Success in the stock market is all about balancing risk and reward. Too much risk and you leave yourself vulnerable to added downside when the stock market turns, as may be the case at this time. However, too little risk and you don’t fully partake in the upside moves of the stock market, though your downside risk is lessened. The key is to understand the stock market we are in and alter your investment strategy accordingly.
Prior to the flush in the stock market on Wednesday, technology growth and small-cap stocks were leading the broader market higher this year. Yet as we also witnessed, the higher-beta stocks were also vulnerable to added selling on Wednesday.
What happened on Wednesday (and what happens on other down days, too) indicates what could happen to higher-beta stocks during a stock market sell-off.
While the stock market seems to want to go higher, there’s also a sense of hesitancy surfacing that will likely make gains much more difficult to come by this year. This is the time when you want to review your portfolio and determine the associated risk. If you have made some pretty good profits with higher-beta stocks, you may want to shift some capital from these higher-risk momentum stocks to lower-risk, low-beta stocks.
This is probably not the time to pick up stocks like Google Inc. (NASDAQ/GOOG), The Priceline Group Inc. (NASDAQ/PCLN), Netflix, Inc. (NASDAQ/NFLX), and Twitter, Inc. (NASDAQ/TWTR).
What you should be looking at are some of the large-cap cyclical stocks that trade with the economy and jobs. Instead of technology, here we have sectors such as automotives, furniture, retail, … Read More
If you haven’t already done so, you should start to take a closer look at small-cap stocks.
Small-Cap Stocks Outperforming in 2015
While small companies underperformed in 2014 with the Russell 2000 gaining a mere 3.53%, compared to the 13.40% and 11.41% advances by the NASDAQ and S&P 500, respectively, I believe that as the long as the economic renewal holds, small-cap stocks could turn things around this year.
So far in 2015, small-cap stocks are second only to the technology sector. The Russell 2000 is up 2.10% as of Thursday, versus a 4.88% move by the NASDAQ. At this time, small-cap stocks are beating the S&P 500 and DOW; it’s still early on, but it’s looking good coming off of a soft year in 2014.
The chart of the Russell 2000 shows a record-high and the presence of a bullish golden cross, with the 50-day moving average (MA) above the 200-day MA, based on my technical analysis.
Chart courtesy of www.StockCharts.com
Whether small-cap stocks can return the kind of performance we saw in 2013 is not certain, but I like the prospects for growth investors.
The reality is that small companies tend to fare better as an economy recovers due to the added flexibility to shift strategies on the run and adapt to changing situations. Imagine a large-cap like General Electric Company (NYSE/GE) trying to be nimble and change on a dime? It’s not so easily done.
Areas that I like amid the small-cap stocks are broad. I favor small companies that show strong growth metrics and have consistently managed to deliver strong results…. Read More
Top Small-Cap Stocks to Watch
The stock market may be blooming again with the major key stock indices rallying back above their 50-day moving average (MA), but there is still ample downside vulnerability.
We have the mess in the eurozone with Greece threatening to leave the euro and not honor its massive debt obligations. There’s also the China risk. Then there are the oil prices. Oil rallied to $53.00 last week, prior to retrenching and then rallying again. It’s going to be nerve-racking.
The problem investors continue to face is the lack of alternatives to the stock market. The 10-year bond yields 1.82%, which is not great unless you have tons of cash. Of course, you could buy distressed high-yielding Greek or Russian debt, but why would you, given the default risk?
So that leaves us with stocks.
Stocks to Watch While Bonds and Global Economy Stagnate
For those of you looking for and requiring dividends, it’s not easy at this time. There are the big banks and higher-risk regional banks to consider. For this reason, I would be sticking with the more stable dividend-paying stocks that not only pay dividends, but also offer the opportunity for capital gains.
The most obvious target for dividends is the blue-chip area. These are great companies with proven long-term sustainability for investors seeking dividends and growth. We are talking about world-class multinational companies, such as The Boeing Company (NYSE/BA), General Electric Company (NYSE/GE), Johnson & Johnson (NYSE/JNJ), The Coca-Cola Company (NYSE/KO), McDonalds Corporation (NYSE/MCD), The Procter & Gamble Company (NYSE/PG), and Wal-Mart Stores Inc. (NYSE/WMT). For the most part, you cannot go wrong with blue-chip dividend stocks…. Read More
The DOW may very well soon break 18,000 and the S&P 500 continues to edge to new record-highs. But the bullish bias towards the stock market is clear when you consider the alternatives.
The 10-year bond has a yield of around 2.3%, which is pitiful at best, considering the gains we have seen in the stock market over the past five years of this bull market.
Now, while the upside moves will likely become more difficult, stocks are still really the only good option for investors at this time. You may want to take some profits, especially on your big winners or the higher-beta holdings, such as small-cap stocks.
I would be looking at the dividend-paying stocks that offer a combination of dividend income and capital appreciation potential.
Of course, the blue chip dividend stocks on the Dow Jones Industrial Average (DJIA) immediately come to mind. These companies tend to be the best of the best and may be a perfect complement to your overall investment portfolio. Here, I am talking about stocks like The Boeing Company (NYSE/BA), General Electric Company (NYSE/GE), Johnson & Johnson (NYSE/JNJ), The Coca-Cola Company (NYSE/KO), McDonalds Corporation (NYSE/MCD), The Procter & Gamble Company (NYSE/PG), and Wal-Mart Stores Inc. (NYSE/WMT).
Chart courtesy of www.StockCharts.com
You cannot go wrong with stocks like these, as their size allows them the ability to weather both up and down economies. General Electric, for example, could have been bought at $5.00 during the Great Recession; it now trades at $26.00, up fourfold.
Chart courtesy of www.StockCharts.com
Yet if you are looking for more upside potential as far as price appreciation, you … Read More
The bulls are out in full force again following a pause in the stock market. Investors were initially spooked by the fear of interest rates moving higher in the first quarter of 2015, but that appears to have been pushed to the backburner now as the stock market rally reignites.
The thing is there are few real alternatives to the stock market—unless you are happy with the 2.42% yield on the 10-year bond. Personally, I would rather invest in dividend paying stocks.
There’s nothing spectacular about the stock market and economy at this time. Things seem to be moving just enough to warrant buying and optimism in the stock market.
Jobs are being generated at an average 200,000 per month and the unemployment rate is at 6.2%. These are okay metrics, but we need to see higher jobs numbers going forward.
Housing market growth returned some strong readings in July, with both housing starts and building permits growing at an annualized one billion units, which is excellent.
Consumer sentiment is lagging somewhat, but the stock market is simply pleased that the reading has not plummeted.
This seems like a Goldilocks recovery—not too hot, not too cold, but just enough growth.
The stock market has edged higher in six of the past nine sessions with several key technical moves on the upside as of Tuesday.
Blue chips, which have been comatose, are showing some movement, with the DOW back above its 50-day moving average (MA) and returning to the positive side for this year. As we move ahead, the DOW will likely take another run at 17,000, which has been broken … Read More
The bulls are continuing to ride the stock market higher with minimal resistance from the bears. After some weakness earlier in the year, stocks continue to want to edge higher.
We are not seeing the mass market participation we want to see in a rallying stock market, but this divergence is clearly not a big deal for traders.
The first half of 2014 saw mixed trading, but the stock market managed to edge higher. We saw multiple records set by the DOW and S&P 500, with both indices closing higher for the fifth straight month in June. Not bad given that historical records suggest muted action.
On the charts, the sense is that the stock market is aiming higher. The DOW broke 17,000 last week, while the S&P 500 is eyeing 2,000 and looking higher on the charts, based on my technical analysis. The DOW is riding consistently above its 50-day and 200-day moving averages.
Chart courtesy of www.StockCharts.com
On the plus, small-cap stocks made a strong rally in June as we saw some money flow back into the higher-risk assets, which technically bodes well for the broader stock market. We are also seeing buying return to the technology sector and the high-momentum plays.
But as is always the case after a rally to new heights, many are calling for a stock market correction.
The chart of the S&P 500 shows the potential of a small correction of approximately five percent. I would view this as an investment opportunity to buy on weakness.
Chart courtesy of www.StockCharts.com
The reality is that the stock market is heading higher, but we could … Read More
This is a stock market that continues to want to move higher despite the lack of any major catalyst.
Sure, the economy is “recovering,” but there are still issues with consumer spending, especially on non-essential durable goods. The headline durable orders reading came in at 0.8% growth in April, above the consensus 1.3% decline but below the revised 3.6% growth in March. For the economy to really confirm the stock market, we need to see growth here. This will also help to drive buying in small-cap stocks that trade with the economy.
The jobs scene is finally beginning to look better since the Great Recession in 2008. Jobs creation came in above 200,000 for the fourth straight month. The unemployment rate held at 6.3%. With the latest batch of jobs numbers, the economy has now recovered all of the 8.7 million jobs lost during the recession. The Federal Reserve will likely refrain from raising interest rates until sometime in mid-2015, but continue to cut its bond buying to zero by year-end.
The fact there’s really a lack of investment alternatives to the stock market is helping. With the yield on the 10-year bond at around 2.5%, I doubt investors or institutions are rushing to buy. Why would you when you can buy higher-yielding dividend paying stocks with capital upside?
The renewal in the global economy is also helping. China hasn’t sunk into the economic abyss as some pundits have been predicting. Its neighbor Japan is finally showing signs of economic growth following decades of doing little. Like the United States, Japan is spending its way to recovery. The country’s first-quarter … Read More
The flow of capital into the stock market continues to be directed toward lower-beta large-cap stocks and blue chips, and far less into growth and technology stocks.
The comparative performance of the large-cap versus smaller-cap stocks also exhibits a movement of capital into bigger companies as the stock market adopts a more defensive structure. The risk in growth stocks is continuing to grip the overall stock market.
With the move to safety, we are also seeing some capital flow into the bond market as the yield on the 10-year bond approaches the critical three-percent threshold. The higher the yield, the more enticing it is for investors to move some capital out of the stock market.
Yet while bonds are gaining some traction, I still prefer the capital appreciation component associated with the stock market versus that of bonds.
The demand for yield is even more prevalent if you are a senior seeking income or a conservative stock market investor who doesn’t like the current higher risk.
Instead of bonds, I’d prefer to take a look at some dividend paying stocks.
Consider that only the S&P 500 is in the plus this year. The Dow Jones Industrial Average entered into positive territory a few sessions earlier but has since fallen back.
The attraction of the DOW stocks is not only the capital appreciation potential, but also the dividend income stream, with the average dividend yield on the 30 DOW blue chips currently sitting near 2.72%. (Source: “Dividend Yield for Stocks in the Dow Jones Industrial Average,” indexArb web site, last updated May 19, 2014.)
The move into dividend paying stocks is … Read More
Long-term investing and growing a portfolio over time isn’t an easy task. It requires a lot of planning and a significant amount of research. While doing this, many investors tend to forget one very important aspect: the costs associated with investing in their portfolio—the commissions and fees. If investors control the commissions and fees paid to their brokers and elsewhere, they can save a significant amount of money and have a bigger portfolio in the end.
For those investors who have resolved to invest money in their portfolio in 2014, the following are three ways to add more wealth to your portfolio over the long term.
Use Discount Brokers vs. Conventional Brokers
If an investor opens an account with a discount broker—often referred to as online brokers—they can save a significant amount of money in trading fees compared to a conventional broker, who they have to call to place a trade. Discount broker commissions are much lower than those charged by conventional brokers: a discount broker’s fees can go as low at $5.00 per trade, while a conventional broker’s fees can be 10-times that amount or more.
Consider, for example, that you have an account with a conventional broker who charges a commission of $50.00 per trade, and you make about 30 trades on an annual basis. At that rate, your commission charges will amount to $1,500 per year. With discount brokers, these commissions can be as low as $150.00 a year. With the extra $1,350 you saved by switching to a discount broker, you can invest more capital in your portfolio.
