I have had it up to my eyeballs with the fiscal cliff. Not a second goes by that a talking head on any news channel, or a newspaper, or an article on any investment site, has something to scare the bejeebers out of regular individual investors with fiscal cliff blabbing.
I am going to say something that might rock a few boats and I can already see the heads shaking: dividend growth investors will NOT stop investing in dividend winning stocks, no matter what happens with the so called "fiscal cliff."
The fiscal cliff boils down to just a few things;
- Increasing the dividend income tax rate.
- Increasing the capital gains tax rate.
- Increasing the tax rate on higher earners.
- Ending the tax breaks that have been in affect during the last two administrations.
Let's not miss the forest from the trees here. We can get mired down with the details but the real bottom line for any investor reading this is if you are going to stop investing in dividend paying stocks no matter what happens.
The simple answer is NOPE.
- On January 1st dividend seeking investors will still need the income.
- On January 1st dividend paying companies will still be paying dividends.
- On January 1st the bills will need to be paid no matter what.
- On January 1st the affect of "cliff diving" will NOT be the death knell of dividend investors, dividend payers, and dividend seekers.
I would go as far as saying that the entire scenario, much like Y2K, will be one big non event. If anything, there could be some rather surprising developments.
- Investors selling out of fear making some really great stocks even cheaper.
- Companies afraid of a mass exodus of their stocks might INCREASE dividends to keep shareholders happy (including institutions).
- Special dividends from companies that have the cash could be a nice pop to keep shareholders happy and content.
- Investors will become even more discerning when buying shares of stocks for dividends, and might stop chasing yields and look for greater stability.
Most of this is not discussed very much, but when we look at the "Team Alpha" portfolio, we can see a nice mix of dividend winner stocks, dividend opportunity stocks and newcomers to the game.
Our Team Alpha portfolio consists of McDonald's (NYSE:MCD), Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), AT&T (NYSE:T), General Electric (NYSE:GE), BlackRock Kelso Capital (NASDAQ:BKCC), KKR Financial (KFN), Procter & Gamble (NYSE:PG), Intel (NASDAQ:INTC), Realty Income (NYSE:O), Coca-Cola (NYSE:KO), Linn Co, LLC (NASDAQ:LNCO), Wal-Mart (NYSE:WMT), Cisco (NASDAQ:CSCO), Bristol-Myers Squibb (NYSE:BMY), Healthcare Select Sector SPDR (NYSEARCA:XLV), and General Dynamics (NYSE:GD).
Right now the total yield based on our allocations is 4.62%. As of the last update the portfolio is up over 26%. The potential for dividend increases in 2013 for XOM, MCD, JNJ, T, GE, PG, WMT, O, BMY, GD, KO are just about lock tight certain, given each of their track records.
I would strongly suggest that each of you take another look at these stocks for your own portfolio. Buy the dips, add to the core. (Remember our mantra?)
There are hundreds of other stocks that make up dividend growth investors portfolios of course, and there are bargains galore. If the chatter of the dire fiscal cliff nonsense continues, there will be an even greater bargain for someone out there.
Once the fiscal cliff baloney is old news, investors will be in the same place, looking for solid companies, that pay dividends to own shares, with a good track record of continuing to pay them.
If I were looking to begin a portfolio right now, I would be looking at the very companies that we already embrace. They might not be in our portfolio here, but they might already be in yours.
Savvy dividend seeking investors will still be buying stocks and still be collecting the income. Will you be one of them or not?
The choice is yours.
Disclosure: I am long MCD, XOM, GE, JNJ, T, WMT, O, BKCC, KFN, XLV, CSCO, INTC, GD, KO, LNCO, BMY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.