It was an up, up, and away day, courtesy of the ECB today, and not our own Federal Reserve for a change. I have much more to say on the worldwide printing presses and how investors should approach the current environment later in today’s newsletter.
Some of the big movers in today’s tape included Men’s Wearhouse (MW), which was higher following the company’s raised earnings guidance. Wall Street analyst upgrades worked like a charm, moving stocks like Stanley Black & Decker (SWK), Honeywell (HON), SunTrust Banks (STI), and Cisco Systems (CSCO) higher. The one negative spot we noticed were shares of Seagate Technology (STX), trading lower following a negative earnings outlook from one of its competitors.
The line above was a tweet from PIMCO’s Bond Guru, Bill Gross, at the end of August. Mr. Gross’ comments pretty much sum up where things are with how the economic crisis is being dealt with (creating more money out of thin air).
Following Japan’s lead into the financial abyss is something that other countries (including the U.S.) are hoping to prevent. Unfortunately the measures to get the results desired have a way of taking on all sorts of risk. Did you see the latest data on auto sales and who is making up the majority of car buyers these days? Subprime borrowers received 56.46 percent of loans on used cars in the most recent quarter! Lenders and financial institutions never really learn, do they? But what’s there to worry about, when the Federal Reserve has the health of the banking system at the top of their priority list (way ahead of taxpayers of course)?
Some economists out there that would love to see the U.S. have actual inflation concerns (not that we aren’t see this on the consumer side) that could push the Federal Reserve to raise interest rates. Unfortunately my guess is that inflation will remain a consumer issue and one that the Federal Reserve doesn’t quite see in the numbers they choose to report. The way the government ignores the inflated prices of real-life items (food, gas, etc.) is comical, and reminds me of the pro wrestling matches I used to watch as a kid. Somehow, the referee always failed to notice the “foreign object” the villain used to hit the good guy with. The fans would be screaming for the ref to take action, but of course the villain had already tucked the object back into his tights before the referee turned back around. Similarly, the government is playing the “oblivious” part to a tee.
The strategy of bailouts worldwide has done wonders for the equity markets, especially here in the U.S., but there is always the risk of what happens when we don’t get the desired market rally every single time. For dividend investors, the best approach is to continue on the current course of looking for the best ideas possible to commit money to on a monthly basis. We will certainly see shares of companies we like get carried up along with the economic bailout rallies. As this happens, we will continue to reap the benefits, but more importantly, we will continue to monitor the stocks we like to make sure the risk/reward remains favorable for any new monies. Investors trying to jump in and out of the markets are only creating more work, frustration, and risk for themselves.
If we see the rallies fade and the markets begin to head south, the strategy of finding the best names for new capital will remain the same. Running back and forth to and from the sidelines is not the right strategy for most investors. Trying to time the highs and lows of the market will do nothing more than freeze one from making moves period. Once that happens, investors need to regroup and think about what builds wealth over time. The answer? Consistently buying assets that generate income, hence, our focus on quality dividend-paying stocks.25 Years of Dividend-Increasing Stocks
We recently updated our list of dividend stocks that have been paying out dividends for 25 years or more. Be sure to check out the latest list of names here.Dividends Really Matter
Financial blog DailyReckoning.com recently took a look at the difference dividend payouts made in the overall return investors saw throughout the prior decades. Here are some of the highlights:
- The Nasdaq is down 28% since the end of 1999. Even the “blue chip” S&P 500 stocks are down 15% during that time frame…until you add back those “boring” dividends. With dividends included, the S&P 500′s 15% loss flips to a 6% gain.
- Without dividends, the S&P 500 index would have produced a loss for the 25 long years from August 1929 to August 1954. Then again, without dividends, the S&P 500 produced a 5% loss during the 13 years from September 1961 to September 1974. But with dividends included, the S&P’s loss became a 46% gain.
- Over the course of the last half-century, dividends have contributed more than half of the stock market’s total return — 56%, to be exact.
Of course, you can’t discuss the potency of dividend investing without making mention of how awesome compound returns are. I can’t stress enough the power of compound interest: you take a small amount of money and turn it into a large amount over time. Finding the right companies at the right price points which not only grow earnings, but also grow their dividend payouts as well!New Watchlist Article Out Today
Be sure to check out our weekly Top 50 High-Yield Watchlist Names post that is out today, exclusively for Dividend.com Premium members. This list gives readers a good idea of what stocks we’re watching behind the scenes here for potential upgrades.Go Beyond This Newsletter
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Thanks for reading, and I’ll see you tomorrow!