Buy Exchange-Traded Funds (ETFs) vs. Mutual Funds
Holding … Read More
Small-cap stocks are faring the worst this year and are down nearly 10% from their record-high in late 2013; many would deem this to be an official stock market correction.
Given that small-cap stocks surged upward by more than 33% in 2013, it shouldn’t be a surprise to see this group get the brunt of the selling this year.
Higher-beta stocks, such as small-cap stocks or growth stocks, tend to outperform when the stock market is moving higher, but they are more vulnerable to downside weakness. This is the risk you assume when investing in small-cap stocks.
The reality is that the associated risk of buying stocks is intensified with small-cap stocks, which is why you also need to make sure you have some proven large-cap stocks in your portfolio to help alleviate some of your overall portfolio risk.
I’m not saying that you should avoid small-cap stocks in their entirety, but I do think you should look at adding some large-cap or blue chip stocks if you are devoid in this area.
The advantage of larger companies is that we know these businesses have a proven long-term track record and will likely be around decades from now, whereas small-cap stocks are more vulnerable and may not recover during an economic and market relapse.
A large company can easily absorb several quarters or even years of underperformance but small-cap stocks would have a much more difficult time doing this because they have fewer financial resources.
A classic example of a large company struggling but managing to pull out was McDonalds Corporation (NYSE/MCD). The company faced issues in the 1970s and … Read More
For most investors, the past year was about the search for higher-risk assets with the potential for achieving higher returns. This desire helped to propel the NASDAQ and Russell 2000 to returns in excess of 30%, while dividend paying stocks lagged in performance.
Now as we move along in 2014, we could see buying shift to more conservative stocks that pay a dividend to investors. The shift to these stocks could accelerate as comparative bond yields rise, making income investors choose between bonds and dividend stocks.
As an investment strategy, you can consider buying the large-cap dividend plays, such as General Electric Company (NYSE/GE) or The Procter & Gamble Company (NYSE/PG).
But while buying large-cap blue chips always makes sense to your overall portfolio strategy, you can increase your portfolio’s overall potential returns by adding small-cap dividend stocks. By doing so, you can usually add in higher capital appreciation potential.
And while there are numerous small-cap dividend plays in the financial and industrial sectors from which to select, I’d like to highlight a couple above-average stocks that you may want to examine further. As I said, these smaller companies offer dividends and higher capital appreciation potential.
In the area of investment management, a mid-cap company that looks like it may make a good addition to your portfolio is Och-Ziff Capital Management Group LLC (NYSE/OZM), which has a strong dividend yield of 6.7%. The stock has also advanced 61% to shareholders over the past 52 weeks; the S&P 500 returned just 25%. In the third quarter, Och-Ziff managed to beat the Thomson Financial consensus estimate by $0.07, reporting $0.27 per diluted … Read More
Another year is soon to draw to an end. In my final commentary prior to the holiday break, I’m going to talk about something that is often not considered by investors when formulating their investment strategy.
But first, let me talk about my dad. He’s in his early 80s and is the most risk-averse investor I have met. He will invest in bonds, regardless of how they are doing. In high-yielding or low-yielding periods (which we are currently in), he will invest in the safety of bonds and squeeze out any last drop of interest. Yet while his investment strategy has always been status quo, this is not the way it should be. Let me explain.
Your asset portfolio should combine the right blend of equities and bonds as an investment strategy. But you need to be careful in your allocation. Too much in equities, and you’re vulnerable to downside risk; albeit, stacking your capital in stocks over the past four years would’ve paid off. Concurrently, if you’re like my dad and hold too much in bonds, then you miss out on some strong gains.
What you need to do for a well-planned investment strategy is consider the key variables, such as asset allocation, diversification, and small-cap stocks, to add potential return.
In my view, you need to be aware of exactly how much you have slotted in equities and bonds. This is also known as asset allocation, which is key to any prudent investment strategy.
