July 3, 2012
Written By Chloe Lutts Jensen
In today’s Stock Market Crash Course, we hear from several experts who think Thursday and Friday’s action was the start of a new rally, including Investors Intelligence’s John Gray, Cabot Option Trader’s Rick Pendergraft and Joseph Cotton of Cotton’s Technically Speaking. In addition, The Prudent Speculator’s John Buckingham says sentiment is ripe for a rally. Click below to watch the video!
Chloe Lutts, Editor of Dick Davis Investment Digest and Dick Davis Dividend Digest
Chloe Lutts is the editor of Dick Davis Investment Digest and Dick Davis Dividend Digest, and the third generation of the Lutts family to join the family business. For each Digest, Chloe reads hundreds of investment newsletters to select the strongest ideas for her readers. Prior to joining the Dick Davis Digests, Chloe was a financial reporter for Debtwire, a division of the Financial Times, covering fixed income, and before that, she reported on global debt markets for Institutional Investor. She also has previous experience at Cabot, writing about growing momentum stocks for Cabot Top Ten Trader and high-potential small companies for Cabot Small-Cap Confidential. She holds a B.A. in International Relations from Brown University, and also studied in Beijing and Paris.
10 Blue-Chip Dividend Payers to Own in 2012
A recent survey of our subscribers revealed that their greatest investing concerns are market volatility, economic uncertainty and maximizing dividend income.
As more and more Americans approach retirement age, and lose other regular income streams, I expect to see the last concern pop up more frequently. Fortunately, unlike market volatility and economic uncertainty, making your portfolio generate regular income is entirely within your control. And since it’s the focus of our Dick Davis Dividend Digest, I can help you.
There are a lot of fixed-income investments for investors to choose from: bonds and preferred stocks offer investors varying levels of security on corporate debt. There are always a few alternative income investments in every issue of Dividend Digest, but dividend-paying stocks are our main focus. And for all but the most conservative investors (those who really can’t afford to risk any capital, ever), dividend-paying stocks are a great way to generate income right now.
John Buckingham, one of our Dick Davis Dividend Digest contributors and editor of The Prudent Speculator, brilliantly explained the advantages of dividend payers in the latest Dividend Digest:
“Clearly, equity investors must steel their nerves for heightened levels of volatility, especially as the European sovereign debt crisis remains front and center, growth in stronger economies like China and Germany has slowed and recent economic statistics in the U.S. have been far from robust, but relative to Treasuries, dividend yields are as attractive as they’ve been in 50 years. Aside from several months at the height of 2008-2009 Global Financial Crisis, the last time the yield on the S&P 500 was above the yield on the 10-year Treasury was 1958. And the big plunge in both interest rates and equity prices on October 3 moved the forward yield on the S&P closer to the 2.8% yield on the 30-year Treasury! What’s more, corporations have actually been boosting their payouts as more than half (258) of the S&P 500 members have either raised or initiated a dividend this year.”
He continued, “It is nice to see the renewed interest in income, as we can’t forget that dividends and their reinvestment have long been a substantial contributor to the total return on equities. Data from Morningstar going back to 1927 show that through the end of last year, the income component of total return amounted to 41% for Large-Cap Stocks, 35% for Mid-Cap Stocks and 31% for Low-Cap Stocks. More importantly, our own analytical work going back 20 years and numbers we’ve crunched from Eugene T. Fama and Kenneth R. French dating to 1927 find that dividend payers have actually outperformed non-dividend payers over the long term and they have done so with lower volatility! Not quite the Holy Grail, but higher returns with lower risk is obviously a winning combination.”
It’s hard to argue with that.
In fact, I feel so strongly about the benefit of owning dividend-paying stocks that I published a brand new report highlighting 10 of the best income-generating stocks that should be in your portfolio.
In 10 Blue-Chip Dividend Payers to Own in 2012, you’ll gain access to the top dividend-payers that can bring you steady, secure income.
And you can get it FREE when you subscribe to Dick Davis Dividend Digest today. Learn more now!
Wishing you success in your investing and beyond,
Editor of Dick Davis Dividend Digest
P.S. Dividend-paying stocks have outperformed non-dividend-paying stocks by four to one over the past 35 years. The New York Times goes so far as to say that “without dividends, you would lose money investing in blue chips.” Don’t miss my new special report detailing 10 of the very best dividend-payers you need to own in 2012. Jump-start your portfolio today!
