Market Pulse: The bull market is alive and well
May 28, 2014
"Be right and sit tight." — Jesse Livermore
Watching the analysts who appear on financial channels we often hear reasons to sell stocks. There's the slow economy, threat of deflation, central bank policies, the works.
Unfortunately, the hosts never ask where they would put their money instead. Money market? It pays next to nothing. Treasuries? Not for long. It's best to stay in dividend-paying stocks. Here's why:
The 10-year Treasury note yields 2.5 percent. Buy it today at face value and you'll receive $250 a year for a $10,000 investment.
Think of the interest as the equivalent of a company's earnings. As such the 10-year Treasury is priced at 40 times earnings.
The S&P 500 trades for 16 times earnings, and 148 of its components yield more than 2.5 percent. What's more, many increase their dividend every year and virtually all can be expected to raise theirs in the next ten years, most several times.
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Capital appreciation is not a certainty, but since stocks rise two years for every one they fall, it's a good bet over a decade.
Which is the better value? The woefully low-yielding Treasury with no upside potential for income or appreciation for a decade?
Income vehicles that are linked to the Treasury note? Or stocks with dividends and capital gains potential? Hmmm. I've got it. Stocks.
Some stocks I've written about before and continue to hold are Spectra Energy (SE), the largest mid-stream operator and a major gas and oil pipeline. It yields 3.3 percent.
Two others are General Electric (3.3 percent yield) and BP (4.4 percent). These trade for lower multiples than the S&P and yield much more.
They also have a lot going for them and I fully expect to see significant capital gains over the years.
Bottom Line: stocks are more attractive than Treasuries and TINA (There Is No Alternative to stocks) remains the driving force for this bull market.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.ETFportfolios.net 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.