It’s difficult to look at the stock market with anything other than a distressed eye these days. That’s what you get when the Dow Jones drops 500 points in two days to end a week, then that performance is followed up by another 100-point-plus drubbing.
You’d be excused for wanting to crawl back under the covers … but that doesn’t mean you should.
Instead, those focused on retirement should practice the age-old tactic of buying on the dips. Here’s why:
- Ben Bernanke’s comments concerning QE “tapering” have not changed corporate fundamentals. Coca-Cola (KO) isn’t going to stop putting out Coke because Ben’s hinting that the Federal Reserve might buy fewer bonds in 2014.
- Stocks’ recent bleeding has resulted in a pair of bonuses: For one, prices are lower, which means you can initiate some positions at a considerable discount, or take advantage of dollar-cost averaging for positions you already hold, helping to smooth out returns over the long run. It also means yields on some consistent dividend-payers are going up.
So considering very little has actually changed, why would you want to rush out of the stalwarts of your portfolio? Taking that step further, why wouldn’t you want to buy in more now while you can do so on the (relatively) cheap?
Me? I’m going to add shares in three holdings just begging for more of my money:
Verizon (VZ): I’ve been in Verizon for a number of years, but I’ve been considering increasing my position in the past few months. The only concern? Its elevated price. However, following its late-April peak, prices have been trimmed by nearly 10%, and its yield has ballooned back up to 4.2%. I have every belief VZ still is fiscally fit; Q1 earnings rose 15%, and its Verizon Wireless segment posted record operating and EBITDA margins. It also continues to build out and expand its industry-leading 4G LTE. I’m looking to buy soon, and also looking forward to another dividend bump, which historically occurs in October.
Southern Co. (SO): Southern is another stock that has taken a beating, off nearly 12% since mid-April. Of course, utilities as a whole have underperformed during the past year, so I’ve been cautious when looking into adding to my holdings here. Even with the drop of the past few months, SO still trades at 18 times earnings — not exactly cheap for a utility, but lower than it has been of late. Plus, the stock provides a 4.7% dividend yield at current prices. Utilities are a sticky wicket for sure, but I’ve said it before: Southern might be the best of the lot. I’m looking to get back in shortly.
Johnson & Johnson (JNJ): J&J is my favorite “dip” stock — I’ve bought in several times at opportune moments over the years. I don’t have to make a case for Johnson & Johnson’s status as a stalwart dividend-payer — its history speaks for itself. J&J’s stock has slid only about 6% since its May highs, so here, I might want to wait for more of a dip before jumping into the pool. Still, even now, it’s yielding a sweet 4.2% in dividends; another 5% drop in prices would get us a P/E around 20 and a few more basis points of yield.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he is long JNJ, SO and VZ.