At the time of this writing (April 12, 2020), most companies will announce Q1 earnings in March/April that have or will mostly exclude the effects from coronavirus. The Q2 earnings in June/July is where Wall Street will finally be able to measure the negative ripple effects coronavirus is having on the economy. Of course nobody can tell the future of what the stock market will do exactly but my strategy would be to at least wait until after Q2 earnings before I start putting money back to work.
The stock sectors that I would suggest are also where I will concentrate my investments into while having a defensive mindset. This post will be about helping you build a “Pandemic Proof Portfolio” of dividend-paying stocks consisting of brands that are related to sector essentials such as grocery retail, food, consumer goods, and healthcare. Brands that will forever be part of our lives such as Walmart (WMT), Coke (KO), Procter & Gamble (PG), Johnson & Johnson (JNJ) are now all on sale due to the dramatic pullback in the stock market due to coronavirus fears.
Record High Unemployment
The following unemployment chart (source: Washington Post) speaks for itself in terms of the magnitude of job losses we are experiencing at the moment due to the coronavirus pandemic. The subprime mortgage crisis in 2009 reached 2,000,000 unemployment filings while coronavirus unemployment claims have reached 17,000,000 with more filings to come. That is an increase of 750% to put that into perspective.
Unemployment directly correlates with which stock sectors will be hurt the most and will be slow to recover. Companies will need time to interview and rehire their workforce so I would avoid these companies for the time being. The most obvious are companies under the sectors of fitness, travel, and hospitality where in-person experiences are part of the product. Nobody anytime soon will be exercising at a gym, traveling by air, staying in hotels, renting cars, or eating in restaurants.
#panicbuying
I recently created my Twitter account for this blog (@rentthemortgage) and decided to perform a search on key hashtags to follow the coronavirus pandemic. I had the most success using different combinations with #panicbuying, #hoarding, #coronavirus, #COVID-19 where I was finding mostly photos of people hoarding or long lines at Costco, Walmart, Whole Foods, and Starbucks. These long lines are a good indication for where people are willing to spend their time waiting in lines to purchase essential products. Hoarding of essentials is also a good signal for which brands people trust such as Johnson & Johnson and Proctor & Gamble.
During a crisis or pandemic, some safe bets to make would come from brands that offer a strong dividend yield and sell essential products like health, food, and hygiene products. The long lines outside of Costco (COST), Starbucks (SBUX), Wholefoods (AMZN), Walmart (WMT) combined with strong brands for essentials in Johnson & Johnson (JNJ) and Proctor & Gamble (PG) give us a strong indication about where people are willing to spend their hard-earned cash. To build a Pandemic Proof Portfolio with $10,000 evenly split across these 6 stocks would provide a blended dividend yield of 1.70% across $60,000 total. This would be a safe portfolio to hold long term because each stock has a chance to grow stronger over the next few years as the economy returns to normal plus it yields a good dividend.
| Company | Ticker | Quarterly Dividend | Dividend Yield* |
| Costco Wholesale Corp. | NASDAQ: COST | $0.65 | 0.87% |
| Johnson & Johnson | NYSE: JNJ | $0.95 | 2.72% |
| Proctor & Gamble Co. | NYSE: PG | $0.75 | 2.57% |
| Starbucks Corp. | NASDAQ: SBUX | $0.41 | 2.29% |
| Walmart, Inc. | NYSE: WMT | $0.54 | 1.72% |
| Wholefoods | NASDAQ: AMZN | $0.00 | 0.00% |
History is on Your Side
The stock market has returned an average of 10% annually between 1926 and 2014. It has recovered from every pandemic, natural disaster, war, and financial crisis over time. The key is letting your portfolio mature over time by reinvesting the dividends where the balance will compound. I recommend that you hold stocks for longer than one year so you pay only Long-Term Capital Gains tax of 15% unless you make less than $39,376 (filing Single). The calculation is the same as the Second RSU tax event, except your vesting date is simply the date of when you purchased the stock in your Pandemic Proof Portfolio. If you decide to sell the stocks held less than 1-year, you will have to pay Short-Term Capital Gains tax as ordinary income, assuming you made a profit.
Long-Term Capital Gains Tax
Long-Term Capital Gains are paid for any profits that are sold where the assets are held for greater than 1-year after the purchase date. Long-Term Capital Gains are subject to 15% tax if your income is between
- $39,376 to $434,550 (filing Single)
- or $78,751 to $488,850 (filing Jointly Married)
- Single filers who make less than $39,376 pay 0% Long-Term Capital Gains tax.
- Jointly Married filers who less than $78,751 pay 0% Long-Term Capital Gains tax.
Do you have a different Pandemic Proof Portfolio strategy than mine? Let me know in the comments.
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services.
