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Chasing Yield

James Kerr

THREE YEARS AGO this month, in the middle of the pandemic-driven market meltdown, I went on a dividend-stock buying spree.

I had just turned 60 and was looking to step away from the corporate world in 18 months’ time to take up a second-act career as an author. As part of my retirement plan, I had a sizable money-market account that I planned to live on for a few years before I started taking Social Security and pulling from my retirement accounts.

The money-market account wasn’t paying much—about a half-percentage point—but I knew the cash was secure, which was important as I stepped away from a steady paycheck. Then COVID-19 hit. Stocks nosedived and government bond yields plummeted as investors rushed for safety.

Everywhere I looked, I saw quality, blue-chip stocks trading at huge discounts. Many of these stocks were dividend aristocrats with a long, unbroken record of steadily increasing their dividends. Exxon, for instance, was trading in the mid-$30 range. The stock of pharma giant AbbVie was trading in the upper $60 range. Coca-Cola was trading under $40.

Some of these dividend stocks were yielding close to 6% at these distressed prices. Being a bit of a contrarian by nature, I began to question why I was holding cash in a money-market account where I was earning next to nothing when I could be getting a 5% or 6% yield, with upside potential when the stock market came back.

It was risky, yes. Some of these companies could cut their dividends or stop paying them altogether. There were rumors that Exxon, for example, would be cutting its dividend for the first time in nearly 40 years, which was why its stock was trading at such a discount.

Still, the risk-reward calculus of buying quality dividend stocks at beaten-down prices just seemed too favorable not to take advantage of. I was still working, after all. If the dividend stocks didn’t end up coming back, I could always work another year or two to rebuild my cash account.

After doing my research, I took a big chunk of my cash and bought positions in individual dividend stocks that were being recommended by the experts: Exxon, AbbVie, Coca-Cola, AT&T, PPL, Dow Chemical, Blackstone, Public Storage, Archer-Daniels-Midland, 3M and a few others.

Three years on, Exxon’s stock has tripled. Abbvie, Dow and Blackstone have doubled. Coca-Cola and Public Storage are up some 50%. None of the stocks I bought stopped its dividend, and a few, such as Exxon and Abbvie, have continued to raise their payouts.

Unfortunately, a few of my high-yielding stock purchases haven’t done so well. AT&T, for instance, has lost nearly half its value, while 3M has also been a dog.

Overall, however, my gamble has paid off. My account value has increased while I’ve also collected three years of dividends. I was able to step away from my corporate job on schedule in September 2021.

Now, with the stock market up more than 50% from its March 2020 lows and interest rates much higher, I’m reversing course. I am selling most of my dividend stocks and putting the money into high-yielding money-market accounts and certificates of deposit. For instance, I was recently able to secure an 11-month certificate of deposit (CD) at Capital One paying 5%.

I now own only three dividend stocks: Exxon, AbbVie and AT&T. I’m keeping the first two because the companies are well-managed and continue to increase their dividends. I’m keeping AT&T because the new management team there seems to be turning things around. Still, I may sell those three remaining positions in the weeks to come to further lower my risk and raise cash.

I realize that I’m selling into a weak stock market right now. But at the same time, it’s a market that’s offering the highest money market and CD rates in more than two decades. If I’m able to get a 4% or 5% risk-free yield on my cash, I’m happy with it, even if I’m not keeping up with inflation.

Would I do anything differently if I could do it all over again? Yes, instead of buying a basket of individual dividend-paying stocks, I would buy a dividend index mutual fund or exchange-traded fund like iShares Core High Dividend ETF (symbol: HDV) or ProShares S&P 500 Dividend Aristocrats ETF (NOBL). By going with an index fund, I would have better diversified my portfolio against the losses of any one single stock, such as AT&T.

Lesson learned. Still, I’m happy I took the opportunity three years ago to buy into a down market. By taking a little risk, I have a bigger cash cushion to help me ride out the market during these early years of retirement.

James Kerr led global communications, public relations and social media for a number of Fortune 500 technology firms before leaving the corporate world to pursue his passion for writing and storytelling. His debut book, “The Long Walk Home: How I Lost My Job as a Corporate Remora Fish and Rediscovered My Life’s Purpose,” was published in 2022 by Blydyn Square Books. Jim blogs at PeaceableMan.com. Follow him on Twitter @JamesBKerr and check out his previous articles.

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