By asset allocation, I am referring to how your investable assets are divided up amongst the three major asset classes: cash, bonds, and equities…. Read More
The markets are taking a predictable breather ahead of the Federal Reserve’s meeting later this week. Analysts from every corner of the globe are weighing in on whether or not the Federal Reserve is going to begin tapering its stock market-fueling $85.0-billion-per-month bond-buying program.
Stock markets have been on a tear ever since the Federal Reserve initiated its first round of quantitative easing in late 2008. Since early 2009, the S&P 500 has climbed more than 150% and is up roughly 17.5% year-to-date.
But the Federal Reserve can’t print money and keep interest rates artificially low forever. Once the Federal Reserve sees enough data pointing to a sustained economic recovery (unemployment, housing prices, inflation, etc.), it’ll begin to taper off.
Based on so-called encouraging economic jobs data, many think the U.S. economy is strengthening. For investors, this is bad news, because it means the Federal Reserve will start tapering sooner rather than later, and a decrease in the demand for bonds will, of course, lift bond yields. This could throw income investors a serious curve-ball.
Over the last five years, quantitative easing has kept the 10-year Treasury yield near its record lows, hovering around two percent for the last two years. The record-low numbers sent income investors scurrying into dividend stocks in an effort to make up for lost ground. Over the last number of years, income investors were able to realize both significant capital gains and dividend growth.
But that could change, as investors who have been seeking financial solace in dividend stocks with yields of four percent or more are now seeing 10-year Treasury yields above three percent—the … Read More
While there’s a significant amount of talk among investors about inflation being ahead in the U.S. economy, the indicators are, against all odds, currently showing the complete opposite.
The Consumer Price Index (CPI), the most quoted indicator of inflation, declined 0.4% in April, continuing its slide from the previous month, when it decreased 0.2%. (Source: Bureau of Labor Statistics web site, last accessed May 22, 2013.) So far, from January through April, inflation in the U.S. economy has increased only 0.1%.
Looking at other indicators of inflation—such as the Producer Price Index (PPI), considered to be an early indicator of inflation—these indicators suggest the same and show a steep decline. The PPI registered a decline of 0.7% in April, after declining 0.6% in March. (Source: Ibid.) The index has turned negative from the beginning of the year.
Going by all this, can the U.S. economy go through a period of deflation, when prices decline?
To say the very least, looking at inflation data from the last two months (March and April), it is still too early to say if the U.S. economy will experience a period of deflation—but it shouldn’t be ruled out.
Consider the Japanese economy: it has been experiencing deflation for more than a decade, despite the efforts taken by the Bank of Japan to jumpstart the economy. Similar to what the Federal Reserve is doing now in the U.S., the Bank of Japan has kept interest rates artificially low and has taken more aggressive steps to bring in inflation; however, it continues to fail.
Considering deflation as one of the possible scenarios in the U.S. economy, what … Read More
Most investors will consider utility stocks in saving for retirement, or when looking for regular stock market income while in retirement. This is a group that has a better track record on the stock market than you might think. Old economy stocks can still generate solid investment returns, even if they are well-established utilities.
The Dow Jones Utility Average has a good long-term track record of wealth creation, but it has not been without volatility. Clearly this is a group that is less volatile than many other stock market sectors and these stocks experience waves of enthusiasm from institutional investors.
Utility stocks are not for everyone. A lot of investors feel that they would be better off in faster-growing, brand-name companies that have long-term track records of paying dividends. But in terms of dividend yield, utility stocks are definitely a group that is worth looking into.
One of the standout utility stocks is The Southern Company (NYSE/SO). The stock has been a powerhouse wealth creator, with much less volatility than the rest of the group. The company’s long-term stock chart is featured below:
Stock chart courtesy of www.StockCharts.com
In my estimation, Southern is one of the few utility stocks that combine excellent dividend payments with solid potential for further capital gains on the stock market. Considering Southern today, you might say that it is fully priced with a current price-to-earnings (P/E) ratio of approximately 17. But the dividend yield is 4.3%, which is very substantial in today’s environment. And you know that this business is still going to be there and that people are still going to be moving to … Read More
The recipe for a comfortable retirement is all about budgeting and making the numbers add up. Living below your means and setting aside money for the future isn’t an easy task. Nor is it particularly fun to postpone doing something in the here and now for a retirement that will last for an undetermined amount of time.
