Stock market diving: why I stock up on these 3 stocks

Iinvesting is hard, and the biggest obstacle to success is usually your own emotions. This is why it can be difficult to buy when a stock is cheap because other investors are selling. There are ways around this difficulty if you focus on good companies with long and solid business histories. Here’s why I bought Unilever (NYSE:UL) this year and why i buy more Procter & Gamble (NYSE:PG) and Hormel (NYSE:HRL).

Three big purchases I made

Unilever stock has recently risen above its highs of around 15% so far this year. While some of this is market related, given that we are in a bear market, much of the decline is related to company specific issues such as slow growth and management errors (a misguided and failed acquisition attempt, e.g. Example). I bought the stock anyway, noting that the 4%+ dividend yield on offer here hasn’t been at levels like this since the Great Recession.

The key for me is that Unilever is a 100+ year old consumer staples giant that has proven it can stand the test of time. Its business is supported by iconic brands, like Dove and Hellmann’s, which consumers tend to buy no matter what is happening in the economy or the market. And the company is not resting on its laurels because its business is experiencing weak growth; he makes changes to get things back on track. This includes overhauling the management structure to increase accountability and collaboration with an activist shareholder. So not only do I think Unilever is taking steps to make things right, but I also think their business gives them plenty of time to do that.

The key for me was to look past my fear and pull the trigger, which is where the historically high return comes in. I use the dividend yield both as a valuation tool to highlight cheap stocks and as a way to ease my worries, since I’m going to be paid well to wait for better days. This same logic led to my purchase of Medtronic and Texas Instruments this year too.

Reinvest my quarterly dividend checks

The thing about my approach to investing is that once I buy a full position in a stock, I start earning quarterly dividend checks. I’m not retired yet, so I’m just reinvesting the dividends. I’m basically averaging by acquiring more shares at regular intervals. When the price of a stock is high, I buy less and when the price is low, I buy more. I’m buying these days with Hormel and Procter & Gamble holdings which have recently traded down around 12% from their previous highs earlier this year.

Now, this tactic is powerful, but you can’t always expect to buy more of something just because the market is down. For instance, Kellogg and General Mills, two other consumer product names I own, are both essentially flat for the year. So with dollar cost averaging, you’re going to be loading some stocks and not others, but that just highlights another key tool: diversification. It’s hard for me to complain about the fact that Kellogg and General Mills vastly outperform the general market.

All in all, I have a method of getting me to buy when others are likely to sell (relative dividend yield). I have a method to keep buying, adding more when prices are low and less when they are expensive (dividend reinvestment). And one to make sure I don’t bet too big on a stock (diversification). So I’ve loaded up where I see fit, including new positions at Unilever, Medtronic, and Texas Instruments. I’ve been adding more and more holdings that I like that are falling during the bear market, including Hormel and P&G. And I benefit because some of my holdings are doing well while others are doing less well, including food manufacturers Kellogg and General Mills. It’s not a complicated process, and just about any investor could do the same.

I’m built for slow and steady wealth accumulation

I tried to invest more aggressively, buying and selling quickly. It just doesn’t work for me in the long run. I prefer to use bad market times to buy big companies with historically high yields, let them reinvest the dividends, and spread my bets over a portfolio of around 20 stocks. There are many opportunities to start on this path today, including with Unilever, Medtronic, and Texas Instruments, among others. It’s even more powerful if you can put those dividend checks back to work so you can also profit from the ups and downs of the market over time. Basically, slow and steady is my favorite way to build wealth.

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Reuben Gregg Brewer has held positions at General Mills, Hormel Foods, Kellogg, Medtronic, Procter & Gamble, Texas Instruments and Unilever. The Motley Fool fills positions and endorses Texas Instruments. The Motley Fool recommends Unilever. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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