior year.

For the year, that brings the total to $7,117.11 through June, or a 8.1% bump over the same period last year.

The nice thing about this bump is that I've actually been putting more money into stocks that don't pay quarterly in the past few months so hopefully that will mean good results in some of the lower months coming up. On top of that, since I've been buying a bit more growth stocks, that's also impacted my ability to grow dividends since a lot of those names don't even pay dividends at all.

Most of my money is still in index funds which do but my new dollars have been flowing into other spots as well.

The nice thing about this payout is that it'll get re-invested at a higher portfolio yield due to lower prices and drive forward income up by $96 annually. That's not a huge amount but when I first started investing, it took me months to invest this dollar amount and now I'm getting it in one month's worth of dividends. That's the beauty of compound interest and shows how it makes growth easier as you get more money invested.

Steve, my dividend employee, rocked an $18.56 hourly wage this month and brought his annual wage to $7.11/hr. That's not quite enough to live but I'm years away from needing that money and won't be depending on dividends anyway.

I am not a full dividend investor but do enjoying looking at these numbers grow. It's all part of a good investing strategy and eventually most companies I own will likely pay dividends as they mature so hopefully these numbers will grow faster later on in life. It wouldn't be too bad to live fully off of dividends but that's not the current goal.

Overall, I'm happy with this month and it certainly makes it easier to stomach the big portfolio drops. The mental part of dividend payouts cannot be understated as while dividends don't always improve returns(they're just part of total returns), if they came make an investor not sell during a turbulent time, then they're certainly worth it.

Hopefully, these dividends will keep growing but it's not unheard of to see dividend cuts during a recession which could be ahead of us. You even saw some of that in 2020 as evidenced lightly by the graph above which actually saw a drop in dividends in 2020 before a big jump in 2021.

In either case, I'll keep buying and investing and we'll eventually bounce back to normalized dividends alongside normalized prices when the economy recovers. Inflation is one of the hardest economic realities to face but at least we have ammo to combat it in the form of higher rates even if that means lower asset prices in the short to medium term.

Ahead are a few smaller months followed by September and then eventually December, the biggest dividend month of the year for me as shown below.

I'm hoping to see some good growth ahead in these smaller months and will enjoy investing with lower asset prices. At the end of the day, a bear market is an opportunity for investors as long as jobs aren't lost and one can keep re-investing at these lower prices. That's definitely a big if but I feel like my job is pretty safe so hopefully that won't be an issue on my end.

Eventually, the 2022 bear market will be a memory and asset prices will recovery. It can certainly feel hard to invest during one and it always feels different but generally, it's all the same and recovery eventually follows.

At the end of the day all you can do is be steady, invest smart(mostly if not all index funds), try not to worry too much about asset prices falling, keep investing and be well.

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