That disconnect can be found around the world. A recent survey, based on over 15,000 consumers in 15 global markets, found that over half of non-retirees (56%) say they are not adequately preparing for a comfortable retirement. That number maxes out at 72% in Egypt, 71% in Taiwan, and 66% in the U.K. (Source: “Retirement,” HSBC web site, last accessed March 26, 2013.)
Here in America, we can expect to spend about 21 years in retirement, but we will burn through our savings in just 14 years. This means that most Americans have not, and are not, financially prepared for the last 33% of their retirement. This isn’t exactly a surprise when you consider that 36% of Americans say they are not preparing adequately and a staggering 20% say they are not preparing at all.
In spite of inadequate retirement savings and a bleak long-term outlook, the short term has greater appeal; 43% of respondents are more likely to save for a trip than retirement.
This poses major questions about how people will fund not only their “active” retirement years, but how they will also cope with the financial burden of possible long-term care costs associated with aging in their later retirement years.
Right now, those nearing retirement (55–64 years old) say the … Read More
Good investing doesn’t have to be complicated. If you want to save for retirement using the stock market, most individual investors would likely choose a selection of mutual funds or exchange-traded funds (ETFs).
Going forward, a lot of people are viewing the stock market as very vulnerable; unless there is another war or the euro currency really does come apart, the next big pullback is likely to be an attractive buying opportunity for those able to put away some savings for retirement.
A portfolio investment strategy is always crucial, and over the years, I’ve learned to be very conservative with equities. There’s always room for a few highfliers, but I don’t bet the farm on anything.
Putting together a stock market portfolio is easy, and you can just write it down on paper in anticipation of the next big correction.
In retirement planning, it’s highly likely that capital preservation is a top priority, so a stock like The Southern Company (NYSE/SO) or another utility stock might be a good pick. The Georgia-based electric utility has a history of paying increasing dividends to shareholders and capital appreciation on the stock market.
For me, an important group to include in any retirement portfolio with equities is consumer staples. Companies like The Procter & Gamble Company (NYSE/PG), Wal-Mart Stores, Inc. (NYSE/WMT), and PepsiCo, Inc. (NYSE/PEP), to name just a few, are well-managed dividend paying stocks that are highly likely to survive any major shocks in the global economy, and they will certainly benefit from population growth.
A pharmaceutical stock is often a good idea. There are a number of blue chips in this … Read More
Investment management is considered to be one of the most critical aspects when it comes to investing for the long term. At the end, the goal is to have enough savings to retire comfortably and be stress-free in your golden years. Proper investment management can help individuals achieve their goals while taking adequate risk.
While there are many techniques a person can employ when it comes to investment management, asset allocation is arguably the most discussed one. The myth among investors is that if they keep a certain portion of their portfolio in a specific asset class and hold it, over time, they can produce the optimal return—for example, 50% of their savings in stocks and 50% in bonds.
Asset allocation, at the end of the day, is simply spreading your savings across different asset classes to reduce risk.
It can certainly reduce volatility in an investor’s portfolio and help shield them from major losses; but unfortunately, it can also hinder performance—and over time, it will affect their end goal. Consider this: you have a portfolio consisting of 50% stocks and 50% bonds. Now, if the bond market declines by eight percent and stocks increase by five percent—what’s your portfolio return? The answer: negative three percent.
Fixed asset allocation doesn’t work! There isn’t a number attached when it comes to asset allocation. It depends on an investor’s risk tolerance and their time horizon. Instead of holding a certain percentage of savings in a specific asset, they should focus on constantly balancing their portfolio. Sometimes, one asset class might have higher risk over the others.
