How to Get Consistent Returns From the Market

You really don’t need to worry about which way the market goes. Simply buy quality stocks such as Express Scripts Holding Company (NASDAQ:ESRX) and two others today.

| More on:
The Motley Fool

Historically, the market has returned roughly 10% including inflation. However, there are times when the market tanks.

Examples include the financial crisis of 2008-2009 and the Internet bubble burst that caused the general market to fall in 2000-2002.

If you’re worried about those uncommon but real tanking-market situations, there’s something you can do about your portfolio, so you can get more consistent returns: build a diversified portfolio of quality businesses.

Your portfolio can consist of income stocks that always generate a positive return in the form of cash dividends, growth stocks with above-average growth rates, and stocks with above-average yields that grow at a moderate rate. The last category of stocks has a balance of income and growth.

Income stocks

You can allocate, say, 20% of your portfolio to income stocks such as preferred shares and real estate investment trusts (REITs). It’s not uncommon to find REITs that yield 8%.

For instance, NorthWest Health Prop Real Est Inv Trust (TSX:NWH.UN) yields 8.3% at $9.65 per unit. Its adjusted-funds-from-operations payout ratio has been improving and now sits at 92%.

Additionally, it holds a high-quality portfolio of 120 healthcare properties in Canada, Brazil, Australasia, and Germany with a high occupancy rate of 96.1%. So, its high distribution should be sustainable.

Income-focused holdings like NorthWest can help stabilize your portfolio’s returns (in the form of cash distributions), especially in down markets.

Investors can buy NorthWest at a fair valuation today.

Growth stocks

You can allocate 30% of your portfolio to growth stocks, such as Express Scripts Holding Company (NASDAQ:ESRX). Investors should be pleased to know that Express Scripts, the largest pharmacy benefit manager in the U.S., is priced at a discount today.

Although it doesn’t pay a dividend, it’s only priced at 12.7 times its earnings, while it’s expected to grow its earnings by 10-12% in the medium term.

We can’t choose when a stock’s share price will go up, but by buying quality, discounted stocks with the goal of capital gains, investors can boost their portfolio returns over the long term.

Stocks with a balance of income and growth

You can allocate 50% of your portfolio to stocks that exhibit a balance of yield and growth. For example, TransCanada Corporation (TSX:TRP)(NYSE:TRP) yields 4.2%, and it expects to grow its dividend by 8-10% per year through 2020.

Its dividend is covered by its earnings and cash flows. Based on its forecast growth rate, it offers a potential return of 12-14%. If TransCanada dips to roughly $45.20 for a yield of around 5%, it’d be a strong buy.

Summary

By buying and holding a diversified portfolio of quality stocks with income and growth components, your portfolio should generate consistent returns no matter what the market or economy is doing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of Express Scripts, NORTHWEST HEALTHCARE PPTYS REIT UNITS, and TransCanada. The Motley Fool owns shares of Express Scripts.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »