Now is the Time for Value and Dividend Investing

It’s common knowledge on Wall Street that September has historically been a challenging month for stocks. In the 95 Septembers since 1928, the S&P 500 has closed down 52, more than in any other month, according to Yardeni Research.

If we narrow our focus to look at monthly returns over the past 30 years and five years, stocks have had the worst performance during September, dipping 0.34% and 2.89% on average, respectively.

September could be especially tricky this year when you consider that the bulk of stock market gains since last October are due to large gains in the prices of a handful of large-cap, tech-focused stocks.

These stocks are, of course, the so-called “Magnificent Seven”: Apple (AAPL)Microsoft (MSFT)Amazon (AMZN)NVIDIA (NVDA)Alphabet (GOOGL)Meta Platforms (META), and Tesla (TSLA). Year to date, through September 5, these seven stocks posted an average return of 102%. The S&P 500 was up 17.7%.

This narrow market is why our colleague, Tim Plaehn, recently wrote an article about why we may soon see a rotation out of the big tech stocks into value stocks.

Value stocks are shares of companies that are currently trading below what they are really worth, thus providing a superior return in the future. Value stock investors, including Warren Buffett, use fundamental analysis to determine a “fair value” for individual stocks. These stocks typically pay dividends with attractive yields.

However, value stock investing requires a lot of patience. Buffett once said his favorite holding period for a stock is “forever.”

Value investing works best when it seems that few on Wall Street are buying this type of stock.

That’s got me looking at one ETF in particular…

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