Company Earnings Look Good
Dividends Are Also Increasing
Another Shameless Plug For Dividend Aristocrats
These Winners Remain Attractive...One For 194 Years
Smaller Stocks Are Coming Up Fast
Semiconductors Looking Good Too!
The Bottom Line This Week
our last newsletter, the stock market retreated from its earlier highs. That's
not surprising since there was cheerless economic news from Europe. The
infamous PIGS (Portugal, Italy, Greece, and Spain) are having an embarrassing
problem with their colossal debts. Payments are due, but the big spenders are
coming up short a trillion dollars or so. The exact number is still in dispute.
Whatever it turns out to be will be a shocker.
calmed down a bit when other European countries promised to bail out their
spendthrift neighbors. But before anybody could start to buy stocks again, the
Fed made a surprise ¼ point increase in the discount rate it charges banks.
interest rate in question wasn't "the big one" that everybody is most concerned
about. However, the change made investors worry that the Fed may be getting
ready to raise that one too. Mr. Bernanke swore up and down that he wouldn't
risk killing the recovery by committing such a rash act. But just in case he
had his fingers crossed, investors moved their chairs a little closer to the
the dust settled, the Dow and the Nasdaq were down 3.2% and 3.5% respectively
for the month. As corrections go, it was fairly mild.
Earnings Look Good
the coming month or so we think the market is more likely to resume its upward
course than it is to continue down. The main reason for our cautious optimism
is 4th quarter corporate earnings were better than expected. If they
remain on an upswing this quarter, investors should revalue the stock market
accordingly. We should have a better idea of what's on the way in another week
when many analysts will make their preliminary earnings projections.
already have an indication of what to expect from the retail sector. To the
surprise of the prophets of doom, sales increased last month. No one would
mistake the uptick for a holiday rush, but it suggests that consumers may be in
somewhat better shape than expected.
course, shoppers are still telling pollsters that they have little confidence
in the future. However, that measure isn't especially reliable in a recession
when people are nervous about everything.
Are Also Increasing
addition to better earnings, many blue chips are also increasing their
dividends, which is always positive for the stock market. We have been
expecting it to happen. Most multinational companies are sitting on mountains
of cash they were afraid to spend while the recession was raging. Now the
corporate Scrooges are being pressured by their investors to share the loot.
lots of cash on hand has a longer range benefit as well. Well-heeled companies
can finance their own expansion plans without needing to wheedle the money from
the tightwad banks. Apparently the latter think the bailout funds should be
used for bonuses to reward themselves for all the hard work they are doing on
America's behalf. In any event, we expect to see more company mergers and
acquisitions as the year progresses.
Shameless Plug For Dividend Aristocrats
dividends on an upswing, this is a good time to remind readers how valuable the
payouts can become over time. According to John Mauldin, author of the popular
book Bull's Eye Investing, dividends account for about 40% of the 10%
average annual gains returned by the stock market.
best dividend stocks increase their payouts every year. Because your cost
doesn't go up after you buy such stocks, your effective yield (the dividend
divided by the price) will keep rising. After a few years, your effective
returns can be well above those paid by bonds and other fixed income
little arithmetic shows how it works. If you buy a $50 stock that pays a $1.50
annual dividend, your starting yield will be 3% - a payout that several of our
blue chip recommendations offer at present.
a year or so later the dividend rises to $2.50, your effective yield will be
5%. If the dividend eventually goes up to $4, your effective yield will be 8% -
and so on. The effective yield on your $50 purchase can get pretty sweet after
a few years. That's one of the biggest reasons we think retirement funds should
contain a healthy measure of blue chip stocks with good dividend track records.
Winners Remain Attractive...One For 194 Years
there was a category for overall stock returns in the Olympics, several of our
recommendations would be in the running for a gold medal. All of them pay at
least as much as 10 year Treasury bonds, plus they offer great prospects for
Heinz (HNZ) needs little introduction to most people. http://finance.yahoo.com/q/bc?s=HNZ
Food stores are packed with the company's condiments, soups, sauces, beans, and
other staples. Although the product line is not exciting, the Company's success
is another matter. Heinz has paid dividends since 1911 and currently yields
Lilly (LLY) is a well known
pharmaceutical company that sells its products worldwide. http://finance.yahoo.com/q/bc?s=LLY
The stock is currently very attractively priced. Investors are nervous about the
pharmaceutical industry because the President's health care plan leaves it in
regulatory limbo. Investors are also worried about the President's proposal to
tax certain drug profits and offshore accounts.
think the negatives are overstated. Congress is unlikely to hurt the powerful
drug industry that is always so generous at election time. On the contrary,
most health care measures benefit the sector. A good example is the Medicare
Prescription Benefit Law that once gave Wall Street the fits. Meanwhile, we
like the company's long-term outlook and its present 5.7% yield. Incredibly,
Eli Lilly has paid a dividend every year since 1885!
Water (YORW) is a 194 year old
company that supplies water to over 176,000 residential and industrial
customers in Pennsylvania. http://finance.yahoo.com/q/bc?s=YORW
Because the Company started when America was still young, it was able to
acquire large water resources that are now extremely valuable. Many natural resource
experts think clean water will be in greater demand than oil within a few
has paid an annual dividend every year since 1816, which beats Eli Lilly's
outstanding track record. York currently pays a 3.7% yield.
of our other recommendations pay a bit less than 10 year Treasury bonds.
Nevertheless, the stocks are also attractive for long term accounts. The list
includes McDonald's (MCD) that is on its 33rd year of
dividend payments and currently yields 3.4%. Johnson & Johnson (JNJ)
has been sending annual checks to its investors for 47 years and currently
yields 3.1%. Coca-Cola (KO) is also at the 47 year mark and is paying
2.9%. Procter & Gamble (PG) has a 53 year track record and yields
Stocks Are Coming Up Fast
the past few years, big stocks have been the leaders on Wall Street. That's
understandable since investors usually stress safety when the outlook is bumpy.
the economy starts to improve, however, small stocks begin to move up. That's
just what has been happening over the past two weeks. The change is a strong
indication that investors are looking past the economy's current troubles to
better times ahead.
most popular stocks are in the technology sector. That's no surprise since tech
companies have great potential for growth.
Looking Good Too!
semiconductors control countless devices, their makers are having an especially
good year. The growth in personal computer sales is nearly double what was
forecasted. In addition PCs are using more powerful processors. Ditto for smart
phones that do everything from taking pictures to cooking breakfast.
is surprising about semiconductor companies is their stock prices are still
weak even though their earnings are exceeding expectations. That looks like a
buying opportunity to us.
Intel (INTC) looks particularly attractive. http://finance.yahoo.com/q/pr?s=INTC
The Company is best known for its central processors which power most of the
world's personal computers. Intel also supplies chips for a wide variety of
applications ranging from cellular telephones to the space shuttle.
Increasingly, the Company is becoming a leading supplier of communication
processors. Despite its recent gains, the stock still appears undervalued.
Intel currently yields 3.0%.
Bottom Line This Week
economic outlook continues to improve by fits and starts. Well-managed blue
chips are already feeling its effects and earnings are on an upturn. Dividend
hikes are also in the works. Nevertheless, many stocks remain attractive.
with excellent dividend histories look especially good right now. Standouts
include Heinz, Eli Lilly, and York Water. We also
recommend McDonald's, Johnson & Johnson, Coca-Cola, and Procter
stocks are also coming back into favor, especially technology issues.
Semiconductor companies look very good right now. In the group, we continue to
recommend Intel, the industry leader.
The AIA "Advocate For
Absolute Returns", a publication of The Association for Investor
Awareness, Inc., tracks market trends, industry news, the SEC, global trade and
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that's not enough. The AIA Advocate's job is to warn you of what's important
and how these developments translate to ground-level forces and threats that
directly affect your wealth as well as your current investment opportunities.
Not just information, but information you can use. Until next time...
Copyright 2010 The Association for Investor Awareness, Inc. All Rights Reserved
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02-25-2010 9:38 AM
Research & Editorial Staff