As you probably know, we are in the midst of one of the greatest bull markets of all time.
Fueled by an unfettered fiscal-easing policy with central-bank assurances that pro-growth intervention will continue until the economy is back on track, stocks are roaring higher. The Dow Jones industrial average has jumped nearly 2,500 points since the start of 2013, breaking all-time records along the way.
The first half of 2013 has been a stock investor's dream come true. In fact, it's nearly too good to be true.
This nonstop bullish move higher is unusual. It has resulted in many investors becoming complacent and forgetting that strong upward periods are always eventually met with powerful downward moves. Stocks cannot climb higher forever. Smart investors are prepared to weather the inevitable downside that may be coming soon by investing in solid, dividend-producing companies for the long term.
Studies indicate that fully 40% of the stock market's total returns over the past 80 years are due to dividends. In addition, dividends provide a cushion against the everyday roller-coaster ride of the stock market.
When stocks are surging higher, it's easy to forget about the power of dividends and concentrate strictly on growth. This can be huge mistake, particularly when the inevitable bearish period begins.
How Can You Protect Yourself From The Inevitable Bearish Selling?
Building a portfolio of "Dividend Vault" stocks is a proven method of surviving the potential sell-off. These stocks are part of a group of U.S. companies sitting on $1.7 trillion of cash that can be paid out as dividends. Last year, a record amount of dividends was paid out. This trend is continuing, with 2013 shaping up to beat the 2012 record.
I recently learned from Elliott Gue's Dividend Opportunities newsletter of a Dividend Vault stock with an amazing long-term record. This company has returned nearly 9% since January, and Oppenheimer's analysts think the stock can soar 26% by the end of the year.
This company's edge consists of being one of the largest petroleum refiners in the United States, processing more than 440,000 barrels per day. The huge volume gives it the massive purchasing power to buy at below-average prices and then sell at a significant profit.
If you haven't already guessed it, I am talking about refiner HollyFrontier (NYSE: HFC). Riding the wave of the U.S. oil revival, HollyFrontier has built up an astounding $1.8 billion in its Dividend Vault.
In 2012, the company paid four special dividends totaling $2 per share, along with its regular quarterly dividend. The firm declared another special dividend on May 16 of 50 cents a share. This is more than the regular dividend of 30 cents a share, payable on June 12 and July 13. These payments annualize to approximately $1.20 per share, pushing the yield to about 2.5%.
Dividend Vault companies like these will be the first line of defense when the bear market starts. Technically, HFC shares have built a base at the $47 level and have started to bounce higher, creating a solid buying opportunity.
Risks to Consider: This company's future is built upon the continued revival of the U.S. oil business. Should oil prices drop, HollyFrontier would probably suffer along with the commodity.
Action to Take --> I like this dividend-paying dynamo right now with a 12-month target of $59. Entering now with initial stops at the support level of $45 makes sense. Dividend Vault companies such as HollyFrontier will be the first line of defense if this bull market turns bearish.