John Gray, Investors Intelligence, Monday morning:
“Friday’s strong session provided more than the needed confirmation of the resumption of the rally. The choppy trading earlier last week showed needed consolidation of the initial breakout from the June lows. An entire new leg-up occurred in one session, with nearly all indicators ending with bullish status. Although another constructive pause could occur, the upward direction is again clear and the advance should continue, with the short-term indicators heading for overbought territory. They were recently oversold. …
“About six stocks rose for each decline, new highs jumped and volume increased. …
“The session included upmoves on most index and indicator charts with lots of positive technical action. Nearly every index chart ended with double top formations at resistance downtrend lines. Penetrations would provide further upside potential. The likelihood of that positive action was suggested by the stronger indicator chart moves. They show breaks above their June 19 highs in nearly all cases.
“There were also 70 new stock breakouts Friday. Those occur when prices exceed a prior level that halted an advance and show a building desire to own equities. The sector indicator chart changes also shifted back to upmoves and positive status shifts.
“The market’s resumption of ‘rally mode’ means new accumulation could be considered.
“That was confirmed by the 138 selling climaxes. Those stocks fell to new 52-wk lows last week but then ended above their prior Friday close. They have new stronger sponsorship and that is one of the elements that moves shares up.
“Follow the charts and watch for more gains.”
Rick Pendergraft, Cabot Options Trader, Monday’s issue:
“The S&P 500 chart is looking better thanks to Friday’s rally: weekly overbought/oversold indicators have moved well out of oversold territory, but remain far from overbought levels; the S&P closed back above its 100-day moving average, which had kept the index in check during the previous week; and volume increased late Thursday into Friday after declining during the first three trading sessions of the week.
Joseph Cotton, Cotton’s Technically Speaking, Monday:
“The market was very strong Thursday and Friday of last week. The Dow successfully tested its June low and appears again to be on track to challenge the former Dow high of 14,000. We would be back off the sidelines and BUYING!!! And we would move to 80% invested if the Dow closes above 12,900 — which we expect to occur this week.”
John Buckingham, The Prudent Speculator, Monday AM:
“On many occasions we see investors become enthused or disenchanted with equities based not on how good a particular data point or event may be, but on how it compares to expectations. Case in point was Thursday’s big late-day rebound and Friday’s mammoth advance in the stock markets on news that the umpteenth European summit had actually produced an agreement to provide aid directly to troubled European banks, rather than through their governments. …
“No doubt, there are plenty of devils in the details still to be addressed … but few investors expected anything substantive to come from the latest round of talks. In fact, we might argue that stock market players were not only prepared for little in the way of good news, but they were actually positioned for additional bad news. We make this assertion based on a tripling of outflows from domestic equity mutual funds in the latest weekly data from the Investment Company Institute and a big rise in the number of Bears to 44.4% with a large drop in the number of Bulls to 28.7% in the latest American Association of Individual Investors Sentiment Survey. …
“Alas, the near impossible trick is to figure out what has and hasn’t been discounted, though it is apparent that the Fear/Greed pendulum remains swung well towards pessimism. …
“Following Friday’s market gains, the tone was hardly euphoric, despite a 4%+ advance in the equity markets in the span of a day plus an hour or so. One commentator [said] ‘Given how low expectations were, it’s no surprise that the markets are up, but it’s too early to say Europe’s saved.’ Another well-known market watcher added, ‘They’ve moved the ball a little, but I think they’ll have to come back in two or three months and do something again.’
“The lack of enthusiasm remains music to our ears as we continue to believe, and the ongoing infatuation with safe-haven U.S. Treasury securities will attest, that the majority of investors have positioned their portfolios very conservatively, a situation that provides plenty of dry powder to support a sustained equity market advance should some of the headwinds abate.”
One contributor, over the weekend:
“It is hard to not feel at least a bit of bullishness in the air as I sit down to write this.
“However, ‘one day does not a trend make,’ as the saying goes—and given the relatively light trading volume days we saw over the course of June (punctuated with an alarmingly large number of ‘spike’ volume days as well, I might add!), it is hard to assign too much weight to the month’s trading activity either.
“In fact, given that Friday’s rally is widely being attributed to the observation that ‘Merkel blinked, and thus we can stop worrying about Europe now,’ I am even more skeptical that it is a rally worth buying into. After all, as discussed a number of times over the past several months, each ‘fix’ that is announced regarding the debt situation in Europe is actually more of a ‘band-aid’ than a solution—and eventually, the strategy of issuing more debt to pay for existing debts cannot help but collapse. …
“Consequently, I believe it is in our best interest to wait and see how much (if any) follow through we see in the weeks ahead before we get too swept up in the euphoria that seems to have gripped the market over the past couple of days.”