In order to check the effectiveness … Read More
A lot of good news is priced into the stock market right now. Fourth-quarter earnings season is on the horizon, and it will have to be a good one for stocks to keep appreciating.
There still aren’t a lot of reasons to be a buyer in this stock market. Even just looking at a five-year chart of the S&P 500, the market seems pretty stretched and is due for a correction.
Ben Bernanke and Alan Greenspan have been so accommodative to Wall Street and the stock market. But it’s true that it does not pay to fight the Federal Reserve, even if you don’t agree with the central bank’s policy actions. I just don’t see an end to the cycle of money supply growth.
Price inflation already exists in this economy, though I’d say it’s really more like four percent compared to what is reported. Everything is going up in price, so it is absolutely critical that after-tax incomes go up as well—and that’s going to be a continuing problem going forward.
I think we have the makings of a substantial stock market correction that could happen very soon, even if we don’t get any particularly negative data. The market has been ticking higher fairly consistently for four years now, and we’re due for some downside.
First-quarter earnings expectations have flattened right out, and that makes sense; but large corporations are still being highly cautious with their outlooks, and they’ve been very good at beating consensus, typically on either revenues or earnings—though not both in most cases. Some consensus data collectors are now reporting increased earnings expectations for the bottom … Read More
There are a lot of great dividend paying stocks out there, but a good number are trading right at their 52-week or all-time highs on the stock market. Equity investors know that it’s tough to buy a stock trading right at its high.
Among dividend paying stocks, E. I. du Pont de Nemours and Company (NYSE/DD), otherwise known as DuPont, is a higher-yielding stock that’s worth having on your radar screen right now. The company’s last two earnings reports weren’t the greatest, and the stock hasn’t participated like other successful dividend paying stocks in the Dow Jones Industrials.
DuPont has been in a stock market downtrend for the last two years, and it really hasn’t done much over the last dozen years. The stock currently yields around 3.6%, but its valuation is fair at around 16-times current earnings.
Like I say, DuPont is a company to watch right now because a lot of the stock market isn’t currently worth buying. Higher dividend paying stocks, especially those in the Dow Jones Industrials, are almost always worth buying when they’re down. DuPont’s long-term performance on the stock market is modest, but the one thing the chart below doesn’t include is reinvested dividends.
Chart courtesy of www.StockCharts.com
According to Morningstar.com, DuPont’s simple rate of return over the last 3.5 years (right after the financial crisis low) is about 45%. With dividend reinvestment, the return jumps to over 65%.
Currently, Wall Street expects DuPont to produce earnings growth of around 17% this year and 12% in 2014. Combined with the company’s dividend and valuation, those are pretty decent financial metrics if you’re a stock … Read More
The strength we’ve seen in the stock market over the last several years has been a boon to large-cap dividend paying stocks. An investor no longer needs to take the high investment risk of speculating on micro-cap companies; big-cap companies are moving just as fast and furious on good news.
Most investors with a stock market portfolio typically have a mix of holdings that would include individual stocks, mutual funds, and perhaps some exchange-traded funds (ETFs). For individual stocks, it definitely pays to be diversified, not only among industry groups but among the market capitalization of companies as well. A handful of large-cap dividend paying stocks can go a long way toward normalizing your investment returns over time.
Among the dividend paying stocks that I like, Johnson & Johnson (NYSE/JNJ) takes the cake in terms of stability, consistency, and earnings growth. I think a well-balanced stock market portfolio should have a pharmaceutical company as a component. Pharmaceuticals are such a large part of the economy now, and pharmaceutical companies are very good at making money for shareholders. Johnson & Johnson’s long-term stock chart is below:
Chart courtesy of www.StockCharts.com
This company has been very consistent in terms of its earnings growth over the years, and among dividend paying stocks, it’s been one of the best. It is true that large-cap companies can experience long periods of no capital gains; but then again, that’s what the quarterly dividends are for.
And what a company like Johnson & Johnson represents in a portfolio isn’t just about capital gains. It’s a benchmark holding that grows its earnings and dividends over time, providing … Read More
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