Tahoe Market Pulse: Looking at dividend investing (once again)
One month’s reading does not a trend make, but the recent employment report (only 38,000 new jobs) showed that the economy is still just muddling along and may do not much better for the foreseeable future.
What does that mean for interest rates and investors? Simply this: the low-rate environment will continue, so dividend-paying (and raising) stocks will do well. Good thing, too. I’ve been recommending them for years … and will.
Just look at year-to-date returns to see how the low rate environment is pushing these stocks higher. While the S&P 500 is up just 1.7 percent (through Monday), the iShares Dow Dividend ETF (DVY), with its high weighting in utilities, is up 11 percent and Schwab Dividend Equity ETF (SCHD) is up 6 percent.
Historically, stocks that increase dividends every year do better and that is captured in the PowerShares Dividend Aristocrats ETF (NOBL), which is up 8 percent. So much for this being a hard year for investors!
Let’s look at the extreme when it comes to stocks that raise their dividends. MarketWatch.com ran an interesting article that showed the performance of what are called “Dividend Kings.”
Those are stocks that have raised their dividends for at least 50 consecutive years. There are 18 Kings and since 1991 their compound annual return has been 14 percent, nearly double the S&P 500’s. You’ll find the names at http://www.suredividend.com/dividend-kings. You’ll recognize most.
My clients own dividend paying ETFs along with individual stocks. A few weeks ago I listed the pharmaceuticals sector as a favorite. Since that May 19th article, the group has been a leader. Both iShares Pharmaceuticals ETF (IHE) and Pfizer (PFE) are up 4 percent.
Going all the way back to 2010, my third Market Pulse column was on investing for income. It listed AT&T (T), and Verizon (VZ). Other stocks I’ve often written about are General Electric (GE) and Spectra Energy (SE), the best play on rising demand for natural gas.
All of these remain attractive compared to low-yielding alternatives. That was my case when I wrote about them, and will remain my case as long as inflation doesn’t accelerate and force rates and bond yields much higher.
While investors are laser-focused on the Fed and interest rates, keep in mind that rising rates are not a negative for stocks provided a strengthening economy is the reason.
That’s why stocks typically rally for a year or more after the first boost. If the Fed hikes rates, let’s hope it’s because of a strengthening economy. It better be.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
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