Chris’ note: This week, I’m shining the spotlight on how you can set up rising streams of stock market income.

That’s why, today, you’ll hear from Teeka Tiwari analyst Andrew Packer. He’s the income investing expert Teeka tapped this year for the chief analyst role at our Palm Beach Letter advisory.

Below, Andrew shows why most folks view bear markets the wrong way. Instead of being threats to your wealth, he says they can be once-in-a-lifetime buying opportunities.

You can pick up blue-chip stocks at steep discounts. And if you target stocks with track records of growing their dividends… you can build double-digit yields over time.

The 2008 crash was a nightmare for most folks.

Banks foreclosed on more than 6 million homes. And nearly 9 million Americans lost their jobs.

And even those who kept their jobs watched as their 401(k)s became, as the grim joke went, 201(k)s.

Between October 2007 and March 2009, the S&P 500 plunged 56%.

Even supposedly ultra-safe money market funds got into trouble.

But looking back, we can see all the panic created the buying opportunity of a lifetime…

Today, I’ll show you how I capitalized on the 2008 crash to build a double-digit yield on an iconic blue-chip stock.

And we’ll look at why the 2022 bear market is an opportunity to repeat that success.

From Overvalued to Undervalued

I was a few years out of college and focused on growing my career.

But I had cash to put to work while others were panicking and hitting the “sell” button on their stocks.

I’d been investing in the stock market since middle school. So, I had already seen a similar cycle play out when the tech bubble burst.

And by 2007, market valuations had gotten frothy. I couldn’t find good deals anymore

Meanwhile, interest rates were rising. And the yield curve was inverting.

That told me a recession was on the way. So, I took some money off the table and decided to sit in cash.

Being patient wasn’t easy in 2006 and early 2007. Stocks were in rally mode. But I resolved to wait for clear opportunities rather than investing in overpriced trends.

And my patience paid off. As the stock market started to drop in the fall of 2007, overvaluations became undervaluations.

By being largely in cash, I was able to pick up some bargains in early 2009.

I bought McDonald’s (MCD) for $55 a share. And since then, my shares are up 390%.

But I’ve also locked in a double-digit income stream on those shares thanks to something called yield on cost.

10% Yield on This Blue-Chip Stock

A regular dividend yield shows you how much a company pays out in income each year relative to its stock price.

If a company’s shares are trading for $100… and it pays a dividend of $3 a share… that a dividend yield of 3%.

Yield on cost, by contrast, is a metric that looks at how much a company pays out in dividends relative to your entry price.

That’s what was so amazing about my MCD purchase.

Today, the company has a 2.2% dividend yield.

But my yield on cost is a lot higher.

Today, McDonald’s pays a dividend of $6.08 a share. And in 2009, I bought in at $55 a share. So, my yield on cost is 11.05%.

I’d have to take enormous risks to secure that kind of yield in today’s market. For instance, the typical junk bond – aka a bond with a high default risk – yields 8.6%.

McDonald’s is one of the most conservative, best-run companies in the world. And it pays me 11% a year.

I’ve already recouped half of my original cost through the dividend payments I’ve received. In another 10 years, I’ll have recouped initial stake and will pick up income checks from McDonald’s for free.

By the time I retire, my yearly dividend payments could exceed my purchase price.

In other words, I could be enjoying a yield on cost of more than 100%.

That’s the power of dividend investing when you focus on great companies with a history of growing their dividends.

Opportunity of a Lifetime

But here’s the thing…

These opportunities come along only a few times in a lifetime. And now is one of those times.

You see, the bear market of 2022 reminds me a lot of the bear market that raged between 2007 and 2009.

The losses aren’t as severe… but they’re still steep.

After reaching an all-time high at the start of the year, the S&P 500 is down 17%.

That temporarily hurts the stocks you already own. But it also puts stocks you don’t already own on sale.

And the lower the stock prices, all else being equal, the higher the yield you can lock in.

So, in this environment of fear, focus on income-generating opportunities.

And some of the best opportunities to create rising income streams are in other blue-chip dividend payers.

I know it doesn’t feel like it. But just like in 2008, now is the time to put money into quality companies… while they’re offering dividend yields we haven’t seen in years.

Good investing,

Andrew Packer
Analyst, Palm Beach Letter