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The stock market is down in early 2022. For perspective, the S&P 500 Index is down (-7.5%) year-to-date, the NASDAQ is in correction territory, and the Dow 30 is down (-5.4%) as of this writing. On the other hand, the CBOE VIX is up 4.6% to nearly 30 YTD. Some previously high-flying tech stocks have plunged. For example, Netflix (NFLX) has declined almost (-36%) after a poor earnings report and investor fears of increased competition. This early 2022 sell-off represents an opportunity for buy-and-hold dividend growth investors. Relentless investor selling has driven down some quality names. It is time to do some selective shopping. I view three Dividend Aristocrats, Ecolab (ECL), T. Rowe Price (TROW), and Medtronic (MDT) as long-term buys.

What is Causing the Sell-Off

Investors must wonder what is causing the persistent selling after a strong 2020 and 2021. There are three reasons: market overvaluation, inflation fears, and rising interest rates.

The market entered 2020 arguably overvalued. The S&P 500 Index’s price-to-earnings (P/E) ratio was roughly 28X on January 1, 2022. This value is the highest value outside of the highs at the dot-com boom and before the sub-prime mortgage. The recent sell-off has brought the multiple down to about 25X. Ultimately, the market must revert to its mean. Although this value is still high, there are some stocks with lower valuations during the sell-off making them a bargain. Investors must be picky.

The second reason is rising inflation. Inflation has been minimal for many years. Businesses and consumers were used to low prices and slight prices increases. This fact has changed. Inflation returned in 2021, and consumer prices experienced the most significant jump since 1982. On a trailing 12-month basis, the Consumer Price Index [CPI] was up 7% in December 2021, and the Personal Consumption Expenditures (PCE) Price Index, the US Fed’s favorite measure of inflation, was up 5.7% in November 2021…

Disclosure: Long ECL, TROW, MDT

